2024 (8) TMI 3 - HC - VAT and Sales Tax

Recovery of non-paid dues of Sales Tax departmentFirst charge over the property in question - Secured Creditor or the State / Central Government (Crowns debt) - HELD THAT - What is undisputed fact in each of the petitions is that all the petitioners herein are bonafide purchasers of various properties which were put to auction upon default in repayment of loan committed by their predecessors in title. Therefore, under the proceedings under the SARFAESI Act, the properties were put to auction pursuant to a charge which was created in favour of the respective Bank and the petitioners having been the successful bidder, had paid the bid amount and purchased the property as successful bidder. The charge of the Secured Creditor will precede over the charge of an Unsecured Creditor (Crowns Date). In the instant case, the submission of learned AGP Mr. Trivedi that the State and its authorities have rightly rejected the application for mutation of entry of the petitioners in respect of the property in question cannot be accepted. Further, as far as the submission of delay is concerned, the same also cannot be accepted for the reason that the petitioners are the bonafide purchasers of the property in question by way of auction or from successful auction purchaser and they have invested huge amount in the property, they have acquired the title of the property by way of Sale Certificate, they are the holder of the title in respect of property in question as on today. The respondent authorities are directed to mutate the names of each of the petitioners in the revenue record by quashing and setting aside any attachment / charge over the property in question by the State or its authorities as there was a first charge of the respondent Bank in each of the petitions - Petition allowed.

Issues Involved:
1. Priority of charge over property between Secured Creditors and State/Central Government (Crown's debt) due to non-payment of Sales Tax.
2. Legality of refusal to mutate names of successful auction purchasers in the revenue records.
3. Validity of the attachment orders by Sales Tax Department on properties purchased through auction under SARFAESI Act.
4. Applicability of Section 26E of the SARFAESI Act versus Section 48 of the VAT Act.
5. Impact of delay and laches on the claims of auction purchasers.

Detailed Analysis:

1. Priority of Charge Over Property:
The core issue was whether the Secured Creditors (banks) or the State/Central Government (Sales Tax Department) had the first charge over the property due to non-payment of dues. The court held that the charge of Secured Creditors would prevail over the Crown's debt. This is supported by 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 cited several precedents, including the Supreme Court's decisions in *Dena Bank v. Bhikhabhai Prabhudas Parekh & Company* and *Punjab National Bank v. Union of India*, affirming that secured creditors have priority over unsecured creditors (including the State).

2. Legality of Refusal to Mutate Names:
The petitioners, who were successful auction purchasers, faced refusal from revenue authorities to mutate their names in the revenue records. The court found this refusal to be illegal. It was held that the petitioners, having purchased the property through a public auction and having obtained Sale Certificates, were entitled to have their names mutated in the revenue records. The court emphasized that the mutation is a consequential action based on the title acquired through the auction, which is unquestionable.

3. Validity of Attachment Orders:
The Sales Tax Department had registered charges on the properties after the banks had already created a charge. The court quashed these attachment orders, stating that the charge created by the Sales Tax Department could not override the charge of the Secured Creditors. The court reiterated that the priority of secured creditors under Section 26E of the SARFAESI Act supersedes the claims of the Sales Tax Department.

4. Applicability of Section 26E of SARFAESI Act vs. Section 48 of VAT Act:
The court addressed the conflict between Section 26E of the SARFAESI Act and Section 48 of the VAT Act. It was held that Section 26E, which gives priority to secured creditors, overrides Section 48 of the VAT Act. The court referenced the Supreme Court's ruling in *Punjab National Bank v. Union of India*, which supports the precedence of secured creditors over government dues.

5. Impact of Delay and Laches:
The State argued that the petitions should be dismissed due to delay and laches, as the charges were created long ago. The court rejected this argument, stating that the petitioners, as bona fide purchasers, had acquired the title through legitimate means and had invested significantly in the properties. The delay in challenging the charges did not affect their right to have their names mutated in the revenue records.

Conclusion:
The court allowed all the petitions, directing the respondent authorities to mutate the names of the petitioners in the revenue records and quash any attachment or charge by the State or its authorities. The court upheld the principle that the charge of secured creditors takes precedence over the claims of the State for unpaid taxes, aligning with the provisions of Section 26E of the SARFAESI Act. The petitions were granted without any order as to costs.

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