Sales Tax Department's Charge on Property Remains Valid Despite Prior Secured Creditor's First Charge Under Section 11

The HC held that the Sales Tax Department had a valid and subsisting charge on the property purchased by petitioners 1 and 2, as the attachment order dated 11 August 2017 remained effective. Petitioners 1 and 2 bought the property subject to this encumbrance, as the sale certificate did not indicate a free-from-charge purchase. The secured creditor (petitioner 3) held the first charge, but this did not invalidate the Sales Tax Department's charge for recovery of dues. The court emphasized that auction purchasers acquire the property on an "as is where is" basis, with constructive notice of existing charges. Consequently, the Sales Tax Department was entitled to enforce its charge despite the prior first charge of petitioner 3. The petition was dismissed.

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Issues Involved:
1. Whether auction purchasers are liable to discharge the sales tax dues attached to the purchased property.
2. Whether the property purchased by auction purchasers was encumbered.
3. Validity of the attachment order by the Sales Tax Department.
4. Priority of charges between secured creditors and the Sales Tax Department.

Summary:

1. Whether auction purchasers are liable to discharge the sales tax dues attached to the purchased property:

The court examined whether the auction purchasers (Petitioner Nos. 1 and 2) are liable for the sales tax dues attached to the property they purchased from Petitioner No. 3, a non-banking financial institution. It was determined that the auction purchasers are liable to discharge the sales tax dues because the property was sold on "as is where is basis," which includes all encumbrances.

2. Whether the property purchased by auction purchasers was encumbered:

The court found that the property was indeed encumbered. The Sales Tax Department had issued an "Attachment Order" dated 11 August 2017, attaching the property to recover sales tax dues of Rs. 10,31,38,003/-. This attachment was valid and subsisting at the time of the auction. The auction notice and sale certificate explicitly mentioned the encumbrances, including the sales tax dues.

3. Validity of the attachment order by the Sales Tax Department:

The attachment order dated 11 August 2017, issued by the Sales Tax Department, was found to be valid and in accordance with the law. The attachment was made under the provisions of Sections 178 and 267 of the Maharashtra Land Revenue Code, 1966, read with Section 34 of the MVAT Act and Rule 11 of the Maharashtra Realisation of Land Revenue Rules, 1967. The attachment was not challenged by the borrowers or Petitioner No. 3.

4. Priority of charges between secured creditors and the Sales Tax Department:

The court recognized that Petitioner No. 3, as a secured creditor, had the first charge on the property under Section 31B of the Recovery of Debt and Bankruptcy Act, 1993, and Section 26E of the SARFAESI Act. However, the attachment by the Sales Tax Department continued to subsist. The Full Bench of the Bombay High Court in Jalgaon Janta Sahakari Bank Ltd. held that if a property is sold on "as is where is basis," the auction purchaser is liable to pay the dues of the State Government.

Conclusion:

The court concluded that the Sales Tax Department's charge on the property was valid and subsisting. Petitioner Nos. 1 and 2, having purchased the property with knowledge of the encumbrances, are liable to discharge the sales tax dues. The petition was rejected, and the auction purchasers were directed to pay the outstanding sales tax dues.

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