2020 (1) TMI 1197 - HC - VAT and Sales Tax

Court rules in favor of Nationalized Bank, quashes attachment order, upholds priority of mortgage charge.

BANK OF INDIA Versus STATE OF GUJARAT & 3 other (s)

BANK OF INDIA Versus STATE OF GUJARAT & 3 other (s) - TMI Issues Involved:1. Validity of the order of attachment dated 11.2.2014.2. Priority of the Bank's charge over the State Government's charge under Section 48 of the VAT Act.3. Impact of Section 31B of the RDB Act and Section 26E of the SARFAESI Act on the priority of secured creditors.Issue-wise Detailed Analysis:1. Validity of the order of attachment dated 11.2.2014:The petitioner, a Nationalized Bank, challenged the attachment order dated 11.2.2014 issued by the Commercial Tax Officer under Section 45 of the VAT Act for dues under the VAT Act. The Bank argued that the attachment order was invalid as there was no final assessment or determined liability at the time of the attachment. The Court noted that the assessment proceedings were finalized in 2013-14, determining the VAT dues. However, the Bank's charge on the property, created by the mortgage, was much earlier. The Court concluded that the attachment order was invalid as the Bank's charge had priority.2. Priority of the Bank's charge over the State Government's charge under Section 48 of the VAT Act:The Bank contended that its charge over the secured assets, created under the SARFAESI Act and the RDB Act, had priority over the State Government's charge under Section 48 of the VAT Act. The Court referred to the Division Bench decision in Kalupur Commercial Cooperative Bank Ltd. vs. State of Gujarat, which held that the Bank's charge had priority over the State's charge. The Court highlighted that Section 48 of the VAT Act creates a first charge on the property for tax dues but emphasized that the Bank's charge under the SARFAESI Act and the RDB Act, which came into force later, had overriding priority. The Court concluded that the Bank's charge had priority over the State Government's charge.3. Impact of Section 31B of the RDB Act and Section 26E of the SARFAESI Act on the priority of secured creditors:The Court extensively discussed the impact of Section 31B of the RDB Act and Section 26E of the SARFAESI Act, both of which were introduced to give priority to secured creditors over all other debts, including government dues. The Court noted that both sections start with a non-obstante clause, indicating that the secured creditors' rights would have priority over all other debts and government dues. The Court cited various judgments, including the Supreme Court's decision in Central Bank of India vs. State of Kerala, which emphasized that if the State Act creates a first charge, it would prevail over other claims unless there is a specific provision in the Central Act creating a first charge in favor of the secured creditors. The Court concluded that the amendments in the RDB Act and the SARFAESI Act, which introduced Sections 31B and 26E respectively, clearly intended to give priority to secured creditors over government dues.Conclusion:The Court allowed the petition, quashing the order of attachment dated 11.2.2014 and the intimation for tax recovery dues issued by the Commercial Tax Officer. The Court held that the Bank's charge had priority over the State Government's charge under Section 48 of the VAT Act, in light of the overriding provisions of Section 31B of the RDB Act and Section 26E of the SARFAESI Act.