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2018 (10) TMI 1884 - HC - VAT and Sales TaxSeeking direction to the SubRegistrar, Dindori (Respondent No.4) to accept the Sale Certificate dated 25.07.2018 executed by the Petitioner in favour of Respondent No.2 as per the Securitisation and Reconstructionof Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) in respect of secured assets - substance of the Petition is that the Respondent No.4 has verbally declined to register the Sale Certificate on the premise that on the record of rights of the aforementioned secured assets, there is an endorsement of attachment to the tune of ₹ 13,63,744/as of 10.11.2015, on account of Sales Tax dues. HELD THAT - The provisions of Section 26E of the SARFAESI Act have overriding effect. Section 37 of the MVAT Act, is expressly made subject to the provisions of any Central Act which create first charge. The fact that the provisions of Section 26E came into force by Act 44 of 2016 do not detract materially from the overriding effect of the provisions of the said Section, especially, in the facts of the case at hand, as the security interest was created in pursuance of the mortgage registered on 05.03.2010. The question of preferential claim of the Petitioner and Respondent No.3 qua the secured assets can be considered and determined after providing opportunity to the Respondent No.3 to put forth its case - Petitioner shall tender the Sale Certificate, registration of which is sought, before the Respondent No.4 tomorrow - Respondent No.4 shall carry out the necessary process of adjudication and determine the stamp duty to be levied on the said instrument by 01.11.2018. The Registry is directed to list the matter on 02.11.2018.
Issues:
1. Whether the SubRegistrar should accept the Sale Certificate under the SARFAESI Act despite Sales Tax dues. 2. Interpretation of Section 26E of the SARFAESI Act regarding priority of secured creditors. 3. Compliance with Rule 44 of the Maharashtra Registration Rules, 1961. 4. Conflict between Section 26E of the SARFAESI Act and Section 37 of the Maharashtra Value Added Tax Act, 2002. Analysis: Issue 1: The Petitioner sought a writ to compel the SubRegistrar to accept a Sale Certificate despite Sales Tax dues. The Petitioner argued that under Section 26E of the SARFAESI Act, secured creditors have priority over statutory creditors. Citing a Madras High Court case, it was established that the rights of a secured creditor take precedence over all debts and government dues. The refusal to register the Sale Certificate based on Sales Tax dues was deemed unjustifiable. Issue 2: The Respondent contended that the introduction of Section 26E post the attachment of Sales Tax dues did not affect the rights of the Sales Tax Department. However, the Court held that Section 26E of the SARFAESI Act, with its overriding effect, prioritizes debts due to secured creditors over all other debts and government dues. This was further supported by a Division Bench ruling emphasizing the priority of secured creditors in cases of liquidation. Issue 3: The Respondent argued that the Petitioner failed to submit necessary documents for adjudication and stamp duty. The Respondent relied on Rule 44 of the Maharashtra Registration Rules, which mandates attaching permissions or NOCs for transactions prohibited by government acts. However, the Court found no explicit prohibition necessitating a NOC from the Sales Tax Department, undermining the Respondent's argument. Issue 4: The conflict between Section 26E of the SARFAESI Act and Section 37 of the MVAT Act was addressed. The Court held that Section 26E's precedence, even post its enactment in 2016, overrides conflicting provisions. The Court emphasized the importance of Section 26E in cases where security interests predate its enactment, ensuring secured creditors' priority. In conclusion, the Court directed the Petitioner to submit the Sale Certificate for registration, mandated the adjudication of stamp duty, and scheduled a future hearing. The judgment clarified the primacy of secured creditors under the SARFAESI Act, resolving the conflict with Sales Tax dues and upholding the Petitioner's rights under the law.
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