SARFAESI Priority Over VAT Charge Bars State Claim Against Auctioned Secured Property

Section 26E of the SARFAESI Act gives the secured creditor priority over the secured asset, so the State could not assert a first charge for VAT dues against the property sold in auction by the bank. Section 48 of the Gujarat Value Added Tax Act, 2003 could not displace that statutory priority in relation to the secured property. After sale by the secured creditor and issuance of the sale certificate, the State's recovery claim could not prevail against the auction purchaser or the bank's title, and the revenue record could not continue to reflect the State's charge. The mutation entry showing the State's charge was directed to be deleted and the sale recorded in favour of the purchaser.

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Issues: Whether the State could assert a first charge over the secured property for recovery of VAT dues despite the bank's rights under the SARFAESI Act, and whether the revenue records could continue to reflect the State's charge after sale by the secured creditor.

Analysis: The writ petition concerned a secured asset sold in auction under the SARFAESI regime after the borrower defaulted. The Court applied the settled position that, by virtue of Section 26E of the SARFAESI Act, the secured creditor enjoys priority over the secured asset. It held that Section 48 of the Gujarat Value Added Tax Act, 2003 could not override that priority in respect of the secured property. Once the property had been sold by the bank and the sale certificate issued, the State's claim for VAT recovery could not prevail against the purchaser or the secured creditor's title, and the revenue record could not continue to show the State's charge.

Conclusion: The State could not claim a first charge over the subject property, and the mutation entry showing the State's charge was directed to be deleted while the sale transaction in favour of the auction purchaser was to be recorded.

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