Secured creditor priority defeats tax attachment over residential property used as personal residence and sold before recovery action.

Service tax recovery attachment of immovable property purchased before the departmental action was held unsustainable where the property was already subject to a secured creditor's security interest. The governing legal position gives a secured creditor priority to realise secured debts from secured assets ahead of government dues, and the departmental circular also protected personal property used as a residence by the proprietor or family. On the recorded facts, the property had been sold before attachment and was used as a residence, so the recovery action could not be maintained. The attachment was quashed, while the department was left free to proceed against the defaulter or other commercial assets.

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Issues: Whether the attachment of the immovable property purchased by the petitioner could be sustained in service tax recovery proceedings, in the face of the secured creditor's priority and the departmental circular governing attachment.

Analysis: The property had been sold to the petitioner before the department proceeded to attach it, and the department had also acknowledged that the property was subject to a bank's security interest. The governing legal position is that a secured creditor's right to realise secured debts by sale of secured assets has priority over government dues. The circular issued by the Central Board of Excise and Customs also restricted attachment of personal property used by the proprietor or family, and the material on record showed that the property was used as a residence. On these facts, the departmental attachment was not legally sustainable.

Conclusion: The attachment proceedings were quashed and the writ petition was allowed, with liberty to the department to proceed against the defaulter or other commercial properties, if any.

Final Conclusion: The impugned recovery action against the petitioner's property could not override the secured creditor's priority or the protection available to personal-use property, and the departmental action was set aside.

Ratio Decidendi: A secured creditor's statutory priority over secured assets prevails over government revenue claims, and property used for personal residence cannot be proceeded against as a matter of departmental attachment where the governing circular excludes such property.

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