2023 (2) TMI 61 - HC - VAT and Sales Tax

Recovery of dues - Priority of charge - creation of charge on the property - Seeking extraordinary jurisdiction to delete the charge created under Gujarat Value Added Tax Act for the property owned by the petitioner as per the private treaty under the provisions of the SARFAESI Act - SARFAESI Act have an overriding effect over the provisions of the VAT Act and the secured creditors shall have priority over the dues of Central Excise Department or not. Whether the charge created under the Gujarat Value Added Tax over the property in question would have an overriding power over the charge created under the provisions of the SARFAESI Act and the Security Interest Rules, 2002? HELD THAT - The answer shall need to be in negation. It is quite clear from the provisions contained in SARFAESI Act that this Act would have an overriding effect over the provisions of the Gujarat Value Added Tax Act. The law on the subject requires consideration. Firstly, this Court in the case of KALUPUR COMMERCIAL CO-OPERATIVE BANK LTD. VERSUS STATE OF GUJARAT 2019 (9) TMI 1018 - GUJARAT HIGH COURT held that the plain reading of section 48 of the VAT Act indicates that it starts with nonobstante clause and this provision creates first charge on the property. The issue as regards the claim of the property of the secured creditors vis-a-vis the first charge of the property under the State legislation was considered by the Apex Court in the case of CENTRAL BANK OF INDIA VERSUS STATE OF KERALA AND OTHERS 2009 (2) TMI 451 - SUPREME COURT , where the apex Court had held that if the State acts to create the first charge on the property, then the secured creditors cannot have the claim against the statutory provision. While so holding, it took into consideration section 100 of the Transfer of Property Act, 1882. The Court held that when two or more laws or provisions operate in the same field and each contains nonobstante clause stating that its provision will override those of any other provisions of the law stimulating an intricate problem of the interpretation arises while relying on such problems of interpretation, no settled principles can be applied, except to refer to the object and purpose of each of the provisions containing non obstante clause. Two provisions in the same Act, each containing a non obstante clause requires harmonious interpretation of the two seemingly conflicting provisions of the same Act. The conflict here is with the State Act and the Central Act. On considering the true purport and effect of section 26A of the SARFAESI Act, which came to be enacted later in point of time and also the effect of section 31B of the RDB Act, the Court considered in detail necessity for introduction of these two provisions in two enactments. The petition stands allowed deleting and removing noting of all the charges and encumbrance created under the Act on land located at Revenue Survey No.277, Village Kamod, Taluka Vatva, District Ahmedabad with consequential relief.

Summary

Issues Involved:
1. Overriding effect of SARFAESI Act over Gujarat Value Added Tax Act.
2. Legality of the charge created under VAT Act on the property sold under SARFAESI Act.
3. Priority of secured creditors versus state tax dues.

Detailed Analysis:

1. Overriding effect of SARFAESI Act over Gujarat Value Added Tax Act:
The petitioner sought the court's extraordinary jurisdiction to delete the charge created under the Gujarat Value Added Tax Act on the property they purchased under the SARFAESI Act. The petitioner argued that the SARFAESI Act has an overriding effect over the VAT Act, giving priority to secured creditors over state tax dues. The court affirmed this position, stating, "It is quite clear from the provisions contained in SARFAESI Act that this Act would have an overriding effect over the provisions of the Gujarat Value Added Tax Act."

2. Legality of the charge created under VAT Act on the property sold under SARFAESI Act:
The petitioner contended that the charge created on the property by the VAT authorities was without jurisdiction since the property was sold by secured creditors (COSMOS Co-operative Bank Limited) under SARFAESI Act provisions. The court noted that the charge created by the VAT authorities was subsequent to the sale to the petitioner, stating, "the action of creating a charge of the land in question and getting entry mutated in revenue records was subsequent to the sale, which had been effected to the petitioner."

3. Priority of secured creditors versus state tax dues:
The court extensively discussed the priority of secured creditors under the SARFAESI Act and the Recovery of Debts Due to Banks and Financial Institutions Act (RDB Act) over state tax dues. The court referenced previous judgments, including the case of Kalupur Commercial Cooperative Bank vs. State of Gujarat, which held that the secured creditors' rights under the SARFAESI Act would have priority over state tax dues. The court cited, "Section 26E of the SARFAESI Act starts with a non-obstante clause and thus it overrides section 48 of the Gujarat VAT Act." The court concluded that the secured creditors' charge under the SARFAESI Act would have priority over the state's charge under the VAT Act.

Conclusion:
The court allowed the petition, directing the deletion and removal of all charges and encumbrances created under the VAT Act on the property in question. The court declared that the secured creditors' rights under the SARFAESI Act have priority over state tax dues, thereby overriding the provisions of the VAT Act. The petition was disposed of with the consequential reliefs as prayed by the petitioner.