Constitutional Validity of Section 16-B of HPGST Act Confirmed by Supreme Court

On 28 April 2023, In judgement STATE OF HIMACHAL PRADESH AND OTHERS Vs. M/S A.J. INFRASTRUCTURES PVT. LTD AND ANR., the Supreme Court of India held that Section 16-B of the Haryana General Sales Tax Act (HPGST) is a valid piece of legislation and is not ultra vires the Constitution or the Banking Companies Act. The court also held that any observation in the earlier decision dated 7th September, 2007, in relation to Section 16-B of the HPGST Act vis-à-vis Section 35 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) is of no effect.

The bench comprising Justices S. Ravindra Bhat and Dipankar Datta passed the judgement in Civil Appeal Nos. 8980-8981 of 2012 and Civil Appeal Nos. 9212-9213 of 2012, which involved a dispute between the State of Haryana and Punjab National Bank (PNB) over the payment of sales tax dues.

The court observed that in the absence of a provision conferring a right on a secured creditor to claim priority over dues of the State, section 35 of the SARFAESI Act could not have been construed as conferring any such right. However, Chapter IV-A of the SARFAESI Act, which was introduced in 2020, contains Section 26E that accords priority in payment to a secured creditor over all other dues in enforcement of the security, subject to conditions specified elsewhere in the said chapter. Similarly, Section 31B was introduced in the Debt Recovery Tribunal Act in 2016, which extends similar benefits of priority to a secured creditor.

In the instant case, the State of Haryana had claimed that Section 16-B of the HPGST Act, which provides that any amount of tax and penalty payable by a dealer or any other person under the Act shall be a first charge on the property of the dealer or such other person, would prevail over any inconsistent provisions in other laws. The court held that Section 16-B would be attracted only after determination of the liability and upon any sum becoming due and payable, and that without such determination of liability, the state could not resort to the Haryana Panchayati Raj Land Act, which provides for the procedure for recovery of dues as arrears of land revenue.

The court also held that the High Court was justified in not entertaining the application for recall of the judgement, which had been dismissed qua PNB, as the writ petition was decided on merits in the presence of the State. Furthermore, the court observed that the State governments cannot seek undue indulgence when they do not file a proper reply or when, despite there being a provision for review, such remedy is not pursued.

STATE OF HIMACHAL PRADESH AND OTHERS Vs. M/S A.J. INFRASTRUCTURES PVT. LTD AND ANR.