2021 (11) TMI 89 - HC - VAT and Sales Tax

Secured Creditors Prevail: Bank's First Charge Upheld Over State Tax Officer's Claim

Bank Of Baroda Versus State Of Gujarat

Bank Of Baroda Versus State Of Gujarat - TMI Issues Involved:1. Whether the petitioner-Bank has the first charge over the properties mortgaged by the respondent under Section 26E of the SARFAESI Act, 2002.2. Whether the charge recorded by the respondent State Tax Officer under Section 48 of the VAT Act, 2003 has precedence over the petitioner-Bank's claim.3. The applicability and interpretation of Section 26E of the SARFAESI Act, 2002 and Section 48 of the VAT Act, 2003.Issue-wise Detailed Analysis:1. First Charge Over Properties:The petitioner-Bank classified the respondent's account as Non-Performing Assets (NPA) due to default in repayment. Subsequently, the Bank issued a notice under Section 13(2) of the SARFAESI Act, 2002 and took possession of the secured assets. The Bank then initiated the sale of the property through an e-auction, receiving the highest bid from M/s. Khusbu Metal Industries and Minerals. However, the registration of the sale deed was denied due to a lien by the Sales Tax Department. The Bank argued that it had the first right to recover its dues under Section 26E of the SARFAESI Act, 2002, which provides that the debts due to any secured creditor shall be paid in priority over all other debts and revenues.2. Charge Recorded by State Tax Officer:The respondent State Tax Officer issued an attachment order to recover Value Added Tax from the respondent borrower. The respondent contended that under Section 48 of the VAT Act, 2003, their charge had precedence over the Bank's claim. The State Tax Officer argued that the VAT Act's provisions, which include special powers for tax recovery, would prevail over the SARFAESI Act, 2002. The respondent relied on various judgments to support the primacy of tax recovery over other claims.3. Applicability and Interpretation of Relevant Sections:The Court examined the legal provisions and relevant case laws. It noted that the principle of priority of Government debts is founded on public policy. However, the introduction of Section 26E in the SARFAESI Act, 2002 by the Central Government through an amendment in 2016, provided that the debts due to secured creditors shall be paid in priority over all other debts, including taxes. The Court referred to previous judgments that supported the Bank's claim of first charge over the secured assets, emphasizing that the SARFAESI Act, 2002 would have primacy over the VAT Act, 2003.Judgment:The Court concluded that the petitioner-Bank had the first charge over the properties mortgaged by the respondent under Section 26E of the SARFAESI Act, 2002, overriding the charge recorded by the respondent State Tax Officer under Section 48 of the VAT Act, 2003. The Court quashed and set aside the impugned attachment order and the charge recorded in the revenue record by the respondent State Tax Officer. The petition was allowed, and the Bank's claim was upheld.Conclusion:The judgment establishes that the petitioner-Bank, as a secured creditor, has the first charge over the mortgaged properties under Section 26E of the SARFAESI Act, 2002, which takes precedence over the State Tax Officer's claim under Section 48 of the VAT Act, 2003. This decision reinforces the priority of secured creditors in the recovery of dues post the 2016 amendment to the SARFAESI Act, 2002.