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TMI BlogSECURED CREDITOR IS HAVING PREFERENCE OVER GST DEPARTMENTX X X X Extracts X X X X X X X X Extracts X X X X ..... SECURED CREDITOR IS HAVING PREFERENCE OVER GST DEPARTMENT - By: - Mr. M. GOVINDARAJAN - Value Added Tax - VAT and CST - Dated:- 29-8-2024 - In JANASEVA SAHAKARI BANK LTD. VERSUS STATE OF MAHARASHTRA, COMMISSIONER OF GOODS AND SERVICE TAX MUMBAI, STATE TAX OFFICER, VAT NASHIK, M/S. SHREE GANESHA PACKAGING CO. NASHIK - 2024 (8) TMI 1201 - BOMBAY HIGH COURT , the petitioner in this writ petition is a bank registered under the Maharashtra Co-operative Societies Act, 1960. The petitioner formed banking consortium to grant loan to Shree Ganesha Packing Company (Respondent No. 4). The consortium is the secured creditor as per the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 ( SARFAESI for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short). The Respondent No. 4 got Rs.7.26 crore from the petitioner bank. On 02.09.2016 the Respondent No. 4 applied to consortium banks to give further loan of Rs.4 crore. The same was granted to the Respondent No. 4. The 4 th respondent executed loan documents including mortgage deeds. The petitioner bank, on 17.03.2017, registered with the Central Registry of Securitization and Reconstruction and Security Interest of India ( CERSAI for short). The petitioner No. 4 defaulted in repayment of loan. Therefore, the loan was classified as Non-Performing Asset ( NPA for short). On 02.02.2019 the petitioner received a demand notice from the Sales Tax Department (respondent No. 3) under section 33(1) of MVAT Act for recovering the dues of the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent No. 4 to the tune of Rs.13,19,849/-. On 11.06.2019 the petitioner issued possession notice under Section 13(4) of the SARFAESI. In the said notice the petitioner informed Respondent No. 4 that the possession of secured assets would be taken on 28.06.2019 when symbolic possession was taken by the petitioner. The same was given publication on 02.07.2019 informing the public that the symbolic possession of secured assets were taken on 28.06.2019 by the petitioner. The petitioner, thereafter, received an order from the Commissioner of MVAT for the provisional attachment of the secured assets of Respondent No.4 under Section 83 of the MVAT Act. The Sales Tax Department issued demand notice dated 11.11.2020 to the Respondent No. 4 for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovery of the arrears of tax. The petitioner suitably replied to the said notice informing the correct fact of the case. On 10.11.2020 the petitioner bank filed a Securitization Application before the Additional District Magistrate under section 14 of the SARFAESI. The Additional District Magistrate, on 25.02.2021 passed an order for possession of the secured assets. The possession notice was issued by Tahsildar, Nasik on 01.11.2021. The petitioner bank took possession of the same on 18.11.2021. The Sales Tax Department issued demand notice to the petitioner for the recovery of dues for the assessment period from 01.04.2017 to 31.06.2021. The petitioner bank also received a demand notice from the GST Department for the recovery of outstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding dues on 09.03.2022, 10.08.2022 and 23.11.2022. The petitioner bank submitted replies to all the demand notices. Thereafter, the petitioner bank issued a communication on 10.01.2023 objecting to the orders to the Sales Tax Department and called upon to withdraw the orders passed by them. The petitioner bank on 09.03.2023 issued a re-auction sales notice, dated 09.03.2023. The Sales Tax Department objected to the said sales on 15.03.2023 on the ground that the Department has already started recovery proceedings and attached the properties of the respondent No. 4. The petitioner filed the present writ petition before the High Court against the order of the Sales Tax Department. In the present petition, the petitioner prayed for the quashi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the demand notices issue by the Commissioner and Sales Tax Department also for setting aside and quashing the impugned order passed by the Sales Tax Department. The Sales Tax Department opposed the same before the High Court. The petitioner bank submitted the following before the High Court- The petitioner Bank on 17.03.2017 registered the Security Interest with CERSAI. The Respondent Nos.2 and 3 have not registered their purported claim against Respondent No.4, with CERSAI. According to Section 26E of SARFAESI the petitioner bank get priority over the Sales Tax Department and GST Department. The provisions of SARFAESI overrides the other provisions of law. The respondent submitted the following before the High Court- The immovable prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty of the taxpayer has been attached and a lien has been placed on Flat No.21 22, situated in Shriram Anand Sankul Society, Nashik, as well as the land and building located on Gat No.477, Gonde Shivar, Nashik. The Tax Department is pursuing the recovery of debts from the taxpayer Respondent No.4, amounting to Rs.98,15,407/-. As per the provisions of Section 37 of the MVAT, which establishes the precedence of a secured creditor in favor of Sales Tax dues. It was prayed that the Writ Petition should be dismissed with costs. The provisions of MVAT Act have precedents over the bank due. Therefore, there is no question of Bank having first charge over the subject properties, in view of MVAT Act. The High Court considered the submissions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner bank and the VAT/GST Department. The High Court analyzed the entire facts of the facts and also analyzed the documents on record. The High Court analyzed the provisions of Section 26E of SARFAESI which provides that notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, 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 High Court relied on its own judgment in JALGAON JANTA SAHAKARI BANK LTD. ANR. ICICI BANK LTD., FULLERTON INDIA CREDIT COMPANY LTD., BANK OF BARODA, EDELWEISS ASSET RECONSTRUCTION COMPAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y LTD. THE AUTHORIZED OFFICER BHARATI SAHAKARI BANK LTD., JM FINANCIAL ASSET RECONSTRUCTION COMPANY LTD. ANR. SARASWAT CO-OP. BANK LTD. ANR., DR. PRINCE JOHN EDAVAZHIKAL ASSET RECONSTRUCTION COMPANY LTD., VERSUS JOINT COMMISSIONER OF SALES TAX NODAL 9, MUMBAI, ANR. THE STATE OF MAHARASHTRA ORS., TORNADO MOTORS PVT. LTD. ORS., STATE OF MAHARASHTRA PRINCIPAL COMMISSIONER OF GST AND CENTRAL EXCISE ORS. THE DY. COMMISSIONER OF SALES TAX AND ORS. THE UNION OF INDIA ORS. - 2022 (9) TMI 163 - BOMBAY HIGH COURT in which the High Court held that priority means precedence or going before (Black's Law Dictionary). In the present context, it would mean the right to enforce a claim in preference to others. In view of the splurge of first charge used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in multiple legislation, the Parliament advisedly used the word priority over all other dues in the SARFAESI Act to obviate any confusion as to inter-se distribution of proceeds received from sale of properties of the borrower/dealer. If a secured asset has been disposed of by sale by taking recourse to the Security Interest (Enforcement) Rules, 2002 it would appear to be reasonable to hold, particularly having regard to the non-obstante clauses in sections 31 B and section 26E, that the dues of the secured creditor shall have priority over all other including all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority. Once the secured creditors have registered their Secured Interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t prior to the Sale Tax Department registering their Secured Interest for its claim, Section 26-E comes into play. Section 26D makes it mandatory for secured creditors to register their security interest to be entitled to exercise their rights of enforcement of securities. The High Court held that being the Central Act the same will prevail over the State Act. The petitioner bank registered with CERSAI on 17.03.2017 which is prior to the date of order of attachment which is 19.04.2022. The High Court, therefore, held that claim of the secured creditor, the petitioner, will have preference over the claim of GST Department. - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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