2021 (1) TMI 750 - HC - VAT and Sales Tax

Recovery of VAT from the purchaser of property in Auction - Attachment of mortgaged properties - first charge of the Bank over the properties mortgaged with the Petitioners - recovery of sales tax dues from the assets of the defaulter by State Government - SARFAESI Act - HELD THAT - The issue raised in this writ application is no longer res integra in view of the judgement of this Court in the case of Kalupur Commercial Cooperative Bank Limited vs. State of Gujarat 2019 (9) TMI 1018 - GUJARAT HIGH COURT . It is now well settled that in view of Section 26E of the SARFAESI Act, 2002, the State cannot claim any first priority or precedence over the property in question on the strength of Section 48 of the Gujarat Value Added Tax Act, 2003. The security interest over the property was created in favour of the Bank much before the dues of M/s. Krishna Industries came to be determined under the VAT Act. It is hereby declared that the respondent No.2 had the first charge over the property mortgaged by M/s. Krisha Industries by virtue of Section 26E of the SARFAESI Act, and in such circumstances, they were entitled in law to put the property to auction. The writ applicants, being the auction purchasers, have a right to get their names mutated in the record of rights as the true and lawful owners of the property. In such circumstances, the Sub-Registrar of the Bhavnagar district is directed to register the document of sale deed executed between the Bank and the writ applicants. Once the sale deed is registered, it shall be open for the writ applicants to thereafter get their names mutated in the record of right - Application allowed.

Summary

Issues:
1. Priority of charge under the SARFAESI Act versus the Gujarat Value Added Tax Act.
2. Validity of attachment notice issued by the State.
3. Rights of auction purchasers in case of property disputes.
4. Registration of sale deed by the Sub Registrar.
5. Clarification on recovery of VAT dues by the State.

Analysis:
1. The writ applicants sought to quash an attachment notice and establish the priority of charge over a property mortgaged by M/s. Krishna Industries under the SARFAESI Act, asserting that it overrides the charge under the Gujarat Value Added Tax Act. The High Court referenced a previous judgment to confirm that the State cannot claim precedence over the property due to the SARFAESI Act's provisions. The security interest in favor of the Bank predates the VAT Act dues, as clarified in the earlier decision, leading to the quashing of the attachment notice.

2. The State issued an attachment notice to auction the property for recovering dues from M/s. Krishna Industries under the VAT Act. However, the Court held that the State's claim was invalid due to the Bank's first charge over the property under the SARFAESI Act. Consequently, the High Court set aside the attachment notice, affirming the Bank's priority in the matter.

3. The auction purchasers, the writ applicants, were granted the right to have their names registered as the lawful owners of the property. The Court directed the Sub Registrar to facilitate the registration of the sale deed between the Bank and the applicants. This step would enable the mutation of the applicants' names in the property records, recognizing them as the rightful owners.

4. The Sub Registrar initially refused to register the sale deed due to the State's charge over the property. However, with the High Court's ruling establishing the Bank's priority, the registration of the sale deed was mandated. This legal action would formalize the ownership transfer to the auction purchasers, securing their property rights effectively.

5. The Court clarified that while the State could pursue VAT dues from M/s. Krishna Industries through other legal means, the specific property in question was protected by the Bank's first charge. Any other assets of M/s. Krishna Industries could be targeted for recovering VAT dues, ensuring the State's rights while upholding the Bank's priority over the disputed property.