Secured creditor priority prevails over State tax charge where security interest is enforced before VAT dues crystallise.

Secured-creditor priority was analysed against the State's first charge under the Gujarat VAT Act, 2003, in light of section 31B of the Recovery of Debts and Bankruptcy Act, 1993 and section 26E of the SARFAESI Act, 2002. The Court applied the principle that a non obstante clause must be read in the context of the statute as a whole, and that later central enactments granting priority to secured creditors prevail over inconsistent state claims where the security interest has already been enforced and the tax dues had not crystallised. On that basis, the bank's secured interest prevailed and the attachment and recovery proceedings were unsustainable.

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Issues: Whether the secured creditor bank had priority over the State's claim under the Gujarat Value Added Tax Act, 2003, and whether the attachment and recovery proceedings initiated by the tax authorities could be sustained.

Analysis: The dispute turned on the interplay between the State's first charge under section 48 of the Gujarat Value Added Tax Act, 2003 and the statutory priority conferred on secured creditors by section 31B of the Recovery of Debts and Bankruptcy Act, 1993 and section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The Court applied the principle that a non obstante clause must be construed in the context of the statute as a whole and that later enactments granting priority to secured creditors operate over inconsistent claims, particularly where the bank's security interest had already been enforced and the State's dues were not crystallised when the bank had taken possession.

Conclusion: The bank's secured interest had priority over the State's VAT claim, and the attachment as well as the recovery intimation were unsustainable.

Final Conclusion: The writ petition was allowed and the impugned attachment and consequential recovery proceedings were quashed.

Ratio Decidendi: Where secured-creditor priority under later central enactments is in force, a State VAT first charge cannot defeat an already enforced security interest, and tax recovery can operate only after the liability has crystallised in accordance with the statute.

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