Secured creditor priority prevails over sales tax recovery where no statutory first charge existed under the governing law.

In the absence of a statutory first charge under the governing sales tax law, the State could not claim priority over a bank's prior mortgage and secured creditor rights. The preferential recovery principle in favour of the State operates against ordinary or unsecured creditors and does not displace an existing secured debt. Section 26 of the Haryana Value Added Tax Act, 2003, could not be imported into the repealed regime through the saving clause to create a new retrospective charge. The bank's secured mortgage therefore prevailed over the State's tax dues, and the attachment, sale notice, and auction proceedings were liable to be quashed.

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Issues: Whether the State could claim priority and enforce sale of the mortgaged property for recovery of sales tax arrears over the petitioner-bank's prior mortgage and secured creditor rights.

Analysis: The petition turned on the absence of any charging provision in the Haryana General Sales Tax Act, 1973 creating a first charge in favour of the State at the time the bank had already acquired and enforced its mortgage-based security interest. The Court held that the principle of preferential recovery in favour of the State applies only against ordinary or unsecured creditors and does not override a prior secured debt or mortgage. It further held that Section 26 of the Haryana Value Added Tax Act, 2003, which creates a first charge, could not be imported into the repealed regime by relying on Section 61 of that Act, because the saving clause preserves existing rights and liabilities but does not create a new charge where none existed under the repealed enactment.

Conclusion: The petitioner-bank's secured mortgage had priority over the State's sales tax dues, and the attachment, sale notice, and auction proceedings were liable to be quashed.

Ratio Decidendi: In the absence of a statutory first charge under the governing tax law, a prior secured creditor's mortgage prevails over the State's claim for tax recovery, and a repeal-and-saving clause cannot be used to create a new charge retrospectively.

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