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2024 (2) TMI 295 - HC - VAT and Sales TaxAttachment Order - recovery of sales tax dues - secured creditor or not - priority over the dues payable to the petitioner - Non-Performing Asset (NPA) - HELD THAT - The full bench of this Court in Janta Jalgaon Sahakari Bank 2022 (9) TMI 163 - BOMBAY HIGH COURT was considering an issue as to who between the secured creditor as defined in section 2(1)(zd) of the SARFAESI Act and section 2(1) (la) of the RDDB Act , and the taxing/revenue departments of the Central/State Governments, can legally claim priority for liquidation of their respective dues qua the borrower/dealer upon enforcement of the security interest as defined in section 2(1)(zf) of the SARFAESI Act and consequent sale of the secured asset as defined in section 2(1)(zc) of the SARFAESI Act , in view of the extant laws, was the broad question the Full Bench was tasked to decide - the Court held that dues of secured creditor (subject of course to CERSAI registration) and subject to the proceedings under the Insolvency and Bankruptcy Code would rank superior to the dues of the relevant department to the State Government. Thus in view of the clear position in law as laid down by the full Bench, the Sales Tax Department cannot claim priority over the dues payable to the petitioner who is the secured creditor as held by the Full Bench. Petition allowed.
Issues Involved:
1. Validity of the attachment order dated 20th February 2019 by the Sales Tax Department. 2. Priority of dues between secured creditors and the Sales Tax Department. 3. Registration of charge with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI). Summary: Validity of the Attachment Order: The petitioner filed a petition under Article 226 of the Constitution of India to quash and set aside the attachment order dated 20th February 2019 issued by the Deputy Commissioner of Sales Tax. The petitioner argued that the attachment order was invalid as it interfered with their rights as a secured creditor. Priority of Dues: The Court referred to the Full Bench decision in Jalgaon Janta Sahakari Bank Ltd. Vs. Joint Commissioner of Sales Tax, which addressed the issue of priority between secured creditors and the State Government's tax dues. The Full Bench held that the dues of a secured creditor, subject to CERSAI registration, have priority over the dues of the State Government. The Court observed that the Parliament, through amendments in the SARFAESI Act, explicitly provided that the dues of secured creditors would take precedence over all other dues, including taxes payable to the Central or State Government. Registration of Charge with CERSAI: The petitioner had registered their security interest with CERSAI on 29 April 2013. The Court noted that the Sales Tax Department had not registered its claim or attachment over the secured asset with CERSAI, as required under the SARFAESI Act. The Full Bench decision emphasized that non-registration of the claim by the State Government with CERSAI results in the State's claim being subordinate to that of the secured creditor. Judgment: The Court concluded that the Sales Tax Department could not claim priority over the dues payable to the petitioner, who is a secured creditor. The petition was allowed in terms of prayer clause-(a), quashing the attachment order dated 20th February 2019. The petitioner was directed to remit any surplus from the sale proceeds of the secured assets to the Sales Tax Department after appropriating its dues. The Sales Tax Department was also allowed to pursue appropriate proceedings against the respondents to recover the amount. Disposition: The petition was disposed of with no costs, and the rule was made absolute in the above terms.
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