2024 (4) TMI 2 - HC - VAT and Sales Tax

Secured creditor's rights under SARFAESI Act Section 26E prevail over State VAT charges under Section 26

State of Himachal Pradesh & others Versus Himanshu Prashar & others

The HP HC dismissed the State/Excise Department's appeal regarding priority of charges over property of a company. The court held that secured creditor ... Recovery of dues - priority of charges - whether appellant State/Excise Department will be having first charge upon the property of M/s Gilvert ISPAT Pvt. Ltd., in terms of provisions of Section 26 of the H.P. VAT Act, 2005 or secured creditor Punjab National Bank shall have priority to recover over any other charge, including charge in favour of State, in terms of provisions of Recovery of Debts and Bankruptcy Act, 1993 (RDB Act) and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) as amended from time to time? HELD THAT:- In Central Bank of India’s case [2009 (2) TMI 451 - SUPREME COURT], it was held by the Supreme Court that charge created in favour of State under the provisions of General Sales Tax Act in respect of sales tax dues prevailed over the charge created in favour of the Bank in respect of loan taken by a person/Firm/Company and the amendment made in the State operated in respect of charge that were in force on the date of introduction of Section 33-C of Madhya Pradesh General Sales Tax Act, creating first charge in favour of the State. After incorporation of Section 31-B in RDB Act, High Court of Kerala has decided similar issue in a petition State Bank of India vs. State of Kerala and others, WP (C) No. 28316 of 2016 and other connected matters, vide judgment dated 30.07.2019 [2019 (7) TMI 1684 - KERALA HIGH COURT] holding that secured creditor under Section 26E of the SARFAESI Act and Section 31B of the RDB Act, obtains priority over the right claimed by the Revenue both in proceeding against the properties in question or in recovering the secured debt. It is apt to record that in Section 38 of Kerala Value Added Tax, 2003, there was provision that notwithstanding anything to the contrary contained in any other law for the time being in force for recovery of any amount of tax, penalty, interest and any other amount, if any, payable by a dealer or any other person under this Act, there shall be the first charge in favour of State on the property of the dealer, or such person - It is apt to record that SARFAESI Act and RDB Act are Special Central Acts, whereras H.P. VAT Act is a State Act. In view of provisions of Articles 246, 251 and 254 of Constitution of India, law made by the Parliament i.e. Central Act, RDB Act and SARFAESI Act, shall prevail upon law made by the legislature of the State, i.e. H.P. VAT Act and being special enactment shall also have precedence over any general Central Act. Thus, learned Single Judge has not committed any mistake, irregularity, illegality or perversity in allowing petition2 preferred by respondent No. 1- petitioner Himanshu Prashar - appeal dismissed. Issues involved:The judgment involves the issue of priority of recovery between a state's statutory charge and a secured creditor's claim under the Recovery of Debts and Bankruptcy Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.Details of the Judgment:Issue 1: Creation of Charge by State vs. Secured Creditor's PriorityThe appeal was filed by the State of Himachal Pradesh against a judgment allowing the removal of entries in revenue records related to a property purchased through e-Auction. The respondent, Himanshu Prashar, participated in the auction conducted by Punjab National Bank and purchased assets of M/s Gilvert ISPAT Pvt. Ltd. The State argued for priority based on the Himachal Pradesh Value Added Tax Act, 2005. The court examined the creation of charges in favor of the Excise and Taxation Department and Punjab National Bank on the property.Issue 2: Interpretation of Statutory ProvisionsThe court analyzed the provisions of the Recovery of Debts and Bankruptcy Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Sections 31-B and 34 of the RDB Act, along with Sections 26E and 35 of the SARFAESI Act, were crucial in determining the priority of recovery between the State and the secured creditor.Issue 3: Precedence of Central Acts over State ActsConsidering the constitutional framework, the court discussed the precedence of Central Acts like the RDB Act and SARFAESI Act over State Acts such as the H.P. VAT Act. The judgment cited relevant legal precedents to support the principle that in case of irreconcilable inconsistency, provisions of Central Acts prevail over State Acts.Issue 4: Application of Previous JudgmentsThe court referred to past judgments, including the Central Bank of India case, to highlight the evolution of legal provisions. It noted the changes brought about by the insertion of Section 31-B in the RDB Act and Section 26E in the SARFAESI Act, which altered the landscape regarding the priority of recovery between the State and secured creditors.Conclusion:After considering the statutory provisions, legal precedents, and the specific circumstances of the case, the High Court upheld the judgment allowing the removal of entries in revenue records. It concluded that the learned Single Judge had not erred in granting relief to the respondent. The appeal was dismissed based on the analysis of the relevant legal framework and factual considerations.This summary provides a detailed breakdown of the judgment, focusing on the issues involved and the court's comprehensive analysis of each aspect of the case.