Sales Tax or VAT Dues Payable Can't Be Claimed As Priority Over Dues Of Secured Creditor: Gujarat High Court

The Gujarat High Court has held that Sales tax or VAT dues payable cannot be claimed as priority over dues of the secured creditor.

The division bench of Justice N.V. Anjaria and Justice Bhargav D. Karia has observed that 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 petitioner has challenged the order dated passed by respondent, the Sub Registrar, Jamnagar. The order was in nature of communication addressed to the petitioner by which respondent has kept pending document refusing to release the it on the ground that on the subject matter land covered under the document, there exists an encumbrance in the nature of government dues of unpaid sales tax.

It was stated that the properties were under attachment under Section 45 of the Gujarat Value Added Tax Act, for non-payment of the tax by the original owner of the properties named Pradipkumar Govindbhai Lakkad.

Axis Bank had held auction in exercise of powers derived from the provisions of SARFAESI Act to sell the property mortgaged with it, in order to recover its dues. Notice under Section 13(2) was issued, possession was taken and the auction in accordance with law was conducted.

The petitioner was successful bidder who purchased the property.

Sale certificate dated 28.2.2019 in favor of the petitioner came to be issued. The sale certificate was registered.

Original owner conveyed to the sales tax authorities that he had no objection to register the charge in respect of the sales tax dues.

No interest had survived for original owner after auction sale by the Bank and the petitioner becoming owner of the property.

The so called tenant claiming to be in occupation of the property failed in the litigation. No stay was granted to him and the court permitted issuance of sale certificate in favor of the petitioner.

In the proceedings before the Mamlatdar, objecting to the mutation entry in favor of the petitioners, none of the contentions held merit. The Mamlatdar refused the prayer.

On the basis of the sale certificate No.1383, the name of the petitioners- the holder of the sale certificate was mutated in the revenue records subject to the outcome of the proceedings before the Debt Recovery Tribunal.

The court has noted that Sub Registrar was wholly unjustified in passing order to keep the document which was sale deed executed by the petitioners, keeping it pending and not returning it to the petitioners.

The court held that 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.

Case Title: Odhavjibhai Mohanbhai Gadhiya Versus State of Gujarat [R/SPECIAL CIVIL APPLICATION NO. 9394 of 2021]

Case Citation: 2023 Livelaw (Guj) 28

Date: 30.09.2022

Counsel for the petitioner: A.R.Thakkar

Counsel for the department: Krutik Parikh

 Click Here To Read The Order