Secured creditor priority prevails over state tax claim in SARFAESI sale, and mutation refusal was unsustainable.

Where a secured asset is sold under the SARFAESI regime, the secured creditor's statutory priority prevails over the State's tax demand unless the taxing statute expressly creates a first charge with overriding effect. Applying that principle, the Court held that section 48 of the Value Added Tax Act, 2003 did not defeat the rights of the secured creditor or the auction purchaser, and the State could not block mutation of the sale in the revenue records. The refusal to mutate the sale was therefore unsustainable, and relief was granted to the writ applicant.

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Issues: (i) Whether the State could claim first charge over the secured property under section 48 of the Value Added Tax Act, 2003 so as to defeat the rights of the secured creditor and the auction purchaser under the SARFAESI regime.

Analysis: The Court followed its earlier decisions holding that, where property is a secured asset dealt with under the SARFAESI Act, the secured creditor's rights prevail over the State's claim for tax dues unless the statute creating the State's claim expressly confers a first charge with overriding effect. The Court noted that the property had been sold in exercise of SARFAESI powers and that the State's demand could not displace the statutory priority attached to the secured creditor. On that basis, the refusal to mutate the sale in the revenue records was unsustainable.

Conclusion: The State could not claim first charge over the subject property under section 48 of the Value Added Tax Act, 2003, and the writ applicant was entitled to relief.

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