Secured creditor priority over State VAT dues under SARFAESI prevails, and revenue charge entries on the secured asset fail.

A secured creditor's statutory priority over State VAT dues was affirmed under Section 26E of the SARFAESI Act, and the State's reliance on the VAT Act could not defeat that priority. The Court treated the inter se claim as governed by the secured creditor's first charge over the mortgaged asset, so the State's revenue charge entry and consequential mutation against the secured property could not stand. The revenue entry was therefore unsustainable and was quashed, while the State was left free to pursue other lawful recovery remedies.

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Issues: (i) Whether the bank, as a secured creditor, had priority over the State's VAT dues in respect of the mortgaged property under Section 26E of the SARFAESI Act; (ii) whether the revenue entry / charge created by the State on the secured asset was sustainable.

Issue (i): Whether the bank, as a secured creditor, had priority over the State's VAT dues in respect of the mortgaged property under Section 26E of the SARFAESI Act.

Analysis: The dispute turned on the inter se priority between the secured creditor's claim and the State's claim for VAT dues. The legal position was treated as settled by earlier binding decisions of the same Court, under which Section 26E of the SARFAESI Act confers priority on the secured creditor. The State's reliance on Section 48 of the VAT Act could not displace that statutory priority.

Conclusion: The bank's secured claim had first priority over the State's VAT dues.

Issue (ii): Whether the revenue entry / charge created by the State on the secured asset was sustainable.

Analysis: Once the bank's priority under Section 26E was accepted, the communication directing mutation of charge in the revenue record and any consequential entry based on it could not stand. The State was left free to pursue other lawful remedies for recovery, but not by asserting precedence over the secured assets of the borrower.

Conclusion: The revenue charge entry was unsustainable and was quashed, and any consequential mutation was cancelled.

Final Conclusion: The writ petition succeeded, the bank's priority over the secured assets was affirmed, and the State was permitted to recover its dues only through other remedies available in law.

Ratio Decidendi: A secured creditor's statutory priority under Section 26E of the SARFAESI Act prevails over State VAT claims, and any contrary revenue charge over the secured asset cannot be sustained.

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