2022 (4) TMI 1252 - HC - VAT and Sales Tax

Court prioritizes bank's charge over State's VAT claim, directs sale deed registration under SARFAESI Act.

KHUSHBOO CHANDRAKANT DOSHI Versus ASSISTANT COMMISSIONER OF COMMERCIAL TAX

The court ruled in favor of the petitioner, holding that the bank's charge over the mortgaged property took precedence over the State's claim for VAT ... Registration of sale deed of the property - possession of the secured assets - original borrower defaulted in the repayment of the loan amount - HELD THAT:- What came to be purchased by the writ-applicant in the auction proceedings conducted by the State Bank of India was a secured asset under the provisions of the SARFAESI Act. In such circumstances, the State cannot claim preference over the subject property for the purpose of recovery of the dues towards VAT. It is hereby declared that the State cannot claim any first charge over the subject property by virtue of Section-48 of the GVAT Act, 2003 - The Sub-registrar is directed to register the sale-deed duly executed by the State Bank of India in favour of writ-applicant in accordance with the provisions of the Registration Act at the earliest. Application allowed. Issues:1. Challenge of commercial tax charge on an immovable property.2. Dispute over the registration of a sale deed for the property.3. Priority of recovery between a bank and the State government.4. Interpretation of Section-48 of the GVAT Act, 2003.1. Challenge of Commercial Tax Charge:The petitioner sought relief to quash a commercial tax charge of approximately Rs. 6.84 crores plus interest on a property in Rajkot. The property was subject to a mortgage with a bank due to default by the original borrower. The petitioner participated in an auction, emerged as the highest bidder, and the sale was finalized in their favor. However, the State claimed a charge over the property for VAT recovery from the original borrower, leading to the Sub-Registrar's refusal to register the sale deed.2. Dispute over Sale Deed Registration:The central issue revolved around the State's claim of a first charge on the property under Section-48 of the GVAT Act, 2003, conflicting with the bank's rights over the secured asset under the SARFAESI Act. The court noted that the State's claim was untenable as the bank had precedence in recovering dues from the secured asset. Referring to past judgments, the court emphasized that the bank's charge over the mortgaged properties was paramount, and any excess amount could be adjusted towards the State's VAT dues.3. Priority of Recovery:Citing precedents, the court clarified that the bank held the primary charge over the secured assets, and the State could not supersede this right for VAT recovery. The judgment highlighted the bank's priority in recovering dues under the SARFAESI Act, emphasizing that the State's claim did not take precedence over the bank's rights.4. Interpretation of Section-48 of GVAT Act, 2003:The court relied on the interpretation of Section-48 of the GVAT Act, 2003, to assert that the State could not assert a first charge over the subject property in conflict with the bank's rights. The judgment directed the Sub-Registrar to register the sale deed executed by the bank in favor of the petitioner promptly, affirming the bank's priority in recovering dues from the secured asset.This comprehensive analysis of the judgment addresses the various legal issues involved in the dispute over the commercial tax charge, sale deed registration, priority of recovery, and the interpretation of relevant statutory provisions, providing a detailed overview of the court's decision and reasoning.