State Bank of India v. State of Bihar — 1997 DIGILAW 310 (PAT)

JUDGMENT Loknath Prasad, J. : This writ application has been filed for quashing the letter contained in memo no.88 dated 23.3.95 issued by the respondent no. 2 directing the petitioner to deposit in the Govt. Treasury all amounts and whatever money the Bank may advance to the Steel Authority or whatever amount they receive from the Steel Authority to the Deputy Commissioner, Commercial Taxes, Bokaro Steel City for liquidation of the liability of respondent no. 3, Steel Authority of India. 2. The tact in short for the purpose of this application is that the State Bank of India who also got a Branch at Bokaro Steel City, Bokaro granted cash credit facility to the respondent no. 3. Steel Authority of India at Bokaro and first of all respondent no. 2, Deputy Commissioner, Commercial Taxes, served a notice on the Bank under Section 27 (1) of the Bihar Finance Act 1981 informing the petitioner-Bank that Steel Authority of India owes Rs. 4,82,916.67 p. by way of Bihar Sales Tax and more than a crore as Central Sales fax to the State Govt. and inspite of demand notice that had not been paid so the order was served under Section 27(4) of the Bihar Finance Act 1981 (to be called hereinafter only 'the Act') for deduction of the due amount in deposit with the Bank and to be credited in the State Treasury for liquidation towards tax dues. Bank questioned the order of the Deputy Commissioner, Commercial Taxes, vide Annexure-3 i.e. dated 9.6.94 and matter was kept for hearing and for that Bank also filed a criminal writ petition bearing Cr. WJC No. 309/94 (R) for quashing the notice but when the matter was taken up for hearing Bank had to withdraw this writ application in view of the submission that respondent no. 2 has no intention to file criminal case as against the Bank. Subsequently the respondent no. 2 gave up threatening to prosecute the Bank but issued notice for the reason that the respondent no, 3 as against the assessment of the Sales Tax preferred revision before the Sales Tax Tribunal which was dismissed and the respondent no. 3 i.e. Steel Authority of India was required to pay Bihar Sales Tax and Central Sales Tax. to the extent of Rs. 37,06,564.04 p. and Rs. 91,90,76,860.67 p. respectively Respondent no. 2 vide letter dated 20.2.95 addressed to respondent no. 3 i.e. Steel Authority of India was required to pay Bihar Sales Tax and Central Sales Tax. to the extent of Rs. 37,06,564.04 p. and Rs. 91,90,76,860.67 p. respectively Respondent no. 2 vide letter dated 20.2.95 addressed to respondent no. 3 to clear the outstanding taxes and a copy of the same was also served to the petitioner-Bank. 3. It is also the case of the petitioner that though the petitioner has informed the respondent no. 2 that actually the respondent no. 2 has got no current Account or Savings Account in the Bank and only a cash credit Account is there to facilitate the working of the Bokaro Steel Plant and they only maintained the loan account at Bokaro Branch and cash credit account at New Delhi and as such petitioner-Bank is not entitled to realise the amount and deposit the tax amount in the treasury. But inspite of that respondent no. 2 served a notice bearing no. 88 dated 23.3.95 alleged to have issued under Section 27 (1) of the Act and called upon the Bank to pay them even the money that they advance to the Steel Authority or Bokaro Steel plant as loan and should be deposited in the treasury for liquidation of the arrears of the taxes because that will be the first charge and to be realised as a land revenue. The notice dated 23.3.95 is apparently illegal and virtually an infringement of the fundamental rights of the petitioner who carries the banking business. and for the reason mentioned above and also for the reason that Steel Authority of India had got no current Account or any other Account or amount deposited under the Branch of the Bank they are not in a position to deduct the money for payment of arrears of the taxes. Hence this application for quashing the order dated 23-3-95 i.e. Annexure-9 issued by the respondent no. 2. 4. The respondent no. 1 i.e. State of Bihar and respondent no. 2, Deputy Commissioner, Commercial Taxes, Bokaro Steel City Circle Jointly contested this application by filing a joint counter affidavit alleging therein that this writ application by the Bank is not maintainable and actually the Bank filed the writ application at the instance of the assessee i.e. respondent no. 3 and Bank is creating hurdle in realisation of the due taxes from the respondent no. 3. 3 and Bank is creating hurdle in realisation of the due taxes from the respondent no. 3. It was submitted on behalf of these respondents that respondent no. 3 is an assessee under the Bihar Financ Act and also under the Central Act and it requires to pay the State tax and the Central tax which this respondent used to realise after sale and assessment for the year 1990-91 was completed as against respondent no. 3 and against that they preferred ultimately revision before the Commercial Tax Tribunal which was dismissed and ultimately by the order of the Joint Commissioner, Commercial Tax (Appeal), Dhanbad Division, the Steel Authority was required to pay Rs. 91, 90, 76, 860 67 p. as central sales tax and Rs. 37, 06, 564. 04 p. under the Bihar Finance Act and the respondent no. 3 also preferred CWJC No. 334/95 (R) before this court that too was dismissed and simply observation was made that payment may be made on 10.3.95 in spite of 13-2-95 and thus, the assessed tax is .finally due for recovery and so the demand notice was served vide memo no. 80 dated 21-3-95 for Central Tax and memo no. 81 dated 21-3-95 was also issued for the State Tax to the respondent no. 3 and copy of these demand notices were also served to the Bank and ultimately when this amount was not cleared by the respondent no. 3, notice under Section 27 of the said Act was served to the Bank for deduction of the money which respondent no. 3 got in his Account for clearance 6f his outstanding dues under Section 27 of the said Act. 5. In fact petitioner-Bank was operating cash credit Account bearing no. 4 against the mortgaged properties of respondent no. 3 i.e. the SALE Unit, Bokaro and as the need for financial limit for loan and overdraft being much above the sanctioning power of Bokaro Branch so the maximum limit was sanctioned by Delhi office of the State Bank of India which is being operated by the State Bank of India, Boharo Steel City Branch through cash credit Account no. 4. More over under the statutory provision of Section 29 of the said Act the sale tax due is the first charge on the property. 4. More over under the statutory provision of Section 29 of the said Act the sale tax due is the first charge on the property. In that view of the matter, the State Bank of India, Bokaro Steel City Branch who are operating cash credit Account of respondent no. 3 under the said provision required to deposit any amount in that Account of the respondent no. 3 in the treasury and the payment of the taxes will get preference as against any other dues including the loan amount. Under Section 27 (3) of the Act any person making any payment in compliance with a notice issued under sub-section (1) shall be deemed to have made the payment under the authority of the dealer and the receipt from the Government Treasury shall constitute a good and sufficient discharge of the liability of such person to the dealer. In that view of the matter the Bank has nothing to loose and simply adopting a dilatory factis to support illegal case of the respondent no. 3. Accordingly it was submitted that the writ application may be dismissed. 6. Respondent no. 3 also entered appearance and filed counter affidavit alleging therein that Issue of notice under Section 27 of the said Act by the respondent no. 2 to Bank is apparently illegal because this respondent is not having any current Account or Savings Account in the petitioner-Bank and only a cash credit facility Account is being operated. Moreover though the respondent no. 3 is claiming the outstanding taxes for the year 1990-91 but a plea was taken by this respondent that there was some stock transfer and for that central tax is not required to be paid and it is not a sale. Further more the assessment authorities wrongly took the view that the materials supplied to the contractors were in the nature of the sale so virtually this respondent more or less supported the claim of the petitioner. 7. In this writ application the petitioner-Bank had challenged the authority of the respondent no. Further more the assessment authorities wrongly took the view that the materials supplied to the contractors were in the nature of the sale so virtually this respondent more or less supported the claim of the petitioner. 7. In this writ application the petitioner-Bank had challenged the authority of the respondent no. 2 to issue notice under Section 27 of the Act which is a special mode of recovery of arrears of commercial tax mainly on the ground that actually the dealer has no current Account or Savings Bank Account in the petitioner-Bank and in that view of the matter the petitioner-Bank does not hold or may subsequently hold any money for or on account of the dealer i.e. respondent no. 3 and only a cash credit facility was accorded under an agreement to the respondent no. 3 and the respondent no. 3 used to deposit the loan amount to be adjusted towards loan and advance already made under the cash credit facility. 8. For proper appreciation the admitted facts are that the respondent no. 3 is assessee and dealer and liable to pay Bihar Sales Tax under the Act of 1981 and also the Central Sales Tax which the dealer used to realise from the sale made to the customers. For the year 1990-1991 an assessment was made and against that assessment order the dealer had gone upto Commercial Tax Tribunal and ultimately the matter was decided by the Joint Commissioner, (Appeal) at Dhanbad for the assessment year 90-91 and a sum of Rs. 91,90,76,860.67 p. was assessed as the Central Sales Tax and a sum of Rs.37,06, 564.04 p. was assessed as State Sales Tax and as such deemand notices were serued on 22.2.95 i.e. Annexure-6 and Annexure-6/l to the dealer i.e. respondent no. 1 and a copy of the same was also served to petitioner-Bank. Admittedly the dealer-respondent no. 3 also preferred CWJC No.10937/94(R) as against the assessment order and it was held by the High Court that appellate Court i.e. Joint Commissioner (Appeal), Dhanbad should decide latest by 31.1.95 and in pursuance of that the appellate court assessed the aforesaid amount as tax payable by the dealer-respondent no. 3 to the respondent no. 2 and further another writ application bearing CWJC No. 334/95 (R) was also preferred by the respondent no. 3 which too was dismissed by the High Court vide order dated 10.3.95 so respondent no. 3 to the respondent no. 2 and further another writ application bearing CWJC No. 334/95 (R) was also preferred by the respondent no. 3 which too was dismissed by the High Court vide order dated 10.3.95 so respondent no. 3 is now definitely liable to pay the aforesaid amount as taxes under the Bihar Sales Tax and the Central Sales Tax for which the demand notices dated 22.2.95 had already been served. Admittedly the dealer has not cleared the dues so respondent no. 2 who is the prescribed authority under the Act issued notice under Section 27 of the Act which is a special mode of recovery to the petitioner-Bank with a direct on al he got cash credit Account i.e. Account no. 4 being operated by {he dealer respondent no. 3 and so if any cheque or bills will be deposited by the respondent no. 3 or any amount is to be adnanced by the Bank to the respondent no. 3 that may be deducted and deposited in the State treasury towards liquidation of the tax due for which demand notices were du1y served and it will be deemed to be a valid discharge by the Bank itself on behalf of dealer. Section 27 of the Act prescribes for special mode of recovery and it is prescribed that notwithstanding anything contained in Section 25 or any law or contract to the contrary the prescribed authority may at any time from time to time by notice in writing (a copy of which shall be forwarded to the dealer at his last address known to the authority) direct- (a) any person from whom any money is due or may become due to a dealer who has failed to comply with a notice of demand under Section 25, or (b) any person who holds or may subsequently bolds any money for on account of such dealer to pay into Govt. treasury in the manner specified in the notice. Thus, the provisions clearly say that for realisation of outstanding dues to which demand notice was already served under Section 25 of the Act the due taxes can be realised from any other person who holds or may subsequently hold any money for on account of such dealer. Admittedly the demand notice i.e. Annexure-6 and 6/1 had already been served upon the dealer i.e. respondent no. Admittedly the demand notice i.e. Annexure-6 and 6/1 had already been served upon the dealer i.e. respondent no. 3 and the outstanding tax had not been cleared within toe stipulated time as assessed by the appellate authority in pursuance of the order of the High Court and there is no two opinion that if the Bank holds or subsequently holds any money for the respondent no. 3 then it is under the statutory liability to deposit the tax amount to liquidate the outstanding dues of the respondent no. 3 by depositing the same in the treasury. 9. The petitioner-Bank has not challenged the vires of provision of Section 27 of the Act and had simply claimed that in view of the provision of the Act, notice dated 21.3.95 i.e. Annexure-7 series and the last demand notice dated 23.3.95 i.e. Annexure-9 is apparently without jurisdiction as the petitioner-Bank is not holding any money or may subsequently hold any money for the dealer because the dealer has no current Account or Savings Account in the Bank and only under an agreement a cash credit Account bearing no. 4 is being operated by the dealer i.e. Respondent no. 3 that too the main Account is in Delhi Branch and through this Account the dealer was permitted to take loan by way of overdraft and subsequently the dealer-respondent no. 3 is required to deposit the amount for clearing the overdraft and the dues of the Bank. In that view of the matter, practically the Bank is not holding any money of the dealer and so it is not in a position to comply with the statutory notice and as such in view of the provision of Section 27(5) of the Act reply was sent to the respondent no. 2 i.e. by Annexure-8. On the other hand it was contended on behalf of respondent nos. 2 and 3 that admittedly there is an agreement and the respondent no. 3 executed mortgage deed and hypothecated properties belonging to this respondent in favour of the Bank and for that cash credit facility was allowed. If that is so the Bank is advancing loan to the respondent no. 3 on the basis of agreement and execution of the mortgage in respect of the properties and if at all in future any money will be advanced to the respondent no. If that is so the Bank is advancing loan to the respondent no. 3 on the basis of agreement and execution of the mortgage in respect of the properties and if at all in future any money will be advanced to the respondent no. 3 in the aforesaid Cash Credit Account then the money will be that of the respondent no. 3 and if the respondent no. 3 will also deposit entire amount by way of cheque or bill, then in view of the provision of Section 29 of the Act i.e. any amount of tax and penalty, if any, payable by a dealer or any other person that shall be the first charge in that view of the matter, the cheque and bill deposted in the Cash Credit Account of the Bank will be adjusted towards arrears of the taxes and clearance of sales tax arrears will get preference over the claim of loan of the Bank in view of the provision of Section 29 as the properties of the dealer are duly mortgaged under the agreement. 10. Thus provision of Section 29 of the Act has over riding effect and arrears of sales tax will be the first charge and it will get preference over any other claim including that of the Bank from the dealer i.e. respondent no. 3. In such a situation if the respondent no. 3 who got a cash Credit Account before the petitioner-Bank deposits any amount in cash or by way of cheque or bills for clearance of the loan amount to the Bank then automatically the Bank is under statutory obligation in view of the provision of Section 27 of the Act to deposit the amount in the treasury and similarly if the petitioner-Bank in future makes any advance as loan to the respondent no. 3 and deposits the same in the Bank Account of respondent no. 3 then that amount will be of respondent no. 3 and the petitioner-Bank is under statutory obligation in view of the provision of Section 29 of the Act to deposit the said amount in the treasury for liquidation of the due taxes of the respondent no.2 for which proper demand notices were duly served and if the deposit is made in the treasury by the Bank that will be deemed to be a proper discharge of the tax amount on behalf of dealer. 11. 11. The Apex Court also in similar circumstances in a case of State Bank of Bikaner & Jaipur vs. National Iron & Steel Rolling Corporation and ors. reported in Sales Tax Cases Vol. 96 page 612 has held that a charge is wider than a mortgage and it would cover within its ambit a mortgage also. Therefore, when the first charge is created by operation of law over any property that charge will have precedent over the existing mortgage. In State Rank of Bikaner & Jaipur's case (Supra) the Bank advanced loan to the dealer and filed a suit for realisation or the outstanding dues from sale of the mortgaged properties which was decreed out the Commercial Tax Officers. Bharatpur impleaded himself in the suit only on the ground that recovery of sales tax dues from the dealer will get preference because of the first charge in view of the provision of Section 11-AAAA of Rajasthan Sales fax Act 1954 which is similar to Section 29 of the Bihar Act and it was held by the Apex Court that when a first charge is created by operation of law that charge will have precedence over the existing mortgage and this view also finds support from the Fisher & Lightwood Law of mortgage 10th Edition at page 33 where the statutory charges are discussed and it was held that a statutory charge is a priority to the extent of mortgage under the mortgage existing when the charge arose and accordingly, the claim of the sales tax authority for realisation of the dues from the sale proceed of the mortgaged property was upheld by the Apex Court. In view of the principle laid down in State Bank of Bikaner & Jaipur's case (Supra) it can be said that in the instant case also the respondent no. 3 who is dealer under the respondent no. 2 and for the assessment year 1990-91 a demand notices were duly served as per Annexure-6 series which has not been paid and as such notices under Section 27 of the Act which is a special mode of recovery were served to the Bank and in this very petitioner Bank the respondent-dealer got a Cash Credit Account no. 2 and for the assessment year 1990-91 a demand notices were duly served as per Annexure-6 series which has not been paid and as such notices under Section 27 of the Act which is a special mode of recovery were served to the Bank and in this very petitioner Bank the respondent-dealer got a Cash Credit Account no. 4 which they are operating and obtaining loan and also adjusting loan by deposit of cheque, bill or cash amount in view of the agreement between the Bank and the dealer and the properties of the dealer i.e. respondent no. 3 also mortgaged for obtaining this cash credit facility and as such if any, money is to be deposited by the Bank by way of advance or loan in the Cash Credit Account of the respondent no. 3 or respondent no. 3 will deposit the entire cheque, bills or cash amount for liquidation of the arrears of loan in the petitioner-Bank then such amount is to he deposited in the treasury by the petitioner-Bank as the valid notice under Section 27 of the said Act which is special mode of recovery of out8tanding taxes, had been properly served to the petitioner Bank. 12. No doubt the learned counsel for the petitioner submitted that in view of the provision of Section 27 (5) of the Act immediately after the service of notice as required under Section 27 (1) of the Act a reply was sent that the petitioner Bank does not hold any money or any current Account of the dealer and the mere fact that the petitioner-Bank denied its liability and existence of any amount of the dealer than Under this provision it was the duty of the respondent no. 2 to revoke the notice and actually if the Bank is not holding any money at the time of service of the notice then the notice has got no force at all. In support of this contention reliance was placed on behalf of petitioner to a case law of the Apex Court reported in ITR Vol. LXV page 620 (Income Tax Officer, Madras and ors. vs. Budhdha Pictures). At the very outset it can be said that the Income-Tax Officer, Madras case (Supra) relates to. In support of this contention reliance was placed on behalf of petitioner to a case law of the Apex Court reported in ITR Vol. LXV page 620 (Income Tax Officer, Madras and ors. vs. Budhdha Pictures). At the very outset it can be said that the Income-Tax Officer, Madras case (Supra) relates to. Income Tax Act and not the Sales Tax Act and provision under both the Acts are Some different about the special mode of recovery so far as the objection taken by the authority concerned to whom the notices were served. Under the Bihar Finance Act in view of the provision of Section 27 (5) of the Act if any objection is taken by any such authority after service of notice then it is for the satisfaction of the authority who issued the notice and after the authority is satisfied then the notice will be revoked. In the instant case the authority i.e. respondent no. 2 was not satisfied from the objection taken by the petitioner-Bank and earlier when a similar notice was served no 7-6-94 i.e. Annexure-1 it was revoked because there was pendency of the matter before the Tribunal and in view of the provision of Sub-section (2) of Section 27 of the Act the authority has a right to revoke any notice and subsequently also in view of the changed situation fresh not be of demand can be issued under Section 27 of the Act. In the instant case the authority who issued the notice was not satisfied from the objection raised by the Bank. More over in Income Tax Officer, Madras case (Supra) an objection was taken by the person concerned to whom notice was issued that there was no subsistence contract at that time between him and the dealer and no amount of the dealer was due at that time and if such objection is taken then it was rightly held by the Apex Court that if the amount is not due or there was no subsistence contract then notice to the person concerned for payment of tax for the dealer is apparently bad in law and unwarranted. In the instant case admittedly case credit Account of the respondent no. 3 is still in existence and is being operated by respondent no. In the instant case admittedly case credit Account of the respondent no. 3 is still in existence and is being operated by respondent no. 3 so the facts and circumstances of Income Tax Officer, Madras case (Supra) is otherwise and not applicable to the instant case and so of no help to the petitioner in any way. 13. So far as the respondent no. 3 is concerned it is admittedly a dealer under the Central Sales Tax Act and Bihar Act and respondent no. 3 simply supported the case of petitioner Bank and has also admitted that this respondent got a cash credit facility from the petitioner-Bank and operating the same at Bokaro. No doubt this respondent has also taken pleas in the counter affidavit that assessment has not been properly made but this plea is not available to this respondent because it lost the appeal and also preferred the writ application which was also dismissed for the same assessment year 1990-91 and demand notice had also been properly served. 14. In view of the discussions made above it can be said that the demand notices under Section 25 of the Act had been properly served upon the respondent no. 3-delaer and it has not cleared the amount of taxes. Respont no. 2 had a right to serve notice under Section 27 of the Act to the petitioner-Bank and the petitioner-Bank is required to comply the notice according to law and in future, if any, amount is credited in the Cash Credit Account no. 4 of the respondent no. 3 or the respondent no. 3 deposits amount in cash or by was of cheque or bills in the aforesaid Case Credit Account of the petitioner-Bank for lequidation of outstanding loan of the Bank in pursuance of the agreement and for that properties were also hypothecated to the Bank, the Bank is required under the statutory obligation as the payment of taxes is the first charge to deposit the same in the treasury in pursuance of the notice for liquidation of the arrears of the sales tax. 15. Accordingly there is no merit in this application and so it is dismissed but without any costs. P. K. Sarkar, J : I agree. Application Dismissed.