Secured creditor priority defeats later VAT claims; SARFAESI auction sale bars continued attachment and registration refusal.

Section 26E of the SARFAESI Act gives the secured creditor priority over later State VAT claims against the same mortgaged asset, and Section 48 of the Gujarat VAT Act cannot displace that first charge. Once the secured property is validly sold in SARFAESI auction and the sale is confirmed, the State cannot continue the attachment or refuse registration of the sale deed; the purchasers are entitled to registration and mutation, while the State may pursue recovery from the borrower by other lawful means.

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Issues: (i) whether the State could claim priority over mortgaged property for VAT dues when the secured creditor's interest was protected under Section 26E of the SARFAESI Act, 2002; (ii) whether the attachment of the property and the refusal to register the sale deed could survive once the property had been sold in SARFAESI auction.

Issue (i): whether the State could claim priority over mortgaged property for VAT dues when the secured creditor's interest was protected under Section 26E of the SARFAESI Act, 2002.

Analysis: The writ application was decided on the settled position that Section 26E of the SARFAESI Act, 2002 gives priority to the secured creditor over later claims of the State under the Gujarat Value Added Tax Act, 2003. The security interest in favour of the Bank had been created before the VAT dues were determined, and Section 48 of the Gujarat Value Added Tax Act, 2003 could not override that priority.

Conclusion: The State could not assert first priority over the mortgaged property, and the Bank had the first charge over it.

Issue (ii): whether the attachment of the property and the refusal to register the sale deed could survive once the property had been sold in SARFAESI auction.

Analysis: Once the secured asset was sold in auction and the sale was confirmed in favour of the purchasers, the State's attachment could not continue against that property. The auction purchasers were entitled to have the sale deed registered and their names mutated in the record of rights. The State was left free to recover its dues from the borrower by other lawful means, including proceeding against any other assets available in law.

Conclusion: The attachment notice was quashed, and the sale deed was required to be registered in favour of the auction purchasers.

Final Conclusion: The petition succeeded, the impugned attachment was set aside, and the auction purchasers' title and consequential registration rights were protected, while the State's remedy for recovery of VAT dues remained available against the borrower by other lawful modes.

Ratio Decidendi: A secured creditor's priority under Section 26E of the SARFAESI Act, 2002 prevails over a State tax claim under the Gujarat Value Added Tax Act, 2003 against the same secured asset, and such asset cannot be attached or withheld from registration once validly sold in SARFAESI proceedings.

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