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2024 (8) TMI 1201 - HC - VAT and Sales TaxRecovery of dues - priority of dues - Petitioner-Bank's registered security interest with CERSAI has priority over the dues claimed by the GST and Sales Tax Departments or not - HELD THAT - In the present case, the order of attachment issued by the Sales Tax Department is dated 19th April 2022. It is thereafter that steps have been taken to attach the immovable property. It is on this basis that the respondents seek to rely upon the provisions of Section 37 of MVAT Act. The registration of the Bank Security Interest with CERSAI is dated 17th March 2017 which is much prior to the order of attachment. In view of the clear position of law under Section 26-E of the SARFAESI Act and further the ratio as laid down by the Full Bench of this Court in Jalgaon Janta Sahakari Bank Ltd. and another 2022 (9) TMI 163 - BOMBAY HIGH COURT and the judgment of the Division Bench of this Court in Indian Bank thr. Chief Manager 2024 (7) TMI 1309 - BOMBAY HIGH COURT , there are no hesitation to hold that the claim of secured creditor that is the Petitioner Bank, will have preference over the claim of Respondents (GST Department and the Sales Tax Department). Petition allowed.
Issues Involved:
1. Whether the Petitioner-Bank's registered security interest with CERSAI has priority over the dues claimed by the GST and Sales Tax Departments. 2. The applicability and precedence of Section 26-E of the SARFAESI Act over Section 37 of the MVAT Act. 3. The validity of the demand notices and orders of attachment issued by the GST and Sales Tax Departments. Detailed Analysis: 1. Priority of Registered Security Interest: The Petitioner-Bank argued that under Section 26-E of the SARFAESI Act, its registered security interest with CERSAI on 17th March 2017 should have priority over the dues claimed by the GST and Sales Tax Departments. The court noted that Section 26-E of the SARFAESI Act clearly states that "the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority." The Full Bench in Jalgaon Janta Sahakari Bank Ltd. v. Joint Commissioner of Sale Tax Nodal 9, Mumbai and another clarified that a secured creditor with a CERSAI registration has priority over other claims, including tax dues. The court found no dispute that the Petitioner-Bank had registered its security interest, while the GST and Sales Tax Departments had not. 2. Applicability and Precedence of Section 26-E of the SARFAESI Act: The court examined the contention that Section 37 of the MVAT Act gives precedence to Sales Tax dues over bank dues. However, it was noted that the SARFAESI Act, being a Central Act, prevails over the MVAT Act, a State Act. The court referred to the Full Bench decision in Jalgaon Janta Sahakari Bank Ltd., which emphasized that the SARFAESI Act's provisions, including Section 26-E, take precedence over conflicting state laws. The court also cited its earlier decision in Indian Bank v. State of Maharashtra, reiterating that the secured creditor's registered interest takes priority over state tax claims. 3. Validity of Demand Notices and Orders of Attachment: The Petitioner-Bank challenged the demand notices and orders of attachment issued by the GST and Sales Tax Departments. The court found that the GST and Sales Tax Departments had not registered their security interests with CERSAI, which is a prerequisite for claiming priority under the SARFAESI Act. The court concluded that the Petitioner-Bank's registered security interest, being earlier in time and compliant with the SARFAESI Act, had priority over the subsequent attachments and claims by the GST and Sales Tax Departments. Conclusion: The court held that the Petitioner-Bank's registered security interest with CERSAI has priority over the dues claimed by the GST and Sales Tax Departments. The provisions of Section 26-E of the SARFAESI Act override Section 37 of the MVAT Act. Consequently, the demand notices and orders of attachment issued by the GST and Sales Tax Departments were quashed. The court made the rule absolute in terms of the prayer clauses (I), (II), (III), and (IV) of the Writ Petition, allowing the Petitioner-Bank's claims and dismissing the respondents' objections. The GST and Sales Tax Departments were permitted to pursue recovery against the borrower as per law.
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