Shailesh K Bothara And Ors vs. State Of Maha. Thr. Prin. Sec. (Finance) And Ors

Facts

Petitioners 1 and 2 are auction purchasers of a property previously mortgaged by Taurus Auto Dealers Pvt. Ltd. (borrower) to Petitioner 3, a non-banking financial institution. The borrower defaulted on loans, and Petitioner 3 initiated proceedings under the SARFAESI Act. The Sales Tax Department, through the Deputy Commissioner, issued an attachment order on August 11, 2017, under the MVAT Act to recover sales tax dues of Rs. 10,31,38,003/- for the period June 1, 2014, to March 31, 2015. Petitioner 3 had previously challenged a notice from the Sales Tax Department regarding this charge, but that petition was quashed. Subsequently, Petitioner 3 conducted an auction where Petitioners 1 and 2 purchased the property. The present petition challenges the liability of Petitioners 1 and 2 to discharge the sales tax dues.

Held

The Court held that the Sales Tax Department had a valid and subsisting charge on the property due to the attachment order dated August 11, 2017. The Court reasoned that while Petitioner 3, as a secured creditor, has priority over its secured dues, the charge of the Sales Tax Department for recovering sales tax dues remains valid and enforceable. The Court rejected the contention that the charge was extinguished due to non-registration with the Central Registry, referencing the Full Bench decision in Jalgaon Janta Sahakari Bank Ltd. The Full Bench clarified that for attachments made prior to January 24, 2020, the procedure under the relevant rules (like the 1967 Rules for MLRC recovery) must be followed for the charge to have priority. The Court found that the attachment order predated the enforcement of Chapter IV-A of the SARFAESI Act and that the Sales Tax Department's charge was recognized in previous proceedings and auction terms. Therefore, the petition lacked merit.

Key Issues

1. Whether Petitioners 1 and 2, as auction purchasers, are liable to discharge the sales tax dues for which the property was attached by the Sales Tax Department prior to the auction, and if the property purchased by them was encumbered, in light of Section 37 of the MVAT Act and Chapter IV-A of the SARFAESI Act? Petitioner's Argument: The petitioners argued that the Sales Tax Department was required to register its charge with the Central Registry as per Section 26-B(4) of the SARFAESI Act, and failure to do so extinguishes the charge. They also contended that the charge of Petitioner 3 as a secured creditor ranks above the State Government's dues. Respondent's Argument: The State contended that the attachment order dated August 11, 2017, created a valid and subsisting charge on the property. They relied on Section 37 of the MVAT Act, which establishes the first charge for sales tax dues over the property of a dealer. They also argued that the Full Bench decision in Jalgaon Janta Sahakari Bank Ltd. clarified the priority of charges.