2023 (10) TMI 491 - HC - VAT and Sales Tax

Recovery of dues - Priority of charge of secured creditors as against the Sales Tax, Commercial Tax and Income Tax dues - Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - HELD THAT - The Full Bench of the Bombay High Court. In the case of Jalgaon Janta Sahakari Bank Ltd. and Anr vs Joint Commissioner of Sales and Anr 2022 (9) TMI 163 - BOMBAY HIGH COURT held that the secured creditor would have the priority charge, as contemplated under Section 26E of the SARFAESI Act, 2002, in case the same is registered under Section 26B of the SARFAESI Act, 2002. The secured creditors, in these petitions claims that their security is registered under Section 26B of the SARFAESI Act, 2002. In view of the Full Bench judgments, it is held that the secured creditor has priority charge over the claims of the Sales Tax, Commercial Tax and Income Tax - In case auction is held by the secured creditors and the sale certificates are not placed and/or registered, then the Registering Authority may register the same, notwithstanding the attachment of Sales Tax, Income Tax or Commercial Tax Departments. In case the auction sale is conducted by the secured creditor and they have received excess amount than their dues, then they are liable to remit the excess amount to the Departments. However, if they have not received the amount in excess of the amount due and payable to them, then they are not required to remit any amount to the Departments and the Departments cannot sustain prosecution against the Authorised Officer or the Officer of the secured creditor for not remitting the amount. Petition disposed off.

Summary

Issues Involved:
The issue involved in these present matters is the priority of charge.

Comprehensive Details:
The secured creditors in these cases claim priority of charge over Sales Tax, Commercial Tax, and Income Tax dues based on Section 26E of the SARFAESI Act, 2002. On the other hand, the learned Additional Advocate General argues that crown debt should have priority charge, citing the judgment of the Bombay High Court in the case of Medineutrina Pvt. Ltd. vs District Industries Centre and Ors [AIR 2021 Bom 135].

The Full Bench of the Madras High Court, in the case of Assistant Commissioner (CT) Anna Salai-III Assessment Circle vs Indian Overseas Bank and Another [AIR 2017 Mad 67 (FB)], framed two key issues for consideration. Firstly, whether the secured creditor or the government department has priority charge over the mortgaged property concerning tax and other dues. Secondly, the status and rights of a third-party purchaser of the mortgaged property were to be determined.

The Full Bench of the Madras High Court answered the reference by affirming that secured creditors have priority in realizing their debts by the sale of assets over all other debts and government dues, including taxes and revenues. Similarly, the Full Bench of the Bombay High Court, in the case of Jalgaon Janta Sahakari Bank Ltd. and Anr vs Joint Commissioner of Sales and Anr [2022 Online SCC Bom 1767], held that secured creditors would have priority charge under Section 26E of the SARFAESI Act, 2002, if registered under Section 26B of the same Act.

According to the judgments cited, secured creditors are granted priority charge over Sales Tax, Commercial Tax, and Income Tax claims. Furthermore, if an auction is conducted by secured creditors and sale certificates are not placed or registered, the Registering Authority has the power to register them despite any attachment by tax departments.

In cases where secured creditors receive an excess amount from the auction sale, they are obligated to remit the surplus to the respective departments. However, if the amount received does not exceed their dues, no remittance is required, and the departments cannot prosecute the officers for non-remittance.

The present matters have been disposed of accordingly with no order as to costs, leading to the closure of multiple related cases.