Statutory first charge for sales tax dues prevails over prior mortgages and secured creditor claims under debt-recovery laws.

A statutory first charge under section 16C of the Andhra Pradesh General Sales Tax Act, 1957 was held valid and enforceable, because a State law creating priority for tax dues lies within legislative competence and is not invalid merely because it affects secured creditors. The court also held that the sales tax first charge prevails over prior mortgages, the claims of the State Financial Corporation, and proceedings under the DRT and SARFAESI regimes, since those enactments do not create a competing first charge in favour of banks or financial institutions. The constitutional challenge failed, and the Revenue's priority over secured assets was upheld.

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Issues: (i) Whether section 16C of the Andhra Pradesh General Sales Tax Act, 1957, creating a first charge in favour of the State for tax dues, is constitutionally valid and operative against secured creditors. (ii) Whether the statutory first charge under the sales tax law prevails over prior mortgages, claims of the State Financial Corporation, and proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Issue (i): Whether section 16C of the Andhra Pradesh General Sales Tax Act, 1957, creating a first charge in favour of the State for tax dues, is constitutionally valid and operative against secured creditors.

Analysis: The provision was enacted to secure priority for tax, penalty, interest and other sums payable under the sales tax law. A statutory first charge created by a State enactment in the field of sales tax is a valid legislative device and is not invalid merely because it affects the interests of secured creditors. The challenge based on Article 14 and repugnancy was rejected because the provision operates within the State's legislative competence and does not become void on that ground.

Conclusion: Section 16C is valid and enforceable, and the challenge to its vires fails.

Issue (ii): Whether the statutory first charge under the sales tax law prevails over prior mortgages, claims of the State Financial Corporation, and proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Analysis: The controlling principle is that a statutory first charge created by the sales tax law attaches to the property as a whole and has precedence over prior mortgages and other secured interests. The State Financial Corporation's rights under the State Financial Corporations Act, 1951 do not displace the statutory first charge. The non obstante clauses in the central debt-recovery and securitisation enactments do not create a first charge in favour of banks or financial institutions, and therefore they do not override a State law which expressly creates such a charge. The prior mortgage argument was also rejected because a charge created by operation of law includes and prevails over an existing mortgage.

Conclusion: The first charge under the sales tax law prevails over prior secured debts and over claims under the DRT and securitisation statutes.

Final Conclusion: The batch was disposed of by upholding the State's statutory first charge for sales tax dues, dismissing the constitutional challenge, and granting relief in favour of the Revenue in the connected matters where recovery from secured assets was in issue.

Ratio Decidendi: A statutory first charge created by a State sales tax law prevails over prior mortgages and over claims under central debt-recovery or securitisation statutes that do not themselves create a first charge in favour of secured creditors.

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