T. Manikandan vs Commercial Tax Officer, Dindigul and Others

K.K. Sasidharan, J.—The petitioner challenges the proceedings dated September 28, 2010, whereby and whereunder the first respondent restrained the registration of the property belonging to M/s. Rockfort Spinning Mills Private Limited on account of the attachment made on July 30, 2004 to realize the sales tax arrears.

The petitioner seeks a further relief in W. P. (MD) No. 13843 of 2010 to set aside the proceedings dated November 18, 2010 on the file of the Sub-registrar, Vadamadurai in the district of Dindigul, whereby and whereunder the document presented by him for registration was refused on the ground of subsisting attachment.

The facts

The property owned by M/s. Rockfort Spinning Mills Private Limited and more particularly, the immovable property bearing Survey Nos. 453/1 to 6 and 454/2A to H, situated at Kulathur Village measuring an extent of 3.20 acres was purchased by the petitioner in a public auction conducted by the Tamil Nadu Industrial Investment Corporation Limited. The property was taken possession by the third respondent-Corporation invoking section 29 of the State Financial Corporations Act, 1951. Since the petitioner has paid the entire sale consideration, the third respondent has executed a sale deed on November 11, 2010 conveying the property to him. The said document was produced before the Sub-registrar on November 18, 2010 for registration. The Sub-registrar refused to register the document on the ground that the property has already been attached by the Commercial Tax Department. The said proceeding is challenged in W. P. (MD) No. 13843 of 2010. The order dated November 18, 2010 was on account of the earlier order of attachment made by the Commercial Tax Officer, Dindigul. The said order dated September 28, 2010 is the subject-matter in W. P. (MD) No. 13842 of 2010.

The Commercial Tax Officer, Dindigul, in his counter-affidavit, contended that M/s. Rockfort Spinning Mills Private Limited was an assessee under the Tamil Nadu General Sales Tax Act, 1959 and they were doing business in manufacture and sales of cotton yarn. The unit was in sales tax arrears to the tune of Rs. 34,21,865 for the assessment years from 1996-97 to 2003-04. Since no action was taken by the industry to pay the arrears, the immovable properties of the unit were attached by the Department on July 30, 2004. Notice has been served on the directors of the company. In the meantime, the Tamil Nadu Industrial Investment Corporation took steps to auction the property and as such, intimation was given to the Corporation about the pending attachment. According to the first respondent, the third respondent is well aware of the arrears of sales tax and as such, they are liable to pay the said amount.

The third respondent, in his counter-affidavit, contended that by invoking section 29 of the State Financial Corporations Act, 1951, they have taken possession of the mortgaged property on December 17, 2003. The property was subsequently sold in favour of the writ petitioner and as such, the Sub-registrar has to register the document.

Discussion

There is no dispute that the subject property originally belonged to M/s. Rockfort Spinning Mills Private Limited. The Tamil Nadu Industrial Investment Corporation Limited extended financial assistance to the said industry. Since the industry kept the loan instalments in arrears, the third respondent invoked section 29 of the State Financial Corporations Act, 1951 and possession was taken as early as on December 17, 2003. Therefore, the property stood vested in the Financial Corporation from December 17, 2003 onwards.

The industry was in arrears to the Sales Tax Department to the tune of Rs. 34,21,865. The Commercial Tax Department appears to have attached the property on July 30, 2004. It was only on the basis of the said attachment, the Sub-Registrar refused to register the property in favour of the petitioner.

The property, which was taken possession by the third respondent, was sold in public auction to the petitioner. Since the third respondent-Corporation took possession of the property by invoking section 29 of the State Financial Corporations Act, 1951, as early as on December 17, 2003, the question of attachment of the said property by the Commercial Tax Department does not arise.

The core issue to be decided in this writ petition is as to whether the Sales Tax Department can claim priority" of debt over others in regard to the arrears of tax due to the State.

It is trite that when the assets are secured assets and in case by invoking section 29 of the State Financial Corporations Act, 1951, the secured creditor takes possession of the property'', the principle of first charge/priority of State over the property will not be applicable.

The order of attachment made by the Commercial Tax Department invoking the provisions of the Revenue Recovery Act does not hold good, insofar as the property which was taken possession by the third respondent invoking section 29 of the State Financial Corporations Act, 1951 is concerned. Since the possession of the property'' has already been taken by the secured creditor, there is no question of attaching the said property'' by the Commercial Tax Department. The Sub-registrar was not justified in refusing to register the sale deed executed by the third respondent in favour of the petitioner. Therefore, I am of the view that the document produced by the petitioner dated November 11, 2010, duly executed by the third respondent, requires consideration by the second respondent, disregarding the order of attachment made by the first respondent.

Accordingly, the impugned orders dated September 28, 2010 and November 18, 2010 are set aside and the second respondent is directed to consider the document submitted by the petitioner dated November 11, 2010 on merits and as per law. Such exercise shall be completed within a period of four weeks from the date of receipt of a copy of this order.

In the upshot, I allow the writ petitions. Consequently, the connected miscellaneous petitions are closed. No costs.