2026-VIL-676-KAR
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VAT High Court Cases

VAT/Sales Tax - Priority of Secured Creditor over Statutory First Charge - Petitioner, an asset reconstruction company that acquired secured debt from a stressed assets stabilisation fund, seeks recall of attachment orders issued by the Commercial Tax Department for recovery of tax arrears - Whether the priority payment conferred under Section 26E of the SARFAESI Act, 2002 prevails over the statutory first charge created in favour of the State under Andhra Pradesh General Sales Tax Act, 1957, Central Sales Tax Act, 1956, and Andhra Pradesh VAT Act, 2005, where attachment orders are issued prior to the registration of security interest with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), but subsequent to the creation of security interest under registered mortgages – HELD - The priority payment conferred under Section 26E does not override a statutory first charge validly created dehors the non obstante clause. Section 26E of the SARFAESI Act, 2002 merely confers priority in payment and does not create a statutory first charge, whereas the State enactments independently create a statutory first charge outside the framework of non obstante clauses - The distinction between priority and statutory first charge is significant because a priority cannot be equated with a first charge and cannot be given prevalence over a first charge statutorily created. The statutory first charge created under the State enactments operates from the moment the tax liability is incurred, which predates the creation of the security interest in favour of the lending bank. The principles laid down by the Supreme Court in Jalgaon District Central Co-operative Bank Ltd. v. State of Maharashtra establish that where two enactments contain non obstante clauses in conflict, the later enactment ordinarily prevails, but where competing enactments deal with priority in satisfaction of debts and one validly creates a statutory first charge dehors the non obstante clause, such statutory first charge shall prevail - The registration under the CERSAI on 05.05.2021 cannot affect the attachment orders issued in 2007 and 2011 pursuant to the statutory first charge. Accordingly, the application for recall of attachment orders is dismissed, the order permitting sale of property outside liquidation proceedings is recalled - The Commercial Tax Department is permitted to proceed with sale of the property for recovery of tax dues with amounts realised to be deposited with the Official Liquidator pending adjudication of other claims – The application is dismissed - Whether the statutory first charge is available in respect of the dues recoverable under the Central Sales Tax Act, 1956 – HELD - Unlike the APGST Act, 1957 and the APVAT Act, 2005 the CST Act does not expressly create a statutory first charge in respect of the dues payable thereunder. However, the CST Act provides a mechanism for recovery of such dues through the authorities functioning under the State enactments – In terms of Section 9 of the CST Act the State authorities, who are empowered to recover dues under the CST Act, are entitled to exercise all the powers available to them under the State sales tax laws, including the power to enforce the statutory first charge created by those enactments - Since Section 9(2) incorporates, by reference, the recovery machinery contained in the State enactments, and there is no provision in the CST Act excluding the operation of the statutory first charge available under the State laws, the powers available under the State enactments must necessarily be read into the CST Act for the limited purpose of recovery. Accordingly, the statutory first charge available under the State enactments is equally available for recovery of the dues payable under the CST Act.
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