Bank's SARFAESI Act charge takes priority over VAT Act charge on mortgaged property, later VAT charge quashed

The Gujarat HC held that a bank's charge under the SARFAESI Act takes priority over a VAT Act charge on mortgaged property. The court ruled that VAT dues charges have no legal efficacy against SARFAESI Act provisions, citing precedent. Since the petitioner bank created its charge prior to the respondent's 2019 VAT charge, and the property was sold under SARFAESI provisions with sale certificate issued, the later VAT charge cannot be sustained. The court quashed the VAT charge and directed its removal from revenue records, with mutation entry deleted. Petition disposed of favorably.

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Issues:
Priority of charge under SARFAESI Act over VAT Act charge.

Analysis:
The petitioner, a bank, advanced a loan to a company and registered a charge over its properties. When the company defaulted, the bank initiated SARFAESI proceedings and took possession of one of the mortgaged properties. Subsequently, the bank discovered a charge in favor of the State Tax Officer on the same property. The bank sought a writ to establish its priority over the State Tax Officer's charge. The petitioner argued that as per Section 26E of the SARFAESI Act, its charge should take precedence. The petitioner relied on previous court decisions to support its claim. The respondent, represented by the Assistant Government Pleader, acknowledged the sequence of charges but did not contest the petitioner's priority claim.

In a related case, the court discussed the precedence of charges under different acts. It concluded that VAT and sales tax dues do not have priority over the dues of a secured creditor under the SARFAESI Act. Referring to legal principles and precedents, the court emphasized that the state's debt does not supersede the rights of secured creditors. The court highlighted that the bank had sold the property under SARFAESI proceedings, becoming the absolute owner. Consequently, the charge created by the state over the property was deemed invalid and was set aside. The court directed the removal of the state's charge and deletion of related entries in revenue records.

Based on the legal analysis and precedents cited, the court ruled in favor of the petitioner, declaring its charge as having priority over the state's charge under the VAT Act. The court emphasized the established legal position that VAT and sales tax dues do not take precedence over the rights of secured creditors under the SARFAESI Act. Consequently, the state's charge was deemed ineffective, and the petitioner's claim was upheld. The court ordered the removal of the state's charge and the deletion of related entries in revenue records, thereby resolving the issue of charge priority in favor of the petitioner.

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