2023 (1) TMI 1396 - HC - VAT and Sales Tax

Recovery of dues - mortgagor bank has priority to recover the dues against any charges of the State Government or Central Government, or not - Seeking quashment of the charge or mortgage on the property in question by the Central Sales Tax Department in the Revenue Department - seeking direction against the Revenue Authority to register and release the sale deed - petitioner is the absolute owner of the property in question with legal and valid title as once purchased under the public e-auction, or not - HELD THAT - In the instant case, it is an undisputed fact that respondent No.5 - Bank is a secured creditor. Therefore, the Bank has valid first charge over the property in question by way of mortgage and has first right to sell the same in view of priority under Section 26E of the Act and recovered its dues from it. The petitioner is a bona fide purchaser, purchased the property in question from the e-auction held by the bank and paid full and total sale consideration to the bank and the bank has issued sale certificate in favour of the petitioner. Considering the law laid down by this Court in KALUPUR COMMERCIAL CO-OPERATIVE BANK LTD. VERSUS STATE OF GUJARAT 2019 (9) TMI 1018 - GUJARAT HIGH COURT and also keeping in mind the provisions of Section 26E of the SARFAESI Act, the debts due to financial institution / Bank - a secured creditor shall be paid in priority over other debts/taxes payable to the State Government. The petitioner has no concern with the dues of the State Authorities which is of the erstwhile owner. The petitioner has paid full and final sale consideration to respondent No.5 - Bank and if the State Authorities have dispute qua their dues, they can avail appropriate legal remedy before appropriate forum against the appropriate person/s. Any of the respondent has no right to disturb the right, title and interest of the petitioner qua the property in question. Under these circumstances, the petitioner cannot be left in lurch. The petitioner therefore is required to be protected. Moreover, now it is well settled legal position that the mortgagor bank has priority to recover the dues against any charges of the State Government or Central Government, irrespective of the fact otherwise. Petition allowed.

Summary

Issues Involved:
1. Quashment of the charge or mortgage on the property by the Central Sales Tax Department.
2. Direction to the Revenue Authority to register and release the sale deed.
3. Determination of the absolute ownership and legal title of the petitioner over the property.
4. Priority of secured financial institution dues over State tax dues.

Issue-wise Detailed Analysis:

1. Quashment of the Charge or Mortgage on the Property by the Central Sales Tax Department:
The petitioner sought to quash the charge or mortgage on the property created by the Central Sales Tax Department. The property was initially a 'secured asset' auctioned by the State Bank of India due to the default by the borrower/mortgagor under the SARFAESI Act. The petitioner purchased the property in a public e-auction and received a sale certificate from the bank, indicating the property was free from all encumbrances. However, after the sale deed was executed, the petitioner was informed that the Central Sales Tax Department had created a charge over the property for the recovery of dues. The court found that the first charge/mortgage was in favor of the State Bank of India, a secured creditor, and that the debts due to any secured creditor should be paid in priority over all other debts, including taxes payable to the government, as per Section 26E of the SARFAESI Act.

2. Direction to the Revenue Authority to Register and Release the Sale Deed:
The petitioner sought a direction against the Revenue Authority to register and release the sale deed No.1533 of 2022 dated 24.06.2022. The court noted that the petitioner had purchased the property through a public e-auction, paid the full consideration, and received a sale certificate from the bank. The sale deed was executed and registered, but the registering authority refused to release it due to the unresolved issue related to sales tax. The court directed the Sub-Registrar, Sihor - Bhavnagar to release the sale deed and remove any attachment/charge created by the Tax Authority in the revenue records.

3. Determination of the Absolute Ownership and Legal Title of the Petitioner Over the Property:
The petitioner sought a declaration that he is the absolute owner of the property with a legal and valid title. The court held that the petitioner is a bona fide purchaser and the absolute owner of the property with a legal and valid title. The sale deed registered by the authority was deemed legal and valid. The court emphasized that the petitioner had no concern with the dues of the State Authorities, which were related to the erstwhile owner, and that the petitioner had paid the full sale consideration to the bank.

4. Priority of Secured Financial Institution Dues Over State Tax Dues:
The central issue was whether the dues of a secured financial institution have priority over State tax dues. The court referenced Section 26E of the SARFAESI Act, which states that the debts due to any secured creditor shall be paid in priority over all other debts, including taxes payable to the government. The court also cited previous decisions, including those in Kalupur Commercial Cooperative Bank Ltd. vs. State of Gujarat, which supported the priority of secured creditors over government dues. The court concluded that the bank, as a secured creditor, had the first charge over the property and the right to sell it to recover its dues. The petitioner, being a bona fide purchaser, was protected, and the State Authorities could not disturb the petitioner's rights over the property.

Conclusion:
The court allowed the petition, holding that the petitioner is the absolute owner of the property with a valid title. The sale deed was declared legal and valid, and the Sub-Registrar was directed to release it and remove any charges created by the Tax Authority. The court clarified that the State could recover dues from the erstwhile owner through other legal means, but not from the property in question, as the bank had the first charge over it.