Statutory first charge prevails over SARFAESI priority, preserving State tax recovery rights despite later CERSAI registration.

A statutory first charge created under State sales tax laws prevails over the priority given to a secured creditor under Section 26E of the SARFAESI Act where the tax dues had already crystallised and attachment orders had issued before CERSAI registration. The note distinguishes prospectivity from retroactive operation and states that a provision described as prospective cannot be used to unsettle vested State recovery rights on these facts. It also states that recovery machinery under the Central Sales Tax Act can carry the same first-charge incidents through Section 9(2), so the State may enforce the charge for CST dues as well.

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Issues: (i) Whether the priority conferred on a secured creditor under Section 26E of the SARFAESI Act prevails over a statutory first charge created under the State sales tax enactments when the tax attachment orders predate CERSAI registration but postdate the mortgage; (ii) Whether a provision declared to be prospective can still operate retroactively on pending or antecedent transactions, and whether CERSAI registration could affect the prior attachment orders; (iii) Whether the statutory first charge under the State recovery framework extends to dues recoverable under the Central Sales Tax Act, 1956.

Issue (i): Whether the priority conferred on a secured creditor under Section 26E of the SARFAESI Act prevails over a statutory first charge created under the State sales tax enactments when the tax attachment orders predate CERSAI registration but postdate the mortgage.

Analysis: Section 26E confers priority in payment after registration of security interest, but it does not create a statutory first charge. The State enactments, particularly Section 16C of the Andhra Pradesh General Sales Tax Act, 1957, create a first charge dehors the non obstante clause. On the principles governing conflicting priority clauses and statutory first charge, a mere priority provision cannot override a validly created first charge. The subsequent CERSAI registration therefore did not displace the State's first charge in respect of the tax dues already crystallised and attached under the State laws.

Conclusion: The priority under Section 26E does not prevail over the statutory first charge created under the State sales tax enactments; this issue is answered against the assessee and in favour of the Revenue.

Issue (ii): Whether a provision declared to be prospective can still operate retroactively on pending or antecedent transactions, and whether CERSAI registration could affect the prior attachment orders.

Analysis: Prospectivity, retrospectivity and retroactivity are distinct concepts. A provision declared prospective is not automatically excluded from all retroactive operation unless the higher court has expressly negatived such application. The amended Chapter IVA of the SARFAESI Act takes into account antecedent facts, but its operation cannot defeat vested statutory first charge where that charge had already crystallised under the State enactments. In the present facts, the tax claims and attachment orders had already arisen well before the CERSAI registration.

Conclusion: Section 26E cannot be applied so as to defeat the prior statutory first charge in the present case; this issue is answered against the assessee.

Issue (iii): Whether the statutory first charge under the State recovery framework extends to dues recoverable under the Central Sales Tax Act, 1956.

Analysis: Though the Central Sales Tax Act, 1956 does not itself create an express first charge, Section 9(2) incorporates the recovery machinery and powers under the State sales tax laws for collection and enforcement. In the absence of any exclusion, the statutory incidents attached to the State recovery provisions apply to CST dues as well. The State authorities may therefore enforce the first charge while recovering CST arrears.

Conclusion: The statutory first charge is available for recovery of CST dues also; this issue is answered in favour of the Revenue.

Final Conclusion: The secured creditor's claim to priority under Section 26E did not displace the State's statutory first charge, the amendment could not be used to unsettle the prior tax attachment rights in the facts of this case, and the State could proceed for recovery of APGST, APVAT and CST dues.

Ratio Decidendi: A statutory first charge validly created dehors the non obstante clause prevails over a later statutory provision that confers only priority in payment, and such priority cannot be used to defeat pre-existing tax recovery rights.

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