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2019 (7) TMI 1684 - KERALA HIGH COURTRecovery of Sales tax and VAT dues - validity of action of the State's Revenue Machinery (the Revenue), in taking possession of and attempting to sell certain properties for alleged arrears of Sales Tax and Value Added Tax from its respective owners, which are claimed by them to be their secured assets - HELD THAT:- Even though the KGST Act/KVAT Act creates a 'First Charge' in favour of the Revenue to recover the arrears of tax, the afore provisions of the SARFAESI Act and RDB Act make the secured dues entitled to be paid in priority over such taxes and in fact, elevates the rights of the secured creditor, to recover such dues, also to a position of priority - the cumulative effect is that whoever sells the property or in whatever manner it is sold, the secured debts will require to be paid off first and all others will have to wait for their turn. Viewed in this purlieu, the predication of the learned Additional Advocate General that the 'First Charge' of the Revenue over the properties will be extinguished only if they sell the property first, pails into insignificance because the statutory right of the Revenue is, at the best, to bring the property to sale and nothing more. Irrefragibly, when the secured creditors have a right in priority to have their debts extinguished, obviously, their right to proceed against the property would also rank high than that is claimed by the Revenue. The assertion of the Revenue that their 'Charge' will continue over the property until it is sold by them, hence, is rendered without forensic support to stand on. Whether Section 26E of the SARFAESI Act and Section 31B of the RDB Act create an overriding and first right in favour of the Banks/Financial Institutions to recover their dues, over and above the rights of the Revenue created through the KGST Act/KVAT Act? - HELD THAT:- This enquiry has been rendered relatively easy for this Court because, in CENTRAL BANK OF INDIA VERSUS STATE OF KERALA AND OTHERS [2009 (2) TMI 451 - SUPREME COURT], the Hon'ble Supreme Court considered the right of the Banks/Financial Institutions as regards recovery of their dues prior to the afore two provisions being introduced in the SARFAESI Act and in the RDB Act. The conclusions of the Hon'ble Supreme Court are unequivocally worded that, in the absence of these provisions in the respective Statutes, the Banks/Financial Institutions cannot claim any priority over the Revenue's First Charge on the properties concerned for recovery of dues of Sales Tax/Value Added Tax. The provisions of Section 11(2) of the EPF Act are only bolstered and supported by the provisions of Sections 529 and 529A of the Companies Act. This view certainly does not support the submissions of the learned Additional Advocate General, since arrears of tax revenue have not been, in any manner, protected either by the SARFAESI Act or by the RDB Act. Petition allowed.
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