The State of Kerala and others v. Devamatha Rock Products and The State Bank of India

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU** # **TUESDAY ,THE 19TH DAY OF FEBRUARY 2019 / 30TH MAGHA, 1940** **RP.No. 979 of 2018 IN WP(C). 22546/2018** ## **REVIEW PETITIONER/S:** - **1 THE STATE OF KERALA, REPRESENTED BY ITS SECRETARY, TAXES, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM- 695 001.** - **2 THE COMMISSIONER, DEPARTMENT OF COMMERCIAL TAXES/ KERALA STATE GOODS AND SERVICE TAX DEPARTMENT, TAX TOWERS, KARAMANA, THIRUVANANTHAPURAM.** - **3 THE COMMERCIAL TAX OFFICER-II/STATE TAX OFFICER, 1ST CIRCLE, DEPARTMENT OF COMMERCIAL TAXES/ KERALA STATE GOODS AND SERVICE TAX DEPARTMENT, PERUMBAVOOR, ERNAKULAM.** - **4 THE DEPUTY COMMISSIONER(APPEALS) V, KERALA STATE GOODS AND SERVICE TAX DEPARTMENT, OPP.COCHIN SHIP YARD, THEVARA, KOCHI.** - **5 THE INSPECTING ASSISTANT COMMISSIONER, DEPARTMENT OF COMMERCIAL TAXES, KERALA STATE GOODS AND SERVICE TAX DEPARTMENT, MUVATTUPUZHA, ERNAKULAM.** ## **BY ADV. GOVERNMENT PLEADER** -2- RP.No. 979 of 2018 IN WP(C). 22546/2018 ## **RESPONDENT/S:** **1 DEVAMATHA ROCK PRODUCTS, ODAKKALY, ASAMANOOR P.O, PERUMBAVOOR, ERNAKULAM DISTRICT, REPRESENTED BY N.D.JOSEPH, PARTNER. 2 THE STATE BANK OF INDIA, TRIPUNITHURA BRANCH, CENTRE POINT BUILDING, TRIPUNITHURA, ERNAKULAM, REPRESENTED BY ITS BRANCH MANAGER.** ## **OTHER PRESENT:** ## **SRI. K.P. PRADEEP.** **THIS REVIEW PETITION HAVING COME UP FOR ADMISSION ON 19.02.2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** ## **ORDER** The petitioner, a dealer under the KVAT Act, challenged the assessment order before the first appellate authority. The challenge repelled through the Ext.P2, he filed a second appeal before the Kerala Value Added Tax Tribunal, Ernakulam. In that second appeal, the petitioner seems to have filed a stay petition also. Indeed, it is for the Tribunal to consider it, in course of time. -3- RP.No. 979 of 2018 IN WP(C). 22546/2018 2. In the meanwhile, before the petitioner could file an appeal against Ext.P2, the respondent authorities took recovery steps and issued garnishee proceedings to the sixth respondent bank. The bank, in turn, after attaching the amounts lying in the petitioner's account, informed the petitioner through the Ext.P3 notice. Assailing those garnishee proceedings, the petitioner has filed the writ petition. 3. This Court allowed the writ petition through its judgment dated 27[th] July 2018. While allowing it, it has observed as follows: “As both the counsel now agree, by the time the petitioner approached this Court, the sixth respondent bank sent to the assessment officer a demand draft for the amount lying in the petitioner's account. Therefore, because of the statutory infraction and because of the pending statutory appeal, the fifth respondent shall return the demand draft to the bank and the bank, in turn, will re-credit it to the petitioner's account.” 4. Later, the Government filed this review petition. 5. Dr.Thushara James, the learned Government Pleader, has submitted that the authorities concerned never invoked Section 35 of the Kerala Value Added Tax Act; instead it invoked Section 31(4) of the Kerala Revenue Recovery Act. To elaborate, Dr. James has taken me through both Section 35 and Section 31(4) of the Act. Then, she -4- RP.No. 979 of 2018 IN WP(C). 22546/2018 has taken me to Form 12, the notice of demand. According to her, Annexure A1 is the notice of demand. 6. To elaborate, Dr.James further states that in terms of Section 31(4), the Departmental Officer was designated as the Collector, and such a designation is permissible under Section 33 of the Act. In other words, the 5[th] respondent has been designated as the Collector. Then, the 5[th] respondent, she adds, invoked Section 7 of the Revenue Recovery Act and issued Annexure A2 notice. It was under Section 19(c). 7. To conclude, Dr. James submits that in compliance with Section 19(c), the Bank as a debtor transfer the amounts. Therefore, the procedure the authorities adopted remains unassailable. 8. Ms Thasmi, the counsel representing the counsel on record, informs me that this Court may decide the matter in accordance with law. 9. Heard the learned Government Pleader for the review petitioner, as also the learned counsel for the respondents. 10. Indeed, the Government has taken a singular plea: Ext.P3 order is in accordance with the statutory mandate. To determine -5- RP.No. 979 of 2018 IN WP(C). 22546/2018 whether the Government has followed the procedure, I may examine the dichotomy, if any, between Section 35 and 31(3) of the KVAT Act. Section 35 reads as follows: **35. Further mode of recovery.** - (1) The assessing authority may, at any time or 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 assessing authority) require any court or any officer of the Central Government or of the Government of any State or Union Territory or any other person (other than an individual) from whom money is due or may become due to the dealer or any court or any such officer or any other person (other than an individual) who holds or may subsequently hold money for or on account of the dealer, to pay to the assessing authority, either forthwith if the money has become due or is so held or within the time specified in the notice (not being before the money becomes due or is held), so much of the money as is sufficient to pay the amount due by the dealer in respect of arrears of tax, fee or penalty or the whole of the money when it is equal to or less than the arrears of tax, fee or penalty. (2) The assessing authority may at any time or from time to time amend or revoke any such notice or extend the time for making any payment in pursuance of the notice. (3) Any court, officer or other person making any payment in compliance with a notice under this section shall be deemed to have made the payment under the authority of the dealer and the receipt by the assessing authority shall constitute a good and sufficient discharge of the liability of such court, officer or other person to the extent of the amount referred to in the receipt. (4) Any court or person other than an officer of the Government making any payment to the dealer after receipt of the notice referred to in this section shall be liable to the assessing authority to the extent of the payment made or to the extent of the liability of the dealer for the amount due under this Act, whichever is less. -6- RP.No. 979 of 2018 IN WP(C). 22546/2018 (5) Where any court in person other than, an officer of the Government to which or to whom a notice under this section is sent objects to it on the ground that the sum demanded or any part thereof is not due by it or him to the dealer or that such court or person does not hold any money for or on account of the dealer, then nothing contained in this section shall be deemed to require such court or person to pay the sum demanded or any part thereof to the assessing authority. (6) Any amount which a court or person other than any officer of the Government is required to pay the assessing authority or for which it or he is liable to the assessing authority under this section shall, if it remains unpaid, be a charge on the properties of such court or person, as the case may be, and may be recovered as if it were an arrear of public revenue due on land. 11. Indeed, if the Department initiates any garnishee proceedings, Section 35 squarely applies. On the other hand, if the bank desires to attach any movable property, Section 31 does. Here, Section 31(3), for our purpose, assumes importance. Therefore, it is appropriate to examine that provision, too. And it reads: **31 Payment and recovery of tax.-** (3) If default is made in payment under sub-section (2), the whole of the amount outstanding on the date of the default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax or other amount under this Act. 12. Indisputably, money can be reckoned as movable property or chatter. Then the question is, can the Bank which has held that money, in whatever form, be treated as a debtor for the -7- RP.No. 979 of 2018 IN WP(C). 22546/2018 purpose of both Section 31(3) and Section 19 of the Revenue Recovery Act? 13. Here the 5[th] respondent can be treated as a competent authority, that is, the Collector under the Revenue Recovery Act because Section 33 allows such a designation. To that extent, even the petitioner has no grievance. 14. Section 19, the pivotal provision for our purpose, reads as follows: “ **19. Attachment of debt, shares, etc.** —(1) in the case of — (a) a debt not secured by a negotiable instrument; or (b) a share in a corporation; or (c) other movable property not in the possession of the defaulter except property deposited in, or in the custody of, any Court, the attachment shall be made by a written order of the Collector or the authorised officer prohibiting— (i) in the case of the debt, the creditor from recovering the debt and the debtor from making payment thereof until the further order of the Collector or the authorised officer, as the case may be; (ii) in the case of the share, the person in whose name the share may be standing from transferring the same or receiving any dividend thereon; (iii) in the case of the other movable property (except as aforesaid), the person in possession of the same from giving it over to the defaulter. (2) A copy of such order shall be affixed on some conspicuous part of the office of the Collector or the authorised officer, as the case may be, and another copy shall be sent, in the case of the debt, to the debtor; in the case of the share, to the proper officer of the corporation; and in the case of the other movable property (except as aforesaid), to -8- RP.No. 979 of 2018 IN WP(C). 22546/2018 the person in possession of the same. (3) A debtor prohibited under clause (i) of sub-section (1) may pay the amount of his debt to the Collector or the authorised officer, as the case may be, and such payment shall discharge him as effectually as payment to the party entitled to receive the same.” 15. Then, I may need to examine Section 19(3), which discharges the debtor from the further burden if it pays the amount of debt to the Collector or the authorized officer. Thus the crux of the question remains this: Can a banker be treated as a debtor if it holds the deposits of its customer, say, in a current account? . Clichetic as the expression sounds, the issue is no longer _res integra_ 16. A Constitutional Bench of the Supreme Court in _Shanti Pasad Jain v. The Director of Enforcement[1] ,_ has held: “37. Now the law is well settled that when moneys are deposited in a Bank, the relationship that is constituted between the banker and the customer is one of debtor and creditor and not trustee and beneficiary. The Banker is entitled to use the monies without being called upon to account for such user, his only liability being to return the amount in accordance with the terms agreed between him and the customer. And it makes no difference in the jural relationship whether the deposits were made by the customer himself, or by some other persons, provided the customer accepts them. There might be special arrangement under which a Banker might be constituted a trustee, but apart from such an arrangement, his position qua Banker is that of a debtor, and not trustee. The law was stated in those terms in the old and well-known decision of the House of Lords in 1 AIR 1962 SC 174 -9- RP.No. 979 of 2018 IN WP(C). 22546/2018 Foley v. Hill, (1848) 2 HLC 28 : 9 ER 1002, and that has never been questioned.” 17. Later, a three-judge Bench of the Supreme Court in _Ram Ratan Gupta v. Director of Enforcement[2] ,_ affirmed that principle of law. Then, a learned Single Judge of this Court in _Shajahan v. Income Tax Officer Quilon[3]_ has addressed the issue elaborately. Quoting copiously from Halsbury Laws of England and a judgment of the King's Bench, England, _Shajahan_ has held: “[T]he matter is made more clear at para 339, page 301-302 of the same volume of the American Jurisprudence. “Although money on deposit in a bank is commonly considered to be the property of the depositor, the relationship in fact between him and the bank is that of debtor and creditor; the amount on deposit represents merely an indebtedness by the bank to the depositor. It is therefore a fundamental rule of banking law that in the case of a general deposit of money in a bank, the moment the money is deposited it actually becomes the property of the bank, and the bank and the depositor assume the legal relation of debtor and creditor. The legal effect of the transaction is that of a loan to the bank upon the promise and obligation, usually implied by law, to pay or repay the amount deposited, usually upon demand; there is nothing of a trust or fiduciry nature in the transaction, nor anything in the nature of aabailment in the transaction or relationship or in the nature of any right to the specific moneys deposited. Rather, the funds, this received are commingled with other funds of the bank and may be loaned or otherwise disposed of by the bank; indeed, if the funds are lost, destroyed, or stolen, or become worthless the loss must be borne by the bank, even though it is free from negligence or fault.” > 2 AIR 1966 SC 495 > 3 1975 (2) ILR Kerala 383 -10- RP.No. 979 of 2018 IN WP(C). 22546/2018 . . . “This would indicate that the law in America is in no way different from the law in England and India in regard to deposits in bank. No doubt, the debt due from a bank to its customers differs from ordinary commercial debts in one important respect viz., that the general rule by which a request by the creditor for payment is unnecessary, does not apply.” 18. In Joachimson v. Swiss Banking Corporation[4] Atkun L.J., ## as quoted in _Shajahan,_ gave the correct summary of the nature of the contract created by an account current in the following words: “The bank undertakes to receive money and to collect bills for its customers account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them. The promise to repay is to repay at the branch of the bank where the account is kept, and during banking hours. It includes a promise to repay any part of the amount due against the written order of the customer addressed to the bank at the branch and as such written orders may be outstanding in the ordinary course of business from two or three days, it is a term of the contract that the bank will not cease to do business with the customer except upon reasonable notice. The customer on his part undertakes to exercise reasonable care in executing his written orders so far as not to mislead the bank or to facilitate forgery. I think it is necessarily a term of such contract that the bank is not liable to pay the customer the full amount of his balance until he demands payment from the bank at the branch at which the current account is kept. Whether he must demand it in writing, it is not necessary now to determine.” 19. Thus, according to _Shajahan,_ the above discussion would indicate that once money is deposited in a bank, though the depositor > 4 (1921) 3 K.B. 110. -11- RP.No. 979 of 2018 IN WP(C). 22546/2018 has got a legal title to the account, he has ceased to be the owner or having custody of the amount deposited in his account. He has, in fact, given the amount to the bank as a loan; the money has become the bank's property. And it remains at its absolute disposal subject to the bank's obligation to honour the account holder's cheques drawn upon his account. 20. In _Union Bank of India v. K.V. Venugopalan[5] ,_ another learned Single Judge of this Court had an occasion to examine the same issue. In fact, _K.V. Venugopalan,_ too, holds that the “money lodged with banks as fixed deposits _stricto jure_ is a loan to the bank. The banker in connection with the 'fixed deposit', therefore is a debtor. The depositor accordingly would cease to be the owner of the money in fixed deposit. The said money becomes the money of the bank, enabling the bank to do as the bank likes, that however, with the obligation to repay the debt on maturity.” From the judgments quoted above, it is beyond the pale of any controversy that a banker, for the purpose of Section 19 of the RR Act, can be regarded as a debtor. And here the bank has transferred the amounts to the Department and discharged its obligation under > 5 AIR 1990 Kerala 223 -12- RP.No. 979 of 2018 IN WP(C). 22546/2018 Section 19(3). Thus, the procedure the Department has adopted, I conclude, cannot be faulted. Therefore, the judgment dated 27[th] July 2018 stands set aside and the writ petition dismissed. **Sd/-** **DAMA SESHADRI NAIDU** **JUDGE** Das -13- RP.No. 979 of 2018 IN WP(C). 22546/2018 ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** **ANNEXURE A1: TRUE COPY OF THE DEMAND NOTICE ISSUED UNDER SECTION 7 OF REVENUE RECOVERY ACT DATED 08.12.2015.** **ANNEXURE A2: TRUE COPY OF THE PROHIBITORY ORDER ISSUED TO THE STATE BANK OF INDIA, SN JUNCTION, THRIPUNITHURA AT 26.06.2018.**