HDFC Bank Ltd. Vs Commissioner GST Dept. (Bombay High Court)
Summary: The Bombay High Court, in HDFC Bank Ltd. Vs The Commissioner GST Dept. and Ors., held that the State GST Department could not continue an encumbrance against immovable property sold through a SARFAESI auction where the secured creditor’s interest had been registered with CERSAI and the Department failed to establish any legally valid attachment or recovery action. The Bank and auction purchaser challenged the GST charge recorded in the 7/12 revenue extract after the auction sale and issuance of a registered sale certificate. The Court applied the binding Full Bench judgment in Jalgaon Janta Sahakari Bank Ltd. Vs Joint Commissioner of Sales Tax, which recognised the statutory priority of secured creditors under Section 26E of the SARFAESI Act.
1. The Issue
A borrower’s secured immovable property was sold by HDFC Bank under the SARFAESI Act, 2002. The auction purchaser received a registered sale certificate. However, the State GST Department’s charge continued to appear as an encumbrance in the 7/12 revenue extract.
The Bank and auction purchaser sought removal of that entry. The legal question was narrow but commercially consequential: can an unperfected State GST claim continue to burden a secured asset after its sale by a secured creditor whose security interest was registered with CERSAI?
2. Department’s Arguments
The Revenue relied upon its affidavit and material concerning scrutiny and demand proceedings relating to GST dues from FY 2017-18 onwards. It contended that the revenue entry reflected a genuine departmental claim and requested the Court to consider the basis on which the charge had been recorded.
Its underlying case was that a statutory tax demand should not be rendered ineffective merely because the borrower’s asset had been sold under SARFAESI proceedings.
3. Assessee’s Arguments
The Bank and auction purchaser relied on the Bombay High Court Full Bench decision in Jalgaon Janta Sahakari Bank Ltd. v. Joint Commissioner of Sales Tax, Nodal 9, Mumbai.
They submitted that:
- the Bank’s security interest had been registered with CERSAI on 8 September 2017;
- the Department had not produced an attachment order;
- there was no evidence of a legally completed recovery process under the applicable land-revenue machinery; and
- a revenue-record encumbrance could not override the statutory priority conferred upon a secured creditor under Section 26E of the SARFAESI Act, 2002.
4. Holding and Reasoning
The Court allowed both petitions and directed removal of the GST encumbrance from the 7/12 extract within two weeks.
The ratio is clear: where the Department cannot establish a valid attachment and legally compliant recovery action, the secured creditor’s priority under Section 26E prevails.
At paragraph 6, the Court applied paragraph 85 of Jalgaon Janta Sahakari Bank, which explains that “priority” under Section 26E means priority in distribution of sale proceeds over dues payable to the Central Government, State Government or local authority. At paragraph 7, the Court recorded that the Revenue had produced neither an attachment order nor supporting material, despite an earlier opportunity.
More significantly, the Court invoked paragraphs 148 to 153 of Jalgaon Janta Sahakari Bank. Those paragraphs distinguish a recoverable and perfected governmental claim from a mere departmental assertion. Under the Maharashtra recovery framework, attachment cannot remain an internal departmental event; it must be followed by statutory steps, including a legally prescribed public proclamation. The Full Bench had held that mere attachment is insufficient and that, absent valid attachment and proclamation, the secured creditor’s statutory priority survives.
The Court also noted that the Department had lodged its claim with the interim resolution professional in CIRP. This observation is contextual, not a separate ruling on the interaction between the Insolvency and Bankruptcy Code, 2016 and GST recovery.
5. Then and Now: The Pre-GST Lineage
The older starting point is Central Bank of India v. State of Kerala, (2009) 4 SCC 94. The Supreme Court held that, under the then-existing SARFAESI and DRT statutes, a State statutory first charge under sales-tax legislation prevailed because those Central enactments did not themselves create a first charge in favour of banks.
That position was materially altered by Parliament’s subsequent insertion of Section 26E in the SARFAESI Act. The provision does not merely facilitate enforcement; it expressly accords priority to secured creditors over all other debts, including Government dues, subject to the statutory conditions for registration and enforcement.
The Bombay Full Bench in Jalgaon Janta Sahakari Bank Ltd., 2022 SCC OnLine Bom 1767, reconciled this legislative change with tax-recovery law. It held that after Section 26E became operative, the Revenue cannot rely on a bare first-charge assertion. The tax claim must have been legally crystallised and enforced through the prescribed recovery process. Paragraphs 153–154 of the Full Bench decision make the practical distinction: departmental demand is not equivalent to a publicly perfected attachment.
Thus, GST has departed from the older pre-amendment position in Central Bank of India. The decisive question is no longer simply whether tax legislation creates a first charge. It is whether the Revenue can demonstrate an enforceable and properly perfected claim capable of competing with a registered secured interest.
6. Allied Law Lens
The case engages property law and insolvency law without finally deciding either in isolation. An entry in a revenue record is evidence of a claimed encumbrance; it is not, by itself, proof that statutory recovery requirements have been met.
The CIRP reference is important for another reason. Once the Department has lodged its claim in insolvency, it should carefully assess whether parallel retention of an encumbrance in revenue records is legally sustainable on the facts, particularly where the secured asset has already moved through a SARFAESI sale.
7. Analysis and Conclusion
The reasoning is sound, though concise because the Full Bench precedent was directly binding. The judgment is not a blanket proposition that GST dues can never affect secured assets. Its narrower and more useful proposition is that Revenue must prove the legal foundation, timing and public perfection of its claim.
For secured creditors and auction purchasers, the judgment reinforces the value of CERSAI registration and documentary diligence. For GST authorities, it is a reminder that a demand order, internal file noting or revenue-record entry cannot replace statutory attachment and recovery steps.
An appeal appears unlikely to raise a substantial new question unless the Department can produce material showing a valid pre-existing attachment or a legal defect in the Bank’s registered security interest.
8. Practice Tips
- Obtain a CERSAI search report and place the date of security-interest registration prominently on record.
- Seek the complete recovery file: demand notice, attachment order, warrant, proclamation, mode of publicisation and mutation basis.
- In a writ or representation, distinguish a GST demand from a legally perfected charge over identified property.
- Auction purchasers should insist on revenue-record searches and obtain written clarification on every departmental encumbrance before bidding.
- Where insolvency proceedings exist, obtain the Department’s proof-of-claim filing and reconcile it with its position in revenue records.
Cases Discussed
1. Jalgaon Janta Sahakari Bank Ltd. Vs Joint Commissioner of Sales Tax, Nodal 9, Mumbai (Bombay High Court) — 2022 SCC OnLine Bom 1767; Writ Petition No. 2935 of 2018 and connected petitions; decided on 30/08/2022. Directly applied at paragraphs 4, 6 and 7, particularly paragraphs 85 and 148–153 of the Full Bench judgment, concerning priority under Section 26E of the SARFAESI Act and the statutory requirements for valid attachment and proclamation.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. The Bank (secured creditor) and the auction purchaser are before this Court in these two Writ Petitions, seeking identical relief of a direction to Respondent State Authorities to remove the encumbrance recorded in respect of the subject property, with regard to the dues of the Respondent GST Department, in the revenue records (7/12 extract). The Petitioners seek consequential correction of the revenue records.
2. The Petitioner in Writ Petition No. 9367 of 2025 is the secured creditor Bank, which was constrained to take steps under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, for short) for recovery of its dues from the original borrower. This culminated in the Petitioner Bank taking physical possession of the secured asset (subject property) and putting it up for auction sale.
3. The auction notice was dated 16th May, 2025, and the auction sale was conducted on 4th June, 2025, when the highest bid of the Petitioner (auction purchaser) in Writ Petition (L.)No. 22073 of 2026 was accepted. Physical possession of the subject property was handed over to the said auction purchaser, and as on today, a registered Sale Certificate dated 25th March, 2026 has been issued in favor of the auction purchaser.
4. The Petitioners are aggrieved by the encumbrance recorded in the revenue record, and it is submitted that even if the Respondent GST Department of the State may have its claims as against the original borrower, it cannot assert priority over the dues of the Petitioner Bank (secured creditor). Reliance is placed on full bench judgment of this Court in the case of Jalgaon Janata Sahakari Bank Limited and Anr. v. Joint Commissioner of Sales Tax Nodal 9, Mumbai and Anr.1. By placing reliance on the said judgment, is submitted that even if the reply affidavit filed on behalf of Respondent Nos. 1 and 2 (GST Department) in Writ Petition No. 9367 of 2025 is taken into consideration, the Respondent State has no defense in the matter, and therefore, the Writ Petitions deserve to be allowed.
5. On the other hand, learned AGP appearing on behalf of the Respondent State Authority relies upon the contents of the affidavit filed in Writ Petition No. 9367 of 2025 on behalf of Respondent Nos. 1 and 2. He submitted that all the details of the basis on which the charge of the said Department was recorded in the revenue record pertaining to the subject property, have been clarified. Reference was made to the process of scrutiny undertaken and the consequent demand notices issued in the context of dues pertaining to the years 2017-18 onwards. The learned AGP relied upon the supporting documents filed with the reply affidavit, to contend that the charge of the said Department towards its dues in the context of GST, is clearly made out, and that this Court may take into consideration the said material before passing any order in the respective Petitions.
6. Having heard the rival contentions, we find that the law laid down by the full bench judgment of this Court in the case of Jalgaon Janta Sahakari Bank Ltd. (Supra), inures to the benefit of the Petitioners. In paragraph 85 of the said judgment, it was categorically held that:
“85. Priority means precedence or going before (Black’s Law Dictionary). In the present context, it would mean the right to enforce a claim in preference to others. In view of the splurge of “first charge” used in multiple legislation, Parliament advisedly used the word “priority over all other dues” in the SARFAESI Act to obviate any confusion as to inter se distribution of proceeds received from sale of properties of the borrower/dealer. If a secured asset has been disposed of by sale by taking recourse to the Security Interest (Enforcement) Rules, 2002 it would appear to be reasonable to hold, particularly having regard to the non obstante clauses in sections 31B and section 26E, that the dues of the secured creditor shall have “priority” over all other including all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.”
7. Although no attachment order or any reference thereto has been made in the reply affidavit filed on behalf of the Respondent Nos. 1 and 2, on an earlier occasion, in these Writ Petitions, it was submitted on behalf of the Respondents that if any attachment order is available, the same will be placed on record. But, nothing has been placed on record. In any case, in paragraphs 148 to 153 of the aforesaid full bench judgment of this Court, it has been laid down that only issuance of an attachment order is also not enough, and that further steps regarding proclamation of sale by public auction, and making public such proclamation by beating of drum, etc., has to be undertaken to satisfy the requirement of law, including the provisions of the Maharashtra Land Revenue Code. No such material has been placed on record by the Respondents, and therefore, we find that the position of law clarified in the full bench judgment of this Court inures to the benefit of the Petitioners. The dues of the Petitioner Bank (secured creditor) have priority over the claims of the Respondent GST Department of the State of Maharashtra.
8. In any case, it is brought to the notice of this Court that the security interest of the Petitioner Bank was duly registered on 8th September, 2017, with the Central Registry of Securitization Asset Reconstruction and Security Interest of India. The relevant document is placed at Exhibit–C of Writ Petition No. 9367 of 2025.
9. Apart from this, it is correctly pointed out on behalf of the Petitioners that in the reply affidavit filed on behalf of Respondent Nos. 1 and 2, it is conceded that the Department has already lodged the claim with the interim resolution professional when the corporate insolvency resolution process was undertaken with regard to the original borrower. Such claim having been lodged under the provisions of the Insolvency and Bankruptcy Code, 2016, can also not be ignored while considering the rival submissions made on behalf of the parties.
10. We find that in such circumstances, there is no basis for continuing the encumbrance recorded in the revenue record in respect of the subject property, and therefore, the Writ Petitions deserve to be allowed.
11. In view of the above, the Writ Petitions are allowed and the Respondents are directed to remove the encumbrance recorded in the revenue records (7/12 extract), pertaining to the charge of Respondent Nos. 1 and 2 in respect of the subject property. Consequential steps shall be taken within two weeks from today. Pending applications, if any, also stand disposed of.
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