Dismissed

The Commissioner of Service Tax I Now shifted as The commissioner of Service Tax v. versus SBI and Ors.

DRAT14 Mar 2024REGULAR APPEAL/196/2018

Case brief

AI extract

What is this about?

The Debt Recovery Appellate Tribunal dismissed the Commissioner of Service Tax's appeal challenging the DRT order granting priority to secured creditors of banks. The Tribunal held that under Section 31B of the RDB Act, 1993, secured creditors' rights take precedence over all government dues, including the first charge of the Central Government under Section 88 of the Finance Act, 1994.

What did the court decide?

The appeal filed by the Commissioner of Service Tax is dismissed. Parties bear their own costs.

The Commissioner of Service Tax I Now shifted as The… — Banking and Recovery | DRAT (2024)

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R.A:196/2018

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IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI

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Dated the 14^th of March, 2024

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PRESENT: Hon’ble Mr. Justice S. Ravi Kumar

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CHAIRPERSON

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R.A:196/2018

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(OA 766/2013 on the file of DRT, Bangalore)

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Between

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The Commissioner of Service Tax-1, Central Excise Building, M.K. Road, Church Gate, Mumbai – 400 020

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Now it has been shifted as :

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The Commissioner of Service Tax-V, 4^th Floor, Utpadshulk Bhawan, Plot No. C-24, Sector – E, Bandra Kurla Complex, Bandra (East), Mumbai – 400 051.

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Now:

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The Pr. Commissioner of CGST & CX Mumbai East Commissionerate, 9^th Floor Lotus Info Centre, Near Parel Station, Parel (East), Mumbai – 400 012.

… Appellant

R.A:196/2018

AND

State Bank of India,

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A Banking Corporation constituted under the State Bank of India Act, 1955 (23 of 1955),

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Having its Corporate Centre at State Bank of Bhawan, Madame Cama Road, Nariman Point, Mumbai – 400 021.

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And having its Industrial Finance Branch at 61, Residency Plaza, Residency Road, Bengaluru – 580 025

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AXIS BANK OF INDIA(Deleted As per Order Dated13.06.2016)

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Bank of Baroda

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A body Corporate under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970 (5 of 1970) Having head Office at Baroda House, P.B. No. 506 Mandavi, Vadodara – 396 006 Acting through it branch office. At P.O Box 11745, Samata Building, General Bhosale Marg, Nariman Point, Mumbai – 400 021.

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Bank of India (Deleted As per Order Dated : 13.06.2016)

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Central Bank of India(Deleted As per Order Dated: 13.06.2016)

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R.A:196/2018

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Corporation Bank,

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A body Corporate under Banking Companies (Acquisition and Transfer of Undertaking) Act 1980. (40 of 1980) having its Corporate Office at Mangaladevi Temple Road, Pandeshwar, Mangalore – 575 001, And having its Industrial Finance Branch, at Rallaram Memorial Building, 1^st Floor, CSI Compound Mission Road, Bengaluru – 560 027.

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The Federal Bank Limited,

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A Company within the meaning of the Companies Act, 1956, Having its registered office at Federal Towers, Aluva – 683 101, Kerala

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And having its Branch office at St. Marks Road, 9, Haleyon Complex, St. Marks Road, Bangalore – 560 001.

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IDBI Bank Limited, A company incorporated Under the Companies Act, 1956 and a Banking Company within the meaning of the Banking Regulation Act, 1949 having its head office at IDBI Tower, WTC Complex, Cuffe Parade, Mumbai -400 005 Maharashtra, India.

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And acting through its branch office at Corporate Banking Group –FAMG, 9^th Floor, IDBI Tower, WTC Complex, Cuffe Parade Colaba, Mumbai – 400 005.

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R.A:196/2018

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Indian Overseas Bank, a body Corporate under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970, Having its Central Office at 763, Anna Salai Chennai – 600 002

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And its Branch office at: “ Harikripa”, 26-A, S.V. Road, Santacruz (W) Mumbai – 400 054.

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Jammu & Kashmir Bank Limited, a banking company incorporated under the provisions of the Jammu & Kashmir Companies, Act No. XI of 1977 (Samvat), Having its registered office at Corporate Headquarter, Maulana Azad Road, Srinagar, Kashmir – 190 001.

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And its Branch Office at Syed House, 124 S.V. Savarkar Marg, Mahim (West), Mumbai – 400 016.

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Punjab & Sind Bank, a body Corporate under Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980 having its Head Office at 21, Rajendra Place, New Delhi - 110 008.

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And having amongst others, a branch office at J.K. Somani Building, British Hotel Lane, Fort, Mumbai – 400 023.

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R.A:196/2018

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Punjab National Bank A body corporate under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970 (5 of 1970) Having its Head Office at 7, Bhikaji Cama Place, New Delhi – 110 607 Acting through its Large Corporate Branch At Centenary Building, 28, M.G. Road, Bengaluru – 560 001.

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State Bank of Mysore, A body Corporate constituted Under the State Bank of India, (Subsidiary Banks) Act, 1959 having its Head Office at Kempe Gowda Road Bengaluru – 560 009.

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And its Corporate Accounts Branch, At No. 18, Ramanashree Arcade, M.G. Road, Bangalore – 560 001

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UCO Bank A body corporate constituted Under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970 and having its head office at 10 BTM Sarani, Kolkata – 700 001 West Bengal, India

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And its branch office at: 1^st Floor, 13/22, K.G. Road, Bangaluru – 560 009.

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R.A:196/2018

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United Bank of India A body corporate under the Banking Companies (Acquisition & Transfer of Undertaking Act, 1970 ( 5 of 1970) and having its head office at 11, Hemanta Basu Sarani, Kolkata – 700 001.

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Acting through its branch Office at 40, K.G. Road, Bengaluru – 560 009.

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JM Financial Asset Reconstruction Co. Pvt. Ltd. Having its registered office at 7^th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai – 400 025.

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Kingfisher Airlines Limited, A Public Limited Company, Incorporated under the Companies Act, 1956 And having its registered office at UB Tower, Level 12 UB City, 24, Vittal Mallya Road, Bangalore – 560 001.

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United Breweries (Holdings) Limited, A Public Company Incorporate under The Companies Act, 1956 and having its registered office at UB Tower, Level 12, UB City, 24, Vittal Mallya Road, Bengaluru – 560 001. Karnataka , India.

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R.A:196/2018

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DR. Vijay Mallya, Son of Late Sri Vittal Mallya and Residing at 3, Vittal Mallya Road, Bengaluru – 560 001 Karnataka, India.

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Kingfisher Finvest (India) Ltd. UB Tower, Level 12, UB City, 24, Vittal Mallya Road, Bengaluru – 560 001

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SBICAP Trustee Company Ltd. No. 8, 5^th Floor, Khetan Bhavan, 198, Jamshedji Tata Road, Churchgate, Mumbai – 400 020.

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Diageo Holding Netherlands B.V. Molenwerf 12, 1014 BG Amsterdam, The Netherlands

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Unit Trust of India Investment Advisory Services Limited, Unit No.2, Block B, 1^st Floor, JVPD Scheme Gulmohar Cross Road No. 9, Andheri (West) Mumbai – 400 049

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24. Standard Chartered Ba 1 Basinghall Avenue, London.	nk, ….. Respondents
Counsel for Appellant	: M/s. A.P. Srinivas
Counsel for R1, R3, R6 to R16	: M/s. B. Dhanraj
Counsel for R21	: Mr. K. Mohandas
Counsel for R23 and 24	: Mr. Vinodh Kumar

R.A:196/2018

ORDER

This Appeal is against Order dated 19.01.2017 of DRT, Bangalore, in OA 766/2013.

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Brief facts leading to this Appeal are as follows:-

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Respondents 1 to 16, which are Banks/Financial Institution, as consortium of Banks, filed above referred OA for recovery of a sum of Rs.6203,35,03,879.42p, due from Respondents 17 to 20 herein ( who are Defendants 1 to 4 in OA) as on 31.05.2013, with future interest;

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In the said OA, Appellant herein filed IA 2318/2014 contending that it has first charge over the mortgaged/hypothecated properties as per Section 88 of Finance Act, 1994. Said Application was allowed, pursuant to which, Appellant is impleaded as Defendant No.6 in the OA and filed its Written Statement, contending that an amount of Rs.58.17 Crores is due from Respondent No.17

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R.A:196/2018

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herein, as Service Tax that was collected from customers, and as per Section 88 of Finance Act, 1994, Appellant has the first charge over properties;

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Defendants 1 to 4 filed Written Statement disputing the claim;

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Tribunal below, on the basis of pleadings, framed 14 points for consideration, and out of 14 points, point No.14, is in respect of contention of Appellant herein. Tribunal below held that as per Section 31B of Recovery of Debts and Bankruptcy Act, 1993 (in short, RDB Act), the contention of Appellant herein is not correct and held the point against Appellant herein. Aggrieved by that finding, present Appeal is preferred.

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3. Advocate for Appellant and Advocate for Banks representing R1, R3, R6 to R16, filed Written Arguments and Advocate for R21 adopted the Written Arguments filed

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R.A:196/2018

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by R1 and the contents of Written Arguments are reiterated

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at the time of oral submissions.

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4. Advocate for Appellant submitted that Appellant is having first charge as per Section 88 of Finance Act, 1994, as per which, Appellant has attached the Kingfisher House, Mumbai, 6 Aircrafts, 2 Helicopters and frozen the Bank accounts of M/s. Kingfisher Airlines Ltd., as per Order dated 18.12.2014. He submitted, when Appellant is having first charge, mere priority given under Section 31B of RDB Act, 1993, cannot override the right of Appellant given under Finance Act, 1994. He submitted, Tribunal below has not correctly considered the legal provisions. He further submitted that Tribunal below proceeded on misreading and mi-interpretation of Section 31B of RDB Act, 1993, in comparison with Section 88 of Finance Act, 1994, therefore, impugned Order is untenable. He submitted, as Appellant has statutory first charge, the findings of Tribunal below are to be set aside and Appeal has to be allowed.

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R.A:196/2018

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5. On the other hand, Advocate for Banks submitted that

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as against the attachment Order of Appellant, Banks preferred Writ Petition before Hon’ble High Court of Karnataka, and in that Writ Petition, in view of undertaking given by Banks, Hon’ble High Court, permitted Banks to take steps to sell secured properties, in accordance with law, and retain and utilize sale proceeds subject to undertaking. He submitted, DRT correctly appreciated law and arrived at a just conclusion by relying on Section 31B of RDB Act, 1993, which came into force from 12.08.2016. He submitted, a bare reading of Section 31B of RDB Act, 1993, makes it clear that, the rights of Secured Creditors over the secured asset will have precedence over all Government dues including taxes. He submitted, even Section 88 of Finance Act, 1994, would indicate that the Government will have first charge on the property of Assessee, but subject to an exception in respect of rights/action created/taken under RDB Act, 1993, therefore, Secured Creditor enforcing its right under RDB Act, 1993, has priority over the claim of

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Appellant. He submitted that Tribunal below rightly

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negatived the contentions of Appellant, and there are no

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grounds to interfere with the Order of Tribunal below.

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6. I have perused the material papers including impugned Order dated 19.01.2017.

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7. It may be relevant to examine the provisions relied on by Advocate for Appellant and Advocate for Respondents. They are as follows:-

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Section 88 of Finance Act, 1994 :- Liability under Act to be first charge. — Notwithstanding anything to the contrary contained in any Central Act or State Act, any amount of tax, penalty, interest, or any other sum payable by an assessee or any other person under this Chapter, shall, save as otherwise provided in section 529A of the Companies Act, 1956 (1 of 1956) and the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 (51 of 1993) and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 (54 of 32 2002), be the first charge on the property of the assessee or the person as the case may be.

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R.A:196/2018

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Section 31B of RBD Act, 1993: [31B. Priority to secured creditors.-- Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority.

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Explanation.-- For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.]

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8. As already referred to above, main contention of

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Appellant is that it has got first charge over the assets of Borrowers as per Section 88 of Finance Act, 1994. While dealing with this contention, Tribunal below examined the

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provisions of Section 88 of Finance Act, 1994, and

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R.A:196/2018

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provisions of Section 31B of RDB Act, 1993. It is not in dispute that Section 31B of RDB Act, 1993, makes it very clear that rights of Secured Creditors over the secured assets will have precedence over all Government dues including taxes. This provision has come into force in 2016, and the provision under which Appellant relies on, is of the year, 1994, therefore, Section 31B of RDB Act, 1993, would override the provision relied on by Appellant. In other words, Section 31B of RDB Act, 1993, clarifies that the rights of Secured Creditors will have precedence over all Government dues including taxes, and it prevails over Section 88 of Finance Act, 1994.

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9. As rightly pointed out by Advocate for Banks, even the liability under Section 88 of Finance Act, 1994 is subject to the provisions of Section 529A of Companies Act, 1956, provisions of RDB Act, 1993 and provisions of SARFAESI Act, 2002. So, the contention of Advocate for Banks that

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Section 88 of Finance Act, 1994, creates an exception in

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respect of action taken under RBD Act, 1993, has to be accepted.

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10. On a scrutiny of provisions referred to above, I am of the considered view that the Tribunal below has rightly applied Section 31B of RDB Act, 1993 and recorded a

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finding, and there are absolutely no grounds to interfere with said finding.

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11. In view of my foregoing observations and discussions,

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it is held that the Appeal is devoid of merits and liable to be dismissed.

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12. In the result , the Appeal in R .A:196/2018 is dismissed.

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Parties shall bear their own costs. All pending IAs, if any, stand closed.

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[Dictated to Athistamani, PS transcribed by her, corrected, signed and pronounced by me in open court, this 14^th of March, 2024]

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[ Justice S. Ravi Kumar]

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CHAIRPERSON

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The Commissioner of Service Tax I Now shifted as The commissioner of Service Tax v. versus SBI and Ors.

Case brief

What is this about?

What did the court decide?

The Commissioner of Service Tax I Now shifted as The commissioner of Service Tax v. versus SBI and Ors.

Case brief

What is this about?

What did the court decide?

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