The Tamil Nadu government cannot claim precedence over properties of a sales tax defaulter who has secured bank finance unless the Sales Tax Act had a specific Provision creating first charge (first call on Property) in favour of the government, the Madurai bench of the Madras High Court ruled on Monday.

Justice Chitra Venkataraman, allowing a writ petition by the Tamil Nadu Mercantile Bank challenging a notice issued by the Commercial Tax department to hand over sale proceeds of a property said “Rajasthan and Maharashtra have enactments containing a specific provision creating first charge in favour of the Government. The Tamilnadu General Sales Tax Act, 1959, does not contain such an enactment.”

She said the state’s claim had to subserve that of the secured creditor (Bank or any other financial institution), which had the first claim over the state.

She said the Commercial taxes department had initiated proceedings against the Jewellery exporter under the revenue recovery act and attached his property for deaulting sales tax of Rs 80.72 lakh between 1993-98.

The attachment was published in 2000 and a notice to bring the property for sales was published in newspapers in 2001.

But the department came to know that TMB had already auctioned the property only last year.

Replying to a notice issued by Commercial tax officials, the TMB on March 24 2008 stated that the exporter had mortgaged the properties as early as October 29, 1993, much prior to the demand notice issued by the department to the exporter in 1998.

The exporter did not pay back the loan amount and hence the property was auctioned in 2006 in execution of a decree obtained from a debt recovery tribunal. The bank realised Rs 14.30 lakh as against the dues amounting to Rs 47.37 lakh.

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