2020 (12) TMI 1285 - HC - VAT and Sales Tax

Bank's SARFAESI Act Charge Trumps State's VAT Act Charge on Mortgaged Properties

BANK OF BARODA Versus STATE OF GUJARAT

BANK OF BARODA Versus STATE OF GUJARAT - TMI Issues:1. Priority of bank over VAT dues on mortgaged properties.2. Validity of charge created by VAT Department.3. Legal remedies available to State for recovering VAT dues.Analysis:1. The writ application under Article 226 of the Constitution of India sought relief for the Nationalized Bank regarding the priority of its charge over properties mortgaged by the borrower under the SARFAESI Act, vis-a-vis the charge of the State under the VAT Act. The Bank faced a situation where an auction purchaser hesitated to deposit the balance amount due to a charge created by the VAT Department on the property. The Bank argued that as per Section 26(E) of the SARFAESI Act, it should have precedence over the State's charge under Section 48 of the VAT Act.2. The High Court examined the legal position based on previous judgments, particularly the cases of Kalupur Commercial Coop. Bank Ltd. Vs. State of Gujarat and Bank of Baroda. It reiterated that the Bank held the first charge over the secured assets, and the State could not use Section 48 of the VAT Act to supersede the Bank's claim. The Court held that the State could recover its dues through other legal means but could not claim primary rights over the borrower's assets.3. Consequently, the Court ordered the quashing and setting aside of the communication by the VAT Department to mutate a charge on the immovable properties of the borrower in the revenue record. The Court allowed the writ application, granting the State the liberty to recover its dues under the VAT Act through alternative legal remedies. The Bank was permitted to proceed with issuing the sale certificate to the auction purchaser, signaling a resolution in favor of the Bank's priority in the matter.