Disposed

The Principal Commissioner of Central Tax & Central Excise v. the Chief Manager, Federal Bank

Kerala HC11 Apr 2024WP(C)/12191/2018

Case brief

AI extract

What is this about?

The revenue sought directions to recover service tax arrears from a borrower's mortgaged property through the secured bank. Holding that Section 26E SARFAESI gives the bank priority over excise dues, the court disposed of the petition directing notice to the revenue on sale and transfer of any residuary amount per Rule 9(7).

What did the court decide?

Declared Federal Bank's first charge under S.26E SARFAESI; directions to intimate sale notices to petitioner and transfer residuary sale proceeds per Rule 9(7) after adjusting bank's dues.

The Principal Commissioner of Central Tax & Central… — Banking and Recovery | Kerala HC (2024)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR. JUSTICE EASWARAN S.

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THURSDAY, THE 11^TH DAY OF APRIL 2024 / 22ND CHAITHRA, 1946

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WP(C) NO. 12191 OF 2018

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PETITIONER/S:

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THE PRINCIPAL COMMISSIONER OF CENTRAL TAX & CENTRAL EXCISE, C.R BUILDING, I.S PRESS ROAD, KOCHI - 682017.

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BY ADV SMT.SHEELA DEVI.I., SC, CENTRAL BOARD OF EXCISE AND CUSTOMS

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RESPONDENT/S:

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1 THE CHIEF MANAGER, FEDERAL BANK, OPP.MAHARAJA COLLEGE GROUND, M.G. ROAD, ERNAKULAM, KOCHI - 682018. 2 INDIA VISION SATELLITE COMMUNICATION LTD. 32/1787, 6TH FLOOR, TUTUS TOWER, PALARIVATTOM, N.H.BYE PASS, KOCHI-682024.

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BY ADVS. MOHAN JACOB GEORGE B.M.AJITH A.K.GOPALAN NIGI GEORGE P.V.PARVATHY (P-41) REENA THOMAS

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SRI.MOHAN JACOB GEORGE,S.C., FOR R1

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THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 11.04.2024, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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W.P. (C) No.12191 of 2018

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EASWARAN S. , J.

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W.P. (C) No.12191 of 2018

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Dated this the 11th day of April 2024

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JUDGMENT

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The present Writ Petition is filed by the Principal Commissioner of Central Tax & Central Excise, for a direction to the 2nd respondent to clear the Service Tax arrears to the petitioner with immediate effect and also for a direction to the 1st respondent to clear the Service Tax after appropriating the amount.

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The contention of the petitioner is that, in terms of the Section 87(b)(i) of Chapter V of the Finance Act, 1994, the Central Excise Officer may, by notice in writing, require any other person from whom money is due or may become due to such person, or who holds or may subsequently hold money for or on account of such person, to pay to the credit of Central Government either forthwith upon the money becoming due or being held or at or within the time specified in the notice. Based

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W.P. (C) No.12191 of 2018 3

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on the aforesaid provision, the learned counsel for the petitioner contended that the 2nd respondent, who is having liability with the 1st respondent bank and has mortgaged the property, in the event, the 1st respondent enforces the security, it is bound to pay the petitioner the amount due under the Service Tax.

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I have heard, Smt. I. Sheela Devi, the learned Counsel appearing for the petitioner and Shri. Mohan Jacob George, the learned Counsel appearing for the 1st respondent.

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The learned counsel appearing for the petitioner reiterated the contentions raised in the writ petition and submitted that this is the only manner in which the petitioner could enforce the claim against the 1st respondent.

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On the other hand, Shri. Mohan Jacob George, learned Counsel for the 1st respondent, would rely on the judgment of the Hon’ble Apex Court in Punjab National Bank Vs. Union Bank of India (UOI) and Ors. (2022 Vol. 7 SCC 260) and it is contended that that in the light of Section 26E of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the

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W.P. (C) No.12191 of 2018 4

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Securitisation Act), the Secured Creditor has got a priority and they are entitled to enforce the Security interest over the property.

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I have considered the rival submissions raised across the Bar.

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On a perusal of Section 26E of the Secularization Act, vis-a-vis Section 87 of the Finance Act, 1994, this Court finds that the priority for the sale of the secured assets is definitely with the 1st respondent Federal Bank. Still further the Hon’ble Supreme Court in Punjab National Bank (supra) has specifically held that the provisions of the Secularization Act will have priority over the dues of the Central Excise Department. Applying the principles laid down by the Hon’ble Supreme Court on to the facts of this case, this Court finds that the liability of the 2nd respondent to pay the Service Tax can never be construed as a first charge of the property. However, the issue does not end in terms of the Rule 9(7) of the Security Interest Enforcement Rules, which states that "where the immovable property sold is subject to any encumbrances, the authorized officer may, if he thinks fit, allow the purchaser to deposit with him the money

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W.P. (C) No.12191 of 2018 5

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required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him."

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At this point of time, this Court is not in a position to ascertain as to whether a direction could be specifically issued to the Federal Bank to transmit such amount consequent to the sale of the secured assets which is yet to take place.

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In the above circumstances, this writ petition is disposed of with the following directions:

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(a) It is declared that the charge over the secured

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asset will be definitely with the 1st respondent/Federal Bank in terms of Section 26E of the Securitisation Act.

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(b) In the event of the property being successfully put for sale/auction, for the recovery of the dues of the 2nd respondent, the 1st respondent shall immediately intimate the issuance of the sale notice to the petitioner /Principal Commissioner of Central

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W.P. (C) No.12191 of 2018 6

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Tax and Central Excise Officer.

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(c) In the event of the successful enforcement of the security interest and the 1st respondent having any residuary amount lying with him, he may intimate the same to the petitioner, who shall then make a request to the 1st respondent for transfer of the said amount.

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(d) In the event such a request is made, the 1st respondent shall act in terms of Rule 9(7) of the Security Interest Enforcement Rules and transfer the said amount after adjusting the dues of the secured creditor.

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With the above directions, this writ petition is disposed of. No order as to costs.

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Sd/-

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EASWARAN S. JUDGE

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W.P. (C) No.12191 of 2018 7

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APPENDIX OF WP(C) 12191/2018

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PETITIONER EXHIBITS

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EXHIBIT P1. TRUE COPY OF THE ORDER-IN-ORIGINAL NO.02/2013/ST DATED 23.01.2013 ISSUED BY THE PETITONER TO THE 2^ND RESPONDENT EXHIBIT P2. TRUE COPY OF THE ORDER-IN-ORIGINAL NO.22/2013/ST DATED 07.03.2013 ISSUED BY THE PETITONER TO THE 2^ND RESPONDENT EXHIBIT P3. TRUE COPY OF THE NOTICE C.NI.IV/16/11/2014-ST-MISC/82 DATED 12.01.2015 ISSUED TO THE 2^ND RESPODNENT BY THE ASSISTANT COMMISSION OF CENTRAL EXCISE, KALOOR, KOCHI-682017 EXHIBIT P4. TRUE COPY OF LETTER C NO.IV/16/11/2014ST MISC PT II DATED 16.12.2016 ISSUED TO THE PETITINER BY THE ASSISTANT COMMISSION OF CENTRAL EXCISE, KALOOR, KOCHI-682107

The Principal Commissioner of Central Tax & Central Excise v. the Chief Manager, Federal Bank

Case brief

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The Principal Commissioner of Central Tax & Central Excise v. the Chief Manager, Federal Bank

Case brief

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