2022 (5) TMI 5 - HC - VAT and Sales Tax

Court quashes state's claim over land, orders release of deed to applicant

The court quashed the impugned order dated 19.01.2022 and the corresponding entry in the revenue records. It declared that the State could not claim a ... Recovery of arrears of VAT - priority of charge over the land - right of secured creditors - Registration of deed of conveyance - mutation of entry in registered sale deed - HELD THAT:- It appears that although the Sub-Registrar has registered the sale deed yet the sale deed has not been released on account of the claim of the State over the subject land. What came to be purchased by the writ applicant in the auction proceedings conducted by the Bank of Baroda 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 not in dispute that the first charge was created in favour of the Bank of Baroda and the Bank in exercise of its powers under the SARFAESI Act, was entitled to auction the subject land and recover the requisite amount towards the dues incurred by the Company. The pivotal issue raised in the present writ-application is no longer res-integra in view of the decision in BANK OF INDIA VERSUS STATE OF GUJARAT & 3 OTHER (S) [2020 (1) TMI 1197 - GUJARAT HIGH COURT] and KALUPUR COMMERCIAL CO-OPERATIVE BANK LTD. VERSUS STATE OF GUJARAT [2019 (9) TMI 1018 - GUJARAT HIGH COURT] where it was held that We have no hesitation in coming to the conclusion that the first priority over the secured assets shall be of the Bank and not of the State Government by virtue of Section 48 of the VAT Act, 2003. It is hereby declared that the State cannot claim any first charge over the subject land by virtue of Section 48 of the GVAT Act, 2003. The impugned order passed by the Sales Tax Authority, Annexure H as well as the entry No. 15774 mutated in the revenue records with respect to the subject land is hereby quashed and set aside - Application disposed off. Issues Involved:1. Legality of the impugned order dated 19.01.2022 passed by the Sales Tax Authority.2. Priority of charge over the subject land between the State and the secured creditor (Bank of Baroda).3. Refusal by Mamlatdar to mutate the entry of the sale transaction in the Revenue Records.4. Direction to the Sub-Registrar to register and release the Deed of Conveyance.Issue-wise Detailed Analysis:1. Legality of the Impugned Order:The writ applicant sought to quash the impugned order dated 19.01.2022 passed by the Sales Tax Authority and the corresponding entry No.15744 mutated in the revenue record. The subject land was originally owned by M/s. Paras Bhavani Steel Private Limited, which defaulted on a loan from the Bank of Baroda. The bank auctioned the land under the SARFAESI Act, and the writ applicant emerged as the highest bidder. However, the Sales Tax Authority attached the land due to VAT liabilities of the company, leading to the impugned order.2. Priority of Charge Over the Subject Land:The central issue was whether the State could claim a first charge over the subject land for VAT dues, given that the land was a secured asset under the SARFAESI Act. The court referred to previous judgments, notably 'Bank of India vs. State of Gujarat' and 'Kalupur Commercial Co-operative Bank Ltd. vs. State of Gujarat,' which established that the bank's charge takes precedence over state dues. The court cited the Supreme Court's decision in 'Punjab National Bank Vs. Union of India,' affirming that secured creditors have priority over state claims unless a specific statutory provision states otherwise.3. Refusal by Mamlatdar to Mutate the Entry:The Mamlatdar refused to mutate the sale transaction entry in the Revenue Records, arguing that the State had the first charge over the land for tax recovery. The court found this refusal unjustified, reiterating that the secured creditor's charge under the SARFAESI Act takes precedence over the State's claim.4. Direction to the Sub-Registrar:The court noted that although the Sub-Registrar had registered the sale deed, it was not released due to the State's claim. The court directed the Sub-Registrar to release the deed of conveyance in favor of the writ applicant, emphasizing that the State cannot claim a first charge over the subject land by virtue of Section 48 of the GVAT Act, 2003.Conclusion:The court quashed the impugned order dated 19.01.2022 and the corresponding entry in the revenue records. It declared that the State could not claim a first charge over the subject land, directing the Sub-Registrar to release the deed of conveyance to the writ applicant. The writ application was allowed, and direct service was permitted.