2025 (1) TMI 667 - HC - VAT / Sales Tax

Challenge to order of attachment passed by the respondent-authority under the provision of the Gujarat Sales Tax Act, 1961 - priority of charges - charge created by the Sales Tax Department over the property has precedence over the charge created by the bank under SARFAESI Act - HELD THAT - In case of Partners of Siddheshwar Tax Fab Ors vs. State of Gujarat and ors 2024 (7) TMI 1547 - GUJARAT HIGH COURT , this Court held ' the charge in respect of the property in question created for sales tax dues or VAT dues is of no avail and has no efficacy in law in view of the provisions of SARFAESI Act and the RDB Act. The property in question was sold by respondent no.6-Bank under the provisions of SARFAESI Act and the petitioners were successful purchasers and the sale certificate is issued and sale deed is also executed by which the petitioners have become absolute owners of the property and therefore considering the existing position of law, the charge created by the respondent State over the property in question in the year 2018, cannot be sustained and is accordingly quashed and set aside and as a consequence the mutation entries in revenue records also stands deleted.' Conclusion - The respondent-authorities are directed to remove the charge over the property in question as it is not in dispute that the respondent-Bank has created the charge prior in point of time and hence, as per the settled legal position, the charge created by the Sale Tax Department subsequently in the Year 2017-18 would not survive and accordingly, mutation entry in the revenue record stands deleted. Petition disposed off.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the attachment order passed by the Sales Tax Department over the property in question is valid and enforceable.
Whether the charge created by the Sales Tax Department over the property has precedence over the charge created by the bank under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
Whether the mutation entries reflecting the Sales Tax Department's charge in the revenue records are legally sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Attachment Order by the Sales Tax Department

Relevant Legal Framework and Precedents: The legal framework involves the Gujarat Sales Tax Act, 1961, and the SARFAESI Act. Precedents include the decision in Kalupur Commercial Cooperative Bank Limited vs. State of Gujarat and the principles established in Bank of Bihar vs. State of Bihar.
Court's Interpretation and Reasoning: The court interpreted that the attachment order by the Sales Tax Department was subsequent to the charge created by the bank under the SARFAESI Act. The court emphasized that the bank's charge, being prior, takes precedence.
Key Evidence and Findings: The court found that the bank registered its charge on 11.10.2010, whereas the Sales Tax Department's charge was registered in 2018.
Application of Law to Facts: The court applied the principle that secured creditors under the SARFAESI Act have priority over state dues, such as sales tax, which are considered unsecured.
Treatment of Competing Arguments: The Sales Tax Department argued for the validity of its charge, but the court dismissed this, citing the precedence of the bank's charge.
Conclusions: The court concluded that the attachment order by the Sales Tax Department is invalid and must be quashed.

Issue 2: Precedence of Charges

Relevant Legal Framework and Precedents: The court examined the interplay between the SARFAESI Act and the Gujarat Sales Tax Act, considering prior judgments such as the Partners of Siddheshwar Tax Fab case.
Court's Interpretation and Reasoning: The court reasoned that the SARFAESI Act provides secured creditors with a superior claim over state dues, which are treated as unsecured.
Key Evidence and Findings: The court noted that the bank's charge was registered before the Sales Tax Department's charge.
Application of Law to Facts: The court applied the legal principle that secured creditors have priority over unsecured state dues.
Treatment of Competing Arguments: The court rejected the argument that state dues should take precedence, reaffirming the priority of secured creditors.
Conclusions: The court concluded that the bank's charge has precedence over the Sales Tax Department's charge.

Issue 3: Legality of Mutation Entries

Relevant Legal Framework and Precedents: The court referred to the provisions of the SARFAESI Act and the RDB Act, along with precedents like the Odhavji Mohanbhai Gadhiya case.
Court's Interpretation and Reasoning: The court interpreted that mutation entries reflecting the Sales Tax Department's charge are not legally sustainable given the precedence of the bank's charge.
Key Evidence and Findings: The court found that the mutation entries were based on an invalid attachment order.
Application of Law to Facts: The court applied the principle that entries based on invalid charges must be deleted.
Treatment of Competing Arguments: The court dismissed the argument for maintaining the entries, as they were based on a subsequent and invalid charge.
Conclusions: The court concluded that the mutation entries must be deleted from the revenue records.

3. SIGNIFICANT HOLDINGS

The court held that "the charge in respect of the property in question created for sales tax dues or VAT dues is of no avail and has no efficacy in law in view of the provisions of SARFAESI Act and the RDB Act."
The court established the principle that "VAT and Sales Tax dues have no precedence over the dues of the Bank for recovery under the SARFAESI Act."
The final determination was that the attachment order by the Sales Tax Department is quashed, and the mutation entries reflecting the Sales Tax Department's charge are deleted from the revenue records.

In conclusion, the court reaffirmed the precedence of secured creditors under the SARFAESI Act over state dues such as sales tax, leading to the quashing of the Sales Tax Department's attachment order and the deletion of related mutation entries.

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