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2022 (6) TMI 374 - HC - VAT and Sales TaxRecovery of dues - priority of charges - default in payment of Loan Cash Credit etc. by previous owner of property M/s Dev Bhumi Ispat - overriding effect of SARFAESI Act and RDB Act over HPVAT Act - HELD THAT - SARFAESI Act as well as RDB Act are Central Legislations whereas HPVAT is a State Legislation. SARFAESI Act and RDB Act declare priority of secured creditors upon secured assets over all revenues, taxes, cesses and other rates payable to Central Government or State Government or local authorities. Provisions of Section 31-B of RDB Act are also the same. Section 26 of HPVAT creates first charge on property of dealer or such other person from whom any amount of tax or penalty including interest is recoverable - As has been reiterated by the Supreme Court in UCO Bank s case 2017 (1) TMI 742 - SUPREME COURT , by virtue of provisions of Article 246(1), the Parliamentary Legislation would prevail and such Legislation will have to give way notwithstanding the fact that the State Legislation is within demarcated field. The Supreme Court in Punjab National Bank vs. Union of India, 2022 (2) TMI 1171 - SUPREME COURT has held that provisions contained in SARFAESI Act, 2002 will have an overriding effect on the provisions of Central Excise Act of 1944. Therefore, the provisions of SARFAESI Act shall have priority not over the State Excise Act but also over the Central Excise Act. Thus, it is concluded that SARFAESI Act and RDB Act shall have overriding effect to provisions of HPVAT Act and therefore, creation of charge upon the property in reference by and in favour of respondents No. 3 and 4 vide Rapat Nos. 745 dated 8.8.2014 and 190 dated 10.12.2014 is not sustainable and the said property is to be permitted to be transferred in favour of petitioners free from all encumbrances in terms of E-aution dated 30.7.2019, confirmation of sale dated 2.8.2019 and Sale Certificate dated 4.11.2019, possession whereof has already been handed over to petitioners vide document Annexure P-2 on 5.11.2019. Petition allowed.
Issues:
1. Priority of secured creditors over state debts in property auction under SARFAESI Act. 2. Validity of charges by State Electricity Board and Excise Department on auctioned property. 3. Interpretation of SARFAESI Act, RDB Act, and State VAT Act in property transfer. Issue 1: Priority of secured creditors over state debts in property auction under SARFAESI Act The petitioners, purchasers in an E-auction under SARFAESI Act, sought direction to execute sale deed free from charges by State Electricity Board and Excise Department. The State claimed priority based on the "Doctrine of Priority of State's Debt." The court analyzed relevant laws and precedents, emphasizing the priority of secured creditors under SARFAESI Act and RDB Act over state debts. Referring to Supreme Court judgments, the court held that parliamentary legislation prevails over state laws, giving priority to secured creditors. The court dismissed the State's claim and allowed the property transfer to petitioners free from encumbrances. Issue 2: Validity of charges by State Electricity Board and Excise Department on auctioned property The State Electricity Board and Excise Department had charges on the auctioned property for unpaid bills and taxes. The State argued for the first charge based on the State VAT Act, citing the Central Bank of India case. However, the court ruled in favor of the secured creditors, highlighting the overriding effect of SARFAESI Act and RDB Act on state laws. The court held that the charges by the State entities were not sustainable, allowing the property transfer to the petitioners without encumbrances. Issue 3: Interpretation of SARFAESI Act, RDB Act, and State VAT Act in property transfer The court analyzed the interplay of SARFAESI Act, RDB Act, and State VAT Act in the property transfer process. Referring to relevant judgments, including those by the Supreme Court and the High Court, the court emphasized the primacy of central legislation over state laws. The court concurred with previous decisions that SARFAESI Act and RDB Act override state laws regarding property charges. The court directed the removal of charges by State entities and allowed the sale deed execution and property mutation in favor of the petitioners by a specified deadline. In conclusion, the High Court of Himachal Pradesh upheld the priority of secured creditors over state debts in property auctions under SARFAESI Act, invalidated charges by State entities, and interpreted the supremacy of central legislation in property transfers. The judgment favored the petitioners, directing the removal of charges and facilitating the sale deed execution and property mutation within a specified timeframe.
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