Purushottam Prabhakar Chavan vs. Deputy Commissioner Of Sales Tax (GST) And Ors

Facts

The petitioner, Purushottam Prabhakar Chavan, purchased an apartment (Walkeshwar Flat) in Mumbai from Encore Asset Reconstruction Company Pvt. Ltd. (Encore ARC) during enforcement proceedings. The Deputy Commissioner of Sales Tax (GST) (DCST) had placed an attachment on this flat due to alleged Value Added Tax (VAT) dues owed by See Megh Industries (SMI). The Lender Bank had initially sanctioned credit facilities to SMI, SMIEPL, and SRI, secured by the Walkeshwar Flat and a Nashik Property. These loans became Non-Performing Assets (NPAs). The Lender Bank invoked SARFAESI Act proceedings and took possession of the secured assets. The DCST asserted priority of charge under the Maharashtra Value Added Tax Act, 2002 (MVAT Act) and issued various attachment orders. The Lender Bank asserted its priority through mortgage registration with CERSAI. Subsequently, the loan accounts were assigned to Encore ARC, which conducted an auction where the petitioner purchased the Walkeshwar Flat.

Held

The Court held that the Lender Bank had first priority in enforcement against the Walkeshwar Flat from January 24, 2020, due to its earlier registration with CERSAI. Encore ARC, having acquired the entitlement from the Lender Bank, also held this priority. The Court found no evidence of the DCST registering its charge with CERSAI, nor had it issued a proclamation of sale. Relying on the principle that a registered security interest under SARFAESI Act generally takes precedence, the Court ruled that the attachment orders issued by the DCST prior to January 24, 2020, were of no assistance in giving them priority over the Walkeshwar Flat. Consequently, any attachment by the DCST concerning the Walkeshwar Flat for VAT and central sales tax dues owed by SMI was quashed and set aside. The Petitioner was declared entitled to have the Walkeshwar Flat registered in his name, free of the DCST's encumbrance. The DCST was permitted to pursue any residual proceeds from the sale of the flat after Encore ARC's dues were discharged, to the extent of Bharat's proportion of entitlement in Mrs. PY Shah's estate, and was also free to pursue other assets of SMI.

Key Issues

1. Whether the attachment orders issued by the DCST for alleged VAT dues of SMI have priority over the security interest created by the Lender Bank (and subsequently assigned to Encore ARC) in the Walkeshwar Flat, considering the provisions of the SARFAESI Act and the MVAT Act? Petitioner's Arguments: The petitioner argued that the Lender Bank had a prior registered security interest in the Walkeshwar Flat, which was later assigned to Encore ARC. They contended that the DCST's claim was subordinate to this registered security interest, especially as the DCST had not registered its charge with CERSAI or issued a proclamation of sale. The petitioner relied on the principle that a secured creditor under SARFAESI Act has priority over tax authorities unless specific conditions are met. Revenue/State's Arguments: The DCST asserted its statutory first charge under Section 371 of the MVAT Act over the property of the dealer (SMI) for tax dues. They argued that this charge predated the enforcement actions by the Lender Bank and Encore ARC, and therefore, their attachment should prevail. The DCST's arguments are not explicitly detailed in the provided text but are implied by their actions and assertions of priority.