Case Law Details
State Bank of India Vs Union of India (Hyderabad High Court)
Conclusion: Claim of SBI on income tax refund credited in the the defaulters’ bank account with it would get priority over the government dues including the service tax dues as per section 31-B of the Recovery of Debts and Bankruptcy Act, 1993 and sec. 26E of the SARFAESI Act,2002 w.e.f.1.9.2016.
Held: Assessee bank in it’s banking activity had sanctioned limits of Rs.820 Crores to the M/s SEW Infrastructures Limited, Greenlands, Hyderabad along with consortium Banks. The company created a first charge by way of hypothecation of all it’s current assets and receivables as primary security and a mortgage over it’s immovable properties as collateral security. The loan accounts of the company were classified as ‘Non Performing Assets’ as per the Reserve Bank of India norms. Assessee bank then initiated proceedings under the SARFAESI Act, 2002 by issuing a demand notice under Sec.13 (2) and also took possession of the company’s properties under Sec.13 (4). These had been challenged by the company in other forums. Assessee bank also filed before the Debt Recovery Tribunal, Hyderabad invoking the Recovery of Debts and Bankruptcy Act,1993 for recovery of Rs.280.68 Crores against the company and it was pending. In the meantime the company received an Income Tax Refund Order for Rs.35,75,95,400/- and it was credited into the TRA account of the company in the assessee Bank at assessee’s CCG Branch, Hyderabad. According to assessee, this amount, being a receivable, was subject the charge created by M/s SEW in it’s favour, and was entitled to be adjusted by it towards repayment of dues owed to it. The other respondents, Directorate General of GST Intelligence issued the impugned notice to the assessee bank invoking Section 87 of the Finance Act, 1994 stating that respondent company owes Rs.59,20,19,079/- towards dues of Service Tax and the same should be adjusted with the refund credited. It was held that in view of Sec.31-B of the Recovery of Debts and Bankruptcy Act, 1993 and sec. 26E of the SARFAESI Act,2002 w.e.f.1.9.2016 the claims of secured creditors such as assessee bank had priority over the claims of the respondents for service tax dues.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
The petitioner in this Writ Petition is the State Bank of India, rep by it’s DGM and Branch Head, Stressed asset Management Branch, Hyderabad.
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