2024 (8) TMI 1201 - HC - VAT and Sales Tax

Bank's security interest registered with CERSAI takes priority over later GST and Sales Tax Department dues under Section 26-E SARFAESI Act

Janaseva Sahakari Bank Ltd. Versus State of Maharashtra, Commissioner of Goods And Service Tax Mumbai, State Tax Officer, VAT Nashik, M/s. Shree Ganesha Packaging Co. Nashik

Janaseva Sahakari Bank Ltd. Versus State of Maharashtra, Commissioner of Goods And Service Tax Mumbai, State Tax Officer, VAT Nashik, M/s. Shree Ganesha ... Issues Involved:1. Whether the Petitioner-Bank's registered security interest with CERSAI has priority over the dues claimed by the GST and Sales Tax Departments.2. The applicability and precedence of Section 26-E of the SARFAESI Act over Section 37 of the MVAT Act.3. The validity of the demand notices and orders of attachment issued by the GST and Sales Tax Departments.Detailed Analysis:1. Priority of Registered Security Interest:The Petitioner-Bank argued that under Section 26-E of the SARFAESI Act, its registered security interest with CERSAI on 17th March 2017 should have priority over the dues claimed by the GST and Sales Tax Departments. The court noted that Section 26-E of the SARFAESI Act clearly states that 'the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.' The Full Bench in Jalgaon Janta Sahakari Bank Ltd. v. Joint Commissioner of Sale Tax Nodal 9, Mumbai and another clarified that a secured creditor with a CERSAI registration has priority over other claims, including tax dues. The court found no dispute that the Petitioner-Bank had registered its security interest, while the GST and Sales Tax Departments had not.2. Applicability and Precedence of Section 26-E of the SARFAESI Act:The court examined the contention that Section 37 of the MVAT Act gives precedence to Sales Tax dues over bank dues. However, it was noted that the SARFAESI Act, being a Central Act, prevails over the MVAT Act, a State Act. The court referred to the Full Bench decision in Jalgaon Janta Sahakari Bank Ltd., which emphasized that the SARFAESI Act's provisions, including Section 26-E, take precedence over conflicting state laws. The court also cited its earlier decision in Indian Bank v. State of Maharashtra, reiterating that the secured creditor's registered interest takes priority over state tax claims.3. Validity of Demand Notices and Orders of Attachment:The Petitioner-Bank challenged the demand notices and orders of attachment issued by the GST and Sales Tax Departments. The court found that the GST and Sales Tax Departments had not registered their security interests with CERSAI, which is a prerequisite for claiming priority under the SARFAESI Act. The court concluded that the Petitioner-Bank's registered security interest, being earlier in time and compliant with the SARFAESI Act, had priority over the subsequent attachments and claims by the GST and Sales Tax Departments.Conclusion:The court held that the Petitioner-Bank's registered security interest with CERSAI has priority over the dues claimed by the GST and Sales Tax Departments. The provisions of Section 26-E of the SARFAESI Act override Section 37 of the MVAT Act. Consequently, the demand notices and orders of attachment issued by the GST and Sales Tax Departments were quashed. The court made the rule absolute in terms of the prayer clauses (I), (II), (III), and (IV) of the Writ Petition, allowing the Petitioner-Bank's claims and dismissing the respondents' objections. The GST and Sales Tax Departments were permitted to pursue recovery against the borrower as per law.