PATRI BASAVANA GOUD, J.
( 1 ) M/s. Sun Crush Fruits (P) Limited (hereinafter to be called 'assessee') is due in a sum of Rs. 2,16,756 by way of arrears of sales tax for the year 1991-1992. The respondent-Assistant commissioner of Commercial Taxes initiated a proceeding before the learned special JMFC (sales Tax), Bangalore at Criminal Misc. No. 1057/96 for recovery of the said sum under Section 13 (3) (b) of the Karnataka Sales Tax Act, 1957 ('KST Act' for short). The learned magistrate issued fine levy warrant for recovery of the said amount under Section 421 (1) (a) Cr. P. C. by attachment and sale of the movable property of the assessee. The said movable property sought to be attached and sold was the plant and Machinery. But the said plant and machinery, by then, has already been mortgaged and hypothecated in favour of the Karnataka State Industrial Investment and Development Corporation Limited, Bangalore ('KSIIDC' for short). The said KSIIDC is a financial corporation established under Section 3 of the State Financial Corporation Act, 1951 ('SFC Act' for short). The assessee is stated to be owing to the KSIIDC in respect of the loan for which it has mortgaged/hypothecated the plant and machinery, a sum of Rs. 1,38,31,361. By the time the learned magistrate issued fine levy warrant KSIIDC had already, in exercise of its power under Section 29 of SFC Act, taken over possession of the plant and machinery mortgaged/hypothecated. It was in execution of the warrant issued by the learned Magistrate under Section 421 (1) (a) Cr. P. C. that the said plant and machinery were sought to be sold. KSIIDC requested the learned Magistrate that the said corporation, i.e., KSIIDC's claim has precedence over the sales tax arrears due in view of Section 29 (4) of SFC Act, and that it is only out of the residue of the money after adjustment towards costs of sale and discharge of debt due to KSIIDC that the respondent- authority would have the right to recover the sales tax arrears. The learned Magistrate, however, by the order impugned herein, held that, since under Section 13 (2) (i) of KST Act, change is created in respect of the arrears of tax, same should get precedence. He accordingly overruled the objections of KSIIDC. The said KSIIDC has now come up in revision under Section 397 Cr. PC.
( 2 ) SECTION 13 (2) (i) of the KST Act inter alia provides that in respect of the whole of the amount of tax or any other amount due under the Act outstanding on the date of default, same shall be a charge on the, properties of the person or persons liable to pay the tax or any other amount due under the Act. There is therefore no doubt at all that in respect of the arrears of sales tax to the tune of Rs. 2,16,756 due from the assessee, there shall be a charge on the properties of the assessee including the plant and machinery. To recover the said sum, if a proceeding under Section 13 (3) (b) of the KST Act is initiated, then the learned magistrate would be justified in issuing warrant for recovery of the said amount by attachment and sale of any movable property of the assessee including the machinery hypothecated to the KSIIDC. This could be the position if we look to only the KST Act and Criminal Procedural Code. If we look to the SFC Act, however, the position would be different. The first part of Section 46-B provides that the provisions of the said SFC Act, and of any rules and order made thereunder, shall have the effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having effect by virtue of law other than the said Act. The second part of the said Section however provides that, save as aforesaid, i.e., save as what is provided in the first part, the provisions of the said SFC Act would be in addition to and not derogation of any other law for the time being applicable to an industrial concern. The KSIIDC has taken over possession of plant and machinery of assessee in exercise of its power under Section 29 (1) of the SFC act, and it has also brought the said property to sale as it is authorised by Section 29 (1) of the SFC Act to transfer the said property even by sale. Though in the impugned order, there is a reference to an order of injunction passed by the City Civil Judge restraining KSIIDC from selling of the said property, it is submitted in course of arguments that the stay has since been vacated, and that the property is to be brought to sale. When the property is so sold, sub-section (4) of Section 29 of the SFC Act provides that, the money so received shall have to be held by KSIIDC in trust to be applied firstly in payment of costs, charges and expenses,. e. , costs and charges incurred by KSIIDC in taking action under Section 29 (1) of the SFC Act, and secondly in discharging of debt due to the Financial Corporation,. e. , in adjusting a sum of Rs. 1,38,31,361 due from the assessee to the KSIIDC and the residue of the money so received shall have to be paid to the person entitled thereto,. e. , assessee though, under Section 13 (2) (i) of the KST Act, in respect of the arrears of at and other amount due under the KST Act, Charge is created on the property 6f the assessee, it is not the first charge as was the case with Section 11-AAAA of the Rajasthan Sales Tax act, 1954, a case in relation to which the learned Magistrate was referring to in the impugned order. Since, unlike in the Rajastan sales Tax Act, the charge under Section 13 (2) (i) of the KST Act is not the first charge, and since, under Section 46-B of SFC Act, the provisions of the said Act would have the effect notwithstanding anything inconsistent therein contained in the Act, it has to be concluded that the same shall have to be apportioned in order of priority as specified in sub-section (4) of Section 29 of the SFC Act, viz. , firstly, in meeting the costs of KSIIDC under sub-section (1) of section 29 of the SFC Act, secondly, in the payment of amount due from the assessee to the KSIIDC towards loan, and thirdly, the residue amount being required to be paid to the assessee. It is only in respect of that third category that any claim towards arrears of sales tax could be made.
( 3 ) SRI N. V. Frakash, the learned Additional SPP submits that, on transfer of business, both the transferrer and the transferee would be jointly and severally liable to pay the arrears or any other amount due. Sri Prakash therefore submits that in exercise of its powers under Section 29 of the SFC Act, KSIIDC has taken over the assets of the assessee, then the assessee, as transferrer and the KSIIDC, as transferee are, in view of Section 15 of the KST Act, jointly and severally liable to pay the arrears of sales tax, and as such, the amount is liable to be recovered from KSIIDC also. But, as pointed out by Sri Ashok Hinchigeri, learned Counsel for the petitioner - ksiidc, on taking over of the management or possession of the properties of the assessee or both, the KSIIDC does not become the transferee of that property, nor does it become the owner of the property. No doubt, sub-section (5) of Section 29 of the SFC Act creates a fixture wherein, for a limited purpose, KSIIDC is deemed to be the owner of the concern, the assessee herein. But, as I said, that is only for a limited purpose, viz. of filing of suits by or against the concern and not for any other purpose. Since sub-section (1) of Section 29 of the SFC Act even empowers the KSIIDC to sell the property of the assessee, it could be seen from sub-section (2) of the said Section 29 that, any transfer of property so made in exercise of its power under sub-section (1) of Section 29, shall vest in the transferee, all rights in or to the property transferred, as if the transfer had been made by the owner of the property. It is therefore clear that, even after the properties are taken over by the KSIIDC in exercise of its power under sub-section (1) of Section 29 of the sfc Act, the assessee continues to be the owner, and even if ksiidc transfers the property, it is as if the transfer had been made by the assessee itself in view of sub-section (2) of Section 29 of the said Acts. Section 15 of the KST Act, therefore, cannot be pressed into service to urge that, as transferee, KSIIDC is jointly and severally liable to pay the tax. At the same time, I have to make it clear as to the applicability of Section 15 of the KST Act, at a later stage. It is this way. When the KSIIDC sells the property of the assessee, by virtue of sub-section (2) of Section 29 of the SFC Act, it is as though the assessee itself has transferred the said property in favour of the transferee by sale. The position then would be than the assessee would be in the position of transferor and the purchaser of the property would be in the position of the transferee. At that stage therefore, there would be the transferrer/assessee on one side, and the transferee/purchaser on the other. Section 15 of the KST Act would very much come into play at that stage, and both the assessee and the purchaser of the property would be jointly and severally liable to pay the arrears of sales tax concerned herein. It is therefore necessary for the KSIIDC to make it clear, when it advertises the property for sale, that after the said sale, there would be charge on the property created under Section 13 (2) (i) of the KST Act in respect of the sales tax arrears due from the assessee, and further that after the said sale, the purchaser also, as much as the assessee, would be, by virtue of Section 15 of the KST Act, jointly and severally liable to pay the said arrears. Any purchaser of the property should go ahead with the transaction with his eyes wide open to this factual and legal position.
( 4 ) I, therefore, direct that the property of the assessee, now in the hands of the KSIIDC under Section 29 of the SFC Act, shall be sold with the intending purchaser being made aware of the charge under Section 13 (2) (i) of the KST Act, and that he would be jointly and severally liable under Section 15 of the KST Act as referred to above. The sale proceeds shall be adjusted in the manner provided under sub-section (4) of Section 29 of the SFC Act, in which event, firstly, the expenses incurred by the KSIIDC under Section 29 (1) of sfc Act shall be adjusted, and secondly, the amount due from the assessee to the KSIIDC shall be adjusted, and then, whatever that remains thereafter out of the sale proceeds, being the amount belonging to the assessee and held in trust by KSIIDC. The respondent-authority shall immediately serve notice under Section 14 of the KST Act on KSIIDC, in respect of the sales tax arrears concerned in this proceedings. Out of the said residue amount from out of the sale proceeds, KSIIDC shall discharge the liability of the assess
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ee due to the authorities from out of the above said residuary sale proceeds in due compliance with the said notice under Section 14 of the KST Act. KSIIDC, as directed, should immediately bring the property of the assessee of which it has taken possession, for sale to enable recovery of sales tax arrears concerned herein. It is made clear that serving of a notice on KSIIDC under Section 14 of the KST Act does not come in the way of the present proceeding under Section 13 (3) (b) of the KST Act initiated at C. Misc. No. 1507/ 96 being continued, because, as sub-section (3) of Section 13 of the KST Act makes it clear at the outset, the recovery under the said sub-section (3) would be without prejudice to any other mode of collection. In addition to serving a notice under Section 14 of the kst Act therefore, the respondent-authority would be at liberty to proceed with C. Misc 1507/96 under Section 13 (3) (b) of the KST act, wherein the learned Magistrate could still proceed to recover the sales tax arrears due under Section 421 Cr. P. C. if any property of the assessee is available other than what is taken possession of by KSIIDC. Impugned order modified accordingly, and petition disposed of accordingly.