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2023 (2) TMI 135 - HC - VAT and Sales TaxRecovery of tax dues - Right of auction purchaser of the property - Auction of property by the Secured Creditor (Bank) - Seeking lifting of attachment over the property - existence of encumbrance in the nature of government dues of unpaid sales tax - Section 45 of the Gujarat Value Added Tax Act - HELD THAT:- The settled position of law is that the VAT and sales tax dues has no precedence over the dues of the bank for recovery of which the bank exercise powers under the SARFAESI Act. The bank was secured creditor. Section 26 E of the SARFAESI Act provides for priority of secured creditor, stating that notwithstanding anything contained in any other law, after the registration of security interest, the debts due to unsecured creditor shall be paid in priority of all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority - The charge sought to be created by the sales tax authorities in no way could discount the a priori rights of the bank to recover its dues as the bank was secured creditor. The dues in the nature of sales tax or VAT payable by the original owner cannot claim priority over the dues of the secured creditor. The principle that the state debt or crown debt has no prior claim or the dues payable to the secured creditor is no longer res integra. In BANK OF BIHAR VERSUS STATE OF BIHAR [1971 (4) TMI 96 - SUPREME COURT], the supreme court laid down certain well known principles which were followed by the supreme court in its own judgment in DENA BANK VERSUS BHIKHABHAI PRABHUDAS PAREKH AND CO. AND OTHERS [2000 (4) TMI 36 - SUPREME COURT]. The law laid down is that the preferential right of the Crown to recover the debt over the creditors is limited to the class of unsecured creditors. The charge in respect of the property in question created for sales tax dues is of no avail and has no efficacy in law. The property in question was sold by the bank which was a secured creditor, to enforce its secured debt under the SARFAESI Act, of which the petitioners were successful auction purchaser. They were issued sale certificate which was registered to finally become absolute owner of the property. In exercising their capacity as owners, they executed further sale deed dated 15.2.2021 which was registered with the office of Sub-Registrar at No.1169 on 16.2.2021, however the Sub-Registrar refused to return the sale registered sale deed in view of the order of the respondent No.5 Sales Tax Authority on the ground that it had created charge over the properties for the sales tax dues. The respondent No.3 Sub Registrar was wholly unjustified in passing order dated 6.3.2021 to keep the document No.1169 dated 16.2.2021 which was sale deed executed by the petitioners, keeping the same pending and not returning the same to the petitioners - Since the petitioner had purchased in the auction sale conducted by the bank under the provisions of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 the property travelled in favor of the petitioner free from any encumbrances, order of sales tax officer registering the charge over the property in relation to the sales tax and Value Added Tax payable by original owner of the property had no efficacy in law. Petition allowed.
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