Secured creditors registered with CERSAI have priority of claims over tax dues: Bombay HC

Purushottam Prabhakar Chavan Vs Deputy Commissioner of Sales Tax (GST) (Bombay High Court)

The case of Purushottam Prabhakar Chavan vs. Deputy Commissioner of Sales Tax (GST) before the Bombay High Court revolves around the priority of claims over a property, particularly concerning secured creditors and the Maharashtra Value Added Tax (MVAT) dues. Here’s a detailed summary:

Background: The petitioner, Mr. Purushottam Prabhakar Chavan, acquired an apartment in Mumbai through an auction conducted by an asset reconstruction company, Encore ARC, in the course of enforcement proceedings. The sales tax authorities had attached the property due to alleged default in payment of MVAT dues by certain borrowers.

Factual Matrix:

• Loans were sanctioned by Kallappanna Ichalkaranji Janta Sahakari Bank Ltd. (Lender Bank) to various borrowers, secured by mortgages over properties.
• These loans became non-performing assets, leading to enforcement actions by the Lender Bank under the SARFAESI Act.
• The sales tax authorities initiated attachment proceedings against the properties due to tax dues.
• The Lender Bank registered its security interest with CERSAI, as mandated by the SARFAESI Act, prior to the attachment by the tax authorities.
• The auction of the property was conducted by Encore ARC, which acquired the entitlement to priority from the Lender Bank.

Core Issue: The central issue pertains to the legal priority of claims over the property – whether the sales tax authorities have precedence over the claims of the secured creditor (Lender Bank/Encore ARC) under the MVAT Act.