INDIA First Logistics Limited Thr. Its Authorized Representative vs. The State Of Maharashtra Thr. Its Secretary And Ors
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The petitioner, India First Logistics Limited, participated in an auction for property held by Punjab National Bank (PNB) on November 21, 2022, after conducting due diligence which revealed no encumbrances from Sales Tax or State Tax authorities. The petitioner emerged as the highest bidder for Rs. 1,19,82,500 and received a sale certificate on January 20, 2023, which was registered on March 29, 2023. Subsequently, when the petitioner applied for mutation, the Talathi recorded encumbrances of Sales Tax and State Tax authorities, despite the concluded DRT sale. The Deputy Commissioner of State Tax raised objections invoking Section 34 of the MVAT Act, 2002. The petitioner sought removal of these charges from the 7/12 extracts. The DRT, by an order dated July 20, 2023, directed the deletion of these encumbrances, holding that secured creditor dues have statutory priority. Despite this, the Talathi continued to retain the charge in the 'other rights' column of the 7/12 extract.
Held
The Court held that the Talathi was not justified in continuing to record the charge of the Sales Tax Department in the 'other rights' column of the 7/12 extract. The Court noted that the DRT had passed a categorical order directing the removal of all charges from the revenue records and the registration of the petitioner's name without encumbrances. This order was not challenged. The Court further observed that the Tahsildar, by an order dated September 1, 2023, had rejected the complaint of the Deputy Commissioner-Sales Tax Department, holding that the sale deed was properly registered and that any reliefs sought by the Sales Tax Department would have to be pursued through a civil court of competent jurisdiction. The Court emphasized that the Talathi's action was impermissible given the DRT's binding directions and the Tahsildar's order. The Court allowed the petition, subject to any orders that may be passed by competent courts, and noted the State's intention to challenge the DRT's order.
Key Issues
1. Whether the Talathi was justified in recording the charge of the Sales Tax and State Tax Department in the 'other rights' column of the 7/12 extract of the petitioner's land, despite a concluded auction sale and a DRT order directing the removal of such charges? Petitioner's contention: The petitioner argued that the DRT's order dated July 20, 2023, which directed the removal of Sales Tax and State Tax encumbrances, had attained finality as it was not challenged. They contended that the Talathi was bound by this order and was not justified in retaining the charge. The petitioner relied on the DRT's finding that secured creditor dues have statutory priority over government dues and that these dues cannot bind an auction purchaser. They also pointed to the Tahsildar's order dated September 1, 2023, which rejected the Sales Tax Department's complaint and stated that any reliefs must be sought from a civil court. Revenue/State's contention: The State contended that the petitioner purchased property attached by the Sales Tax Department. They argued that communications regarding recovery proceedings against defaulter companies were served to PNB, and PNB acknowledged them. The property of the defaulter company (M/s. Jai Mahalaxmi Ispat (I) Pvt. Ltd.) was attached by the Sales Tax Department, and the mutation entry was recorded to safeguard government revenue. The State indicated an intention to challenge the DRT's order.
Sections Cited
Section 34 of the Maharashtra Value Added Tax Act, 2002, Section 150(2) of the Maharashtra Land Revenue Code, 1966
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Cause title — parties, addresses and appearances
ORAL JUDGMENT : (PER : M.S.KARNIK, J.)
Heard learned counsel for the Petitioner.
The petitioner, by this petition, filed under Article 226 of the Constitution of India, has prayed for the following substantive reliefs:- Satish Sangar 2/12
2-WP-16135-2023.doc “(a) That this Hon’ble Court be pleased to issue a direction in the form of a Writ of Mandamus or any other Writ in the nature of Mandamus thereby directing Talathi of Village Vasuri- Khurd, Taluka Wada, District Palghar to remove the entries of the encumbrance of and the names of the Respondent No.7 to 10 from the 7/12 extracts of the property being Gat No.7/4/1 and Gat No.7/4/3 of Village Vasuri-Khurd, Taluka Wada, District : Palghar and clear all charges / liens on the said land of any date prior to 21.11.2022 being the date of Auction. (b) That this Hon’ble Court be pleased to direct Respondent No.7 to 10 being the Deputy Commissioner of State Tax, Maharashtra and the Commissioner of Sales Tax, and the Maharashtra State Finance Corporation or any other respondent or any other party to refrain from initiating any proceedings for recovery of sales tax or State Tax or GST dues of M/s Jay Laxmi Ispat (India) Pvt. Ltd. and Maa Chintapurni Iron and Steels Ltd. u/s 34 of the Maharashtra Value Added Tax Act, 2002 or any other Act for the time being in force, from the said land being land situated at Plot Nos. 1 and 3 admeasuring 8600 Sq.ft. near Blue Star, Village Vasuri-Khurd, Taluka Wada, District : Palghar whereby Plot No.1 admeasuring 6600 Sq.Mtrs. and Plot No.3 admeasured 2000 Sq.Mtrs bearing Survey Nos.48/1/1(Pt)+48/1/2(pt) +7(pt)+48/1/3(pt),48/2(pt)+69+68 at Village Vasuri Khurd, Tal Wada Dist. Palghar.”
During the course of the arguments, learned Senior Advocate Satish Sangar 3/12
2-WP-16135-2023.doc appearing for the petitioner, on instructions, submitted that for the present, the petitioner would be pursuing for relief in terms of prayer clause (a). So far as prayer clause (b) is concerned, it is submitted that the petitioner do not intend to press the same at this stage, considering that no Appeal has been preferred against the order dated 17th June 2023 passed by the Debts Recovery Tribunal III Mumbai (“DRT-III- Mumbai”) in R.P.No.308 of 2019 in O.A.No.407 of 2016. The Senior Advocate submitted that the petitioner’s purpose is served in view of the order dated 17th June 2023 passed by the DRT-III-Mumbai which is not challenged. It was submitted that in the event the Appeal is filed by the Sales Tax Department against the order dated 17th June 2023, the petitioner be granted liberty to file appropriate proceedings for the reliefs claimed in terms of prayer clause (b). We, therefore, consider the present petition to the extent of prayer clause (a). Liberty to the Petitioner to pursue the relief in terms of prayer clause (b) at a later stage is kept open in the event an Appeal is filed challenging the order dated 17th June 2023 passed by the DRT-III-Mumbai in R.P.No.308 of 2019 in O.A.No.407 of 2016. All contentions so far as prayer clause (b) are kept open to be agitated in appropriate proceedings before the appropriate forum. Satish Sangar 4/12
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Brief facts of the Petition are:- (i) Punjab National Bank initiated recovery proceedings before the DRT-III-Mumbai under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Upon adjudication, the DRT issued a Recovery Certificate dated 12th December 2019 for an amount of approximately Rs.64.72 crores against the borrower entities. (ii) The Recovery Officer issued a proclamation of sale dated 14th October 2022. The proclamation invited disclosure of encumbrances, if any, on the secured assets. Necessary publications were made in newspapers also. (iii) In 2022, prior to the auction, the petitioner conducted due diligence by inspecting the title documents and 7/12 extracts supplied by the secured creditor bank, which disclosed no charge of the Sales Tax or State Tax Authorities. The petitioner also verified the CERSAI portal which reflected only the registered mortgage in favour of the bank. (iv) The petitioner participated in the auction held on 21st November 2022 after depositing the earnest money and emerged as the highest bidder for a consideration of Rs.1,19,82,500/- (Rupees One Crore Nineteen Lakh Eighty Two Thousand Five Hundred) which was paid in full. The Punjab National Bank furnished an undertaking before the DRT confirming delivery of the property. (v) The DRT confirmed the sale and issued a sale certificate in favour of the Petitioner on 20th January 2023 and also Satish Sangar 5/12
2-WP-16135-2023.doc addressed a letter to the Sub-Registrar of Assurances directing registration of the sale certificate. The sale certificate was thereafter registered on 29th March 2023. (vi) When the petitioner applied for mutation, the Talathi recorded Mutation Entry No.846 reflecting encumbrances of the Sales Tax, State Tax Authorities, and MSFC, despite the concluded DRT sale. The Talathi also issued notice to the DRT under Section 150(2) of the Maharashtra Land Revenue Code, 1966 (henceforth, referred to as “the MLR Code, 1966”). (vii) The Deputy Commissioner of State Tax raised objections invoking Section 34 of the Maharashtra Value Added Tax Act, 2002 (for short, “the MVAT Act, 2002”) which was forwarded to the Tahsildar without any notice to the petitioner. Aggrieved thereby, the Petitioner filed an Interim Application No.108 of 2023 before the DRT seeking removal of the said charges. (viii) By the detailed order dated 20th July 2023, the DRT directed deletion of the Sales Tax and State Tax encumbrances from 7/12 extract, holding that secured creditor dues have statutory priority and government dues cannot bind the auction purchaser. The order dated 20th July 2023, according to the Petitioner, has attained finality. (ix) Despite the DRT’s binding directions, the Deputy Commissioner of State Tax filed Complaint No.16 of 2023 before the Tahsildar–Wada under Section 150(4) of the MLR Satish Sangar 6/12
2-WP-16135-2023.doc Code, 1966, inter alia seeking that charge of the Department of Sales Tax and State Tax be retained on the said land. This complaint was dismissed vide order dated 1st September 2023. The grounds for rejecting the complaint was that the sale is conducted by following due process, and that the dispute, if any, should be filed before the Civil Court. Despite these orders, the Talathi has still retained the encumbrances in Mutation Entry No.846. The present Petition is, therefore, filed.
It is the contention of learned Senior Advocate that the recovery proceedings under The Recovery of Debts and Bankruptcy Act, 1993 (For short, “the RDB Act, 1993”) take precedence over recovery of tax dues under general statutes. The respondents’ attempt to assert priority over the auctioned property is contrary to settled law. Their claims, if any, must be pursued independently against the defaulting entities.
It is submitted that the DRT, thereafter, passed a categorical order directing removal of all charges from the revenue records and registration of the petitioner’s name without encumbrances. Learned Senior Advocate submitted that despite the said binding directions from the DRT, the Talathi failed to comply. The objections of the Sales Tax and State Tax Authorities to the DRT order were dismissed, and the order has attained finality. It is submitted that the plea of Satish Sangar 7/12
2-WP-16135-2023.doc ‘constructive notice’ raised by the respondents is misconceived and untenable. The alleged statutory charge was admittedly never registered with CERSAI, despite the respondents having ample opportunity to do so well before the auction. In absence of registration and disclosure, the ‘constructive notice’ could not be imputed to the petitioner.
It is further submitted that the petitioner is a bonafide third party purchaser who cannot be saddled with liabilities arising out of the prior defaults of Respondent Nos.5 and 6. The respondents have remedies available against the defaulting dealers and their other properties. The present proceedings concern only the subject property lawfully purchased through DRT auction.
As indicated earlier, though detailed submissions have been advanced by learned Senior Advocate, we are confining our decision only so far as prayer clause (a) is concerned, in view of the liberty granted to the petitioner to pursue prayer clause (b) at later stage, if situation so arises.
Learned Additional Government Pleader, on the other hand, invited our attention to the Affidavit-in-Reply filed on behalf of the respondents. Learned Addl.G.P. in addition to what has been stated in Satish Sangar 8/12
2-WP-16135-2023.doc the Affidavit-in-Reply, made the following submissions:- (a) The petitioner i.e. M/s.India First Logistic Limited is a purchaser of property (which is attached by Sales Tax Department vide Form 4 under MLR Code, 1966). The said property is sold by the Hon’ble Debt Recovery Tribunal III (DRT III), under the proceedings registered by the Punjab National Bank vide Original Application No.407 of 2016 through auction on 21st November 2022. (b) The respondent No.4 is the Punjab National Bank to whom various communications regarding recovery proceedings in case of defaulter companies were served time to time by Sales Tax / State Tax Department. PNB has also acknowledged the same. (c) The respondent No.5 in this Writ Petition is defaulter company M/s. Jai Mahalaxmi Ispat (I) Pvt. Ltd. which was registered under MVAT Act and CST Act with TIN No.27550343268V/C. The property of this defaulter company at Gut No.7/4/3 in Village Vasuri Khurd, Taluka Wada, District Palghar, 421303 is attached by Sales Tax Department vide Form 4 under MLR Code, 1966. Mutation Entry is recorded to safeguard Government revenue. (d) The respondent Nos.8 and 9 in this Writ Petition i.e.DC- PAL-VAT-E-005 (Tarapur_503) are nodal officers of the above M/s.Jai Mahalaxmi Ispat (I) Pvt. Ltd. (Respondent Nos.5 and 6).
Heard learned Senior Advocate and learned Addl.G.P. Satish Sangar 9/12
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Since the challenge in this petition is now confined to prayer clause (a), it is pertinent to note and it is not in dispute that the petitioners have purchased the property pursuant to auction sale. The property in question was mortgaged with the Punjab National Bank. The DRT has passed a categorical order directing removal of all charges from the Revenue Records and registration of the petitioner’s name without encumbrances. This order is not challenged. It was, therefore, necessary to give effect to the order of the competent forum in its letter and spirit.
The petitioners made an Application to enter their name in the Revenue Records. The Department of Sales Tax and the State Tax Authorities filed complaints / objections regarding Mutation Entry No.846. The complaint came to be rejected by an order dated 1st September 2023 by the Tahsildar–Wada on the ground that the sale deed was properly registered and there was no intention or order directing imposition of such charge on the said land. The Mutation Entry No.846 was confirmed. The order of Tahsildar–Wada was never challenged by the Sales Tax Department or the State Tax Department. Despite the specific order of Tahsildar–Wada, the Circle Officer, Wada while certifying the 7/12 extract of the land belonging to the petitioner Satish Sangar 10/12
2-WP-16135-2023.doc continued to retain the charge of State Tax and Sales Tax Department in ‘other rights’ column. The petitioner is aggrieved by this.
It is pertinent to mention that the DRT–Mumbai by the letter dated 20th July 2023 addressed to the Talathi–Wada, Palghar District in O.A.No.407 of 2016, in no uncertain terms directed the Talathi to remove the charge of the Sales Tax and State Tax Department from 7/12 extract of the petitioner’s land. The petitioner is an auction purchaser and there is valid sale certificate in favour of the petitioner. The DRT having confirmed the auction sale and further having addressed the communication to the Talathi–Wada to remove the charge of the Sales Tax and State Tax Department from the 7/12 extract of the land in question, in our opinion, the Talathi was then not justified in recording the charge of the Sales Tax Department in the ‘other rights’ column. There is no challenge to the order passed by the DRT in O.A.No.407 of 2016 or for that matter, the order passed by the Tahsildar–Wada. As can be seen from the finding of the Tahsildar– Wada in the order dated 1st September 2023, it has clearly been recorded that in terms of the registered sale-deed, the parties have executed the registered sale deed before the Deputy Registrar–Wada and hence, sale certificate is duly registered in accordance with law. The Satish Sangar 11/12
2-WP-16135-2023.doc Tahsildar has clearly held that the complaint made by the Deputy Commissioner–Sales Tax Department is rejected by observing that if at all the the Sales Tax Department is to seek necessary reliefs, the same has to be by approaching the Civil Court of competent juri iction. It is further observed that the decision of the Civil Competent Court will be binding on the parties. In such view of the matter, it is impermissible for the Talathi to continue the charge of the Sales Tax Department in the ‘other rights’ column. The petition must succeed. This is, however, subject to orders that may be passed by the Courts of competent juri iction.
Learned Addl.G.P. submitted that the Sales Tax Department intends to challenge the order of the DRT in R.P.No.308 of 2019 in O.A.No.407 of 2016 before the appropriate forum. It is made clear that the revenue entry in favour of the petitioner based on this order is subject to the orders that may be passed by the Court of competent juri iction. The Writ Petition is, therefore, allowed in terms of prayer clause (a). (S. M. MODAK, J.)
(M. S. KARNIK, J.) Satish Sangar 12/12
Reproduced from the public record of the Bombay High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.