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2020 (1) TMI 1551 - HC - VAT and Sales TaxCreation of charge on assets which are already mortgaged - attachment of the plots for recovery of the sales tax dues - priority of charge in case of secured creditors - creation of first charge over the property which is already mortgaged in favour of a secured creditor - whether Section 48 of the Gujarat Value Added Tax Act 2003 would apply to reduce tax which arose under the Gujarat Sales Tax Act 1960 or not? - HELD THAT - The questions are no more res-integra in view of the decision of the co-ordinate bench of this Court rendered in the case of KALUPUR COMMERCIAL CO-OPERATIVE BANK LTD. VERSUS STATE OF GUJARAT 2019 (9) TMI 1018 - GUJARAT HIGH COURT wherein it is held that the first priority over the secured assets shall be of the Bank and not of the State Government by virtue of Section 48 of the VAT Act 2003. In view of the judgement cited the respondent No.2 cannot have a prior charge over the secured assets which have already been mortgaged much prior in point of time before the outstanding dues of the sales tax notice of the assessee i.e. M/s. Choksi Tubes in the facts of the present case. The respondents are therefore not entitled to continue the attachment over the property in question - respondents are directed to remove the attachment in the revenue records with regard to the properties in question - petition allowed.
Issues Involved:
1. Validity of the respondent's refusal to remove the charge of outstanding sales tax dues on the petitioner's property. 2. Applicability of Section 48 of the Gujarat Value Added Tax Act, 2003 (GVAT Act) concerning the priority of charges. 3. Interpretation of the overriding effect of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitisation Act) over the Gujarat Sales Tax Act. 4. Impact of judicial precedents on the priority of charges between secured creditors and state tax authorities. Issue-wise Detailed Analysis: 1. Validity of the respondent's refusal to remove the charge of outstanding sales tax dues on the petitioner's property: The petitioner challenged the respondent's action of not removing the charge of outstanding sales tax dues on the properties they purchased. The properties were initially mortgaged by M/s. Choksi Tubes Company Ltd. to various banks before the sales tax attachment. The petitioners argued that the properties were mortgaged much before the attachment order passed by the sales tax authorities in 2005 and that the Securitisation Act should have an overriding effect over the Gujarat Sales Tax Act. 2. Applicability of Section 48 of the Gujarat Value Added Tax Act, 2003 (GVAT Act) concerning the priority of charges: The court examined whether Section 48 of the GVAT Act, 2003, which provides for the first charge on the property for state dues, would apply to dues arising under the Gujarat Sales Tax Act, 1960. The court referenced the Division Bench decision in Kalupur Commercial Cooperative Bank Ltd. v. State of Gujarat, which held that Section 48 of the VAT Act would not create a first charge in the case of secured creditors if the property was already mortgaged. 3. Interpretation of the overriding effect of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitisation Act) over the Gujarat Sales Tax Act: The petitioners argued that the Securitisation Act has an overriding effect over the Gujarat Sales Tax Act, as it allows secured creditors to enforce their security interest without court intervention. The court considered the Supreme Court's judgment in Central Bank of India vs. State of Kerala, which held that if a state act creates a first charge on the property, the secured creditors cannot claim priority over the statutory provision. 4. Impact of judicial precedents on the priority of charges between secured creditors and state tax authorities: The court relied on several judicial precedents, including the Supreme Court's decision in Central Bank of India vs. State of Kerala, which emphasized that the state's statutory first charge would prevail over the claims of secured creditors unless the central legislation explicitly provides otherwise. The court also referenced the Full Bench decision of the Madras High Court and the Bombay High Court's decision, which supported the priority of secured creditors under the amended provisions of the Securitisation Act and the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act). Conclusion: The court concluded that the respondent's refusal to remove the charge was unjustified. The first priority over the secured assets should be given to the bank, not the state government, by virtue of Section 26E of the Securitisation Act and Section 31B of the RDB Act, which were enacted later and provide priority to secured creditors over state dues. The court directed the respondents to remove the attachment in the revenue records concerning the properties in question.
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