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2024 (7) TMI 1547 - HC - VAT / Sales Tax


Issues Involved:

1. Priority of charge under the Gujarat Value Added Tax Act, 2003 versus the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
2. Liability of the auction purchaser regarding statutory dues.
3. Validity and subsistence of statutory charge post-auction sale.

Issue-wise Detailed Analysis:

1. Priority of Charge:
The primary issue was whether the statutory charge under Section 48 of the Gujarat Value Added Tax Act, 2003, which creates a first charge on the property for tax dues, has precedence over the charge of a secured creditor under Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The court referred to the judgment in Kalupur Commercial Co-operative Bank Ltd. vs. State of Gujarat, which held that Section 26E of the SARFAESI Act provides priority to the secured creditor over all other debts, including government dues. This position was reinforced by Section 31B of the Recovery of Debts and Bankruptcy Act, 1993, which also grants priority to secured creditors. The court found no reason to deviate from this established legal position, despite arguments to the contrary based on the Full Bench decision of the Bombay High Court in Jalgaon Janta Sahakari Bank Ltd. and the Supreme Court's decision in Rainbow Papers Ltd.

2. Liability of Auction Purchaser:
The court examined whether the auction purchaser is liable for the statutory dues of the previous owner, given that the sale was conducted on an "as is where is" basis. It was noted that the secured creditor must disclose any encumbrances known to them at the time of sale. The court found that if the auction purchaser had no constructive notice of the charge, they could not be held liable for the statutory dues. The court held that the auction purchaser in this case was not liable for the VAT dues, as the charge should have been disclosed by the secured creditor, and the sale was conducted without such disclosure.

3. Validity and Subsistence of Statutory Charge Post-Auction Sale:
The court considered whether the statutory charge under the VAT Act subsists after the auction sale conducted by the secured creditor. It was held that once the secured creditor realizes its dues through the sale of the property, the statutory charge does not subsist on the property. The court relied on Section 100 of the Transfer of Property Act, which implies that a charge on the property ceases once the property is sold and the sale proceeds are appropriated. Therefore, the statutory charge created by the VAT Department was quashed, and the corresponding mutation entries in the revenue records were ordered to be deleted.

The judgment reaffirmed the precedence of secured creditors' rights under the SARFAESI Act over statutory charges created under state legislation, provided the secured creditor complies with the procedural requirements of the SARFAESI Act. The auction purchaser was absolved from liability for the statutory dues, emphasizing the importance of transparency and disclosure by secured creditors during the auction process.

 

 

 

 

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