Section 16-B Of Himachal Pradesh General Sales Tax Act Is Not Ultra Vires Any Provision Of Law: Supreme Court Reiterates

The Supreme Court has ruled that Section 16-B of the Himachal Pradesh General Sales Tax Act, 1968 (HPGST Act) is not ultra vires any provision of law. The bench comprising Justices S. Ravindra Bhat and Dipankar Datta set aside the judgment of the Himachal Pradesh High Court where it had held that Section 16-B of the HPGST Act was inconsistent with Section 35 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and was ultra vires the provisions of the Constitution of India.The court further remarked that the State cannot resort to the provisions of the Himachal Pradesh Land Revenue Act, 1954 (HPLR Act) for recovering sales tax dues as arrears of land revenue by creating a charge on the mortgaged property under Section 16-B of the HPGST Act, when proceedings under the HPLR Act were not initiated upon notice to the defaulters and the sum owed to the department had not been finally determined.The bench held that Section 16-B would be attracted only after determination of the liability and upon any sum becoming due and payable under the Act, and it is only thereafter that the State’s charge on the property, if any, would operate.Section 16-B of the HPGST Act provides that notwithstanding anything to the contrary contained in any law for the time being in force, any amount of tax and penalty including interest, if any, payable by a dealer or any other person under the HPGST Act, shall be a first charge on the property of the dealer or such other person.The Punjab National Bank (PNB) sanctioned a term loan to M/s Superrugs (India) Pvt, which was secured by a mortgage of its factory. After the loan account of the borrower became irregular, a recovery suit was instituted by PNB against the borrower and the guarantors. The same was later transferred to the Debts Recovery Tribunal (DRT). After only part payment was made by the borrower towards satisfaction of the consent decree, PNB initiated execution proceedings.During pendency of the proceedings, the Assistant Excise and Taxation Commissioner, District Solan, issued a notice for auction of the mortgaged property for recovery of arrears of sales tax, which was recoverable as arrears of land revenue under the HPLR Act.PNB filed an application before the Recovery Officer, DRT, seeking stay of the auction. The Recovery Officer concluded that the claim of PNB against the mortgaged property had become secondary in view of the auction initiated by the State for recovery of sales tax dues.Consequently, PNB filed a writ petition before the Himachal Pradesh High Court for restraining the sale by auction of the mortgaged property. It further claimed that Section 16-B of the HPGST Act was ultra vires the provisions of the Constitution, the DRT Act, the Transfer of Property Act, 1872, the Contract Act, 1872, and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and thus must be struck down.The Division Bench allowed PNB’s writ petition, holding that PNB was entitled to sell the mortgaged property of the borrower in accordance with law. The court further held that Section 16-B of the HPGST Act was inconsistent with Section 35 of the SARFAESI Act, and that it was ultra vires the Constitution and the Banking Companies Act.In an appeal filed against the decision of the High Court, the top court observed that the SLP filed by the State was rendered infructuous, partly in view of the fact that PNB, who was a contesting respondent before the court, had already recovered its dues and had released the property from its hypothecation, during the pendency of the writ petition before the High Court. The Supreme Court further held that the High Court had decided an infructuous writ petition and, in the process, had outlawed Section 16-B of the HPGST Act, when the same was not at all warranted. The bench observed that since the writ petition before the High Court had been rendered infructuous on the date it was decided, it was not necessary for the High Court to pronounce on the validity of Section 16-B. “A decision on the constitutional validity of a provision should be invited not in vacuum but when the justice of the case demands such a decision. Hence, we hold that the decision on an infructuous writ petition is inconsequential and can never be of any effect,” said the court.The court further added that the issue as to whether Section 16-B of the HPGST Act is ultra vires any provision of law, including the Constitution of India, is no longer res integra.The bench observed that in Central Bank of India vs State of Kerala, (2009) 4 SCC 94, it was held the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the SARFAESI Act cannot be read as creating first charge in favour of banks, etc. In the said case, the Supreme Court had held that the Parliament did not intend to give priority to the dues of private creditors over sovereign debt of the State. The Supreme Court...

Section 16-B Of Himachal Pradesh General Sales Tax Act Is Not Ultra Vires Any Provision Of Law: Supreme Court Reiterates

Parina Katyal

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