Secured creditor priority over VAT dues prevails where the tax liability is unassessed and the bank has enforced SARFAESI remedies.

A secured creditor's prior charge over mortgaged assets prevailed over the State's claim for VAT dues because the bank had already taken SARFAESI measures and the tax liability had not been finally assessed or crystallised. Section 48 of the VAT law could not override the secured creditor's security interest in such circumstances, so the communication asserting first charge in favour of the State could not stand and was liable to be quashed.

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Issues: Whether the secured creditor had priority over the mortgaged properties as against the State's claim for VAT dues and whether the impugned communication asserting first charge in favour of the State could survive.

Analysis: The property stood mortgaged to the bank under a registered mortgage deed and the bank had already initiated measures under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, including notice under Section 13(2), possession under Section 13(4), and proceedings under Section 14. The Court relied on the settled position that Section 48 of the Value Added Tax Act, 2003 cannot override the secured creditor's prior charge where the tax liability has not been finally assessed and determined. The Court further followed the earlier decisions holding that the first priority over secured assets remains with the bank and that the State cannot claim precedence merely on the basis of VAT dues.

Conclusion: The secured creditor's charge prevailed over the State's VAT claim, and the communication asserting first charge in favour of the State was liable to be quashed. The petition succeeded.

Ratio Decidendi: A statutory first charge under the VAT law operates only upon final assessment and crystallisation of the tax liability, and it cannot defeat a prior secured creditor's charge over mortgaged assets protected under the SARFAESI regime.

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