The High Court ( HC ) of Ahmedabad has held that the dues of Secured Creditor would prevail over state tax department dues.
Ambica Buildcon, the petitioner is an absolute owner of the property in question with the legal and valid title as once purchased under the public auction. The property is a ‘secured asset’ and was put for the public e-auction on 27.04.2022 by respondent no.1- The Recovery Officer-I, DEBT Recovery Tribunal due to the default committed by the borrower/mortgagor, after taking possession of the property, under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (“RDDBI Act”) Act.
The petitioner purchased the said property in the said public e-auction conducted by respondent no.1 for a sale consideration of Rs.13,75,00,000/- and respondent no.1 issued a sale certificate in favour of the petitioner. The petitioner was made aware by respondents No.1 and 2 that the claim of the bank’s dues is before the State dues as per Section 31-B of the RDDBI Act.
The petitioner requested respondent No.1 – Recovery Officer of the Debt Recovery Tribunal for deciding the priority of charge between the bank and the VAT Department which was incorporated vide Entry No.6209.
The petitioner is a bona fide purchaser. It is a settled position of law that the debts due to any secured creditor shall be paid in priority over all other debits and all revenues, taxes, cesses and other rates payable to the Central Government State Government or local authority.
Section 46 of the VAT Act is about the special powers of the tax authorities for the recovery of tax as arrears of land revenue. Section 46 of the VAT Act.
Sections 26E, 35 and 37 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, 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.
A two-member bench comprising Justice Sonia Gokani and Justice Sandeep N. Bhatt observed that without any assessment proceedings, the amount cannot be determined, and if the amount is yet to be determined, then before such determination there cannot be any transfer application. Therefore, the condition precedent is that the tax should become due and such tax which has become due shall be payable by a dealer.
The Court quashed and set aside Revenue Entry No.6209 dated 20.09.2018, certified on 25.10.2018, which pertains to the registration of charge by the State Tax Authority on the property in question by holding that the petitioner is a bona fide purchaser and is an absolute owner of the property in question with the legal and valid title.
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