Secured creditor priority over State VAT dues protects auction purchasers where the bank's security interest and sale came first.

Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 gives secured creditors priority in recovering debts through the sale of secured assets over other debts and Government dues, including State VAT liabilities. Where the bank's security interest and auction sale under the RDB Act predated the VAT charge, the later-recorded charge could not survive against the auction purchasers' title. The VAT charge was therefore required to be removed from the revenue records, preserving title acquired through the secured creditor's auction sale.

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Issues: Whether a VAT charge recorded over land sold to the petitioners in a debt-recovery auction could prevail over the prior security interest and sale effected by the secured creditor.

Analysis: Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 accords priority to secured creditors for recovery through sale of secured assets over all other debts and Government dues, including State taxes. The Bank's security interest and the auction sale under the RDB Act preceded the VAT charge. The earlier ruling concerning the same land had also recognised the priority of the secured creditor's charge. Accordingly, the subsequently recorded VAT charge could not subsist against the auction purchasers' title.

Conclusion: The VAT charge was unsustainable and was directed to be removed from the revenue records. The issue was decided in favour of the assessee.

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