Bombay High Court Orders Registration Of Auction Purchaser's Sale Certificate, Quashes Sales Tax Attachment

The Bombay High Court has directed the Sub-Registrar to register an auction purchaser's sale certificate without insisting on a No Objection Certificate from the Sales Tax Department after finding that the secured creditor's claim took priority over the Department's tax dues.

A division bench of Justices Manish Pitale and Shreeram V. Shirsat granted the relief to Neon Laboratories, which had purchased the property in an auction conducted by a bank under the SARFAESI Act.

The court also quashed the Sales Tax Department's attachment order and directed the revenue authorities to remove the encumbrance from the property records.

"The respondent-State Authorities cannot resist the priority of the dues of the respondent No.5-bank over the dues towards sales tax. Hence, the position of law is clearly in favour of the petitioner.", the court ruled.

The petitioner purchased the property in a bank auction, and a sale certificate was issued on March 14, 2019. Its registration, however, remained pending because the Sales Tax Department had attached the property on January 10, 2019, and an encumbrance based on that attachment was reflected in the revenue records. The petitioner therefore approached the High Court seeking removal of the attachment and registration of the sale certificate.

The Sales Tax Department argued that the retrospective amendment to Section 37 of the Maharashtra Value Added Tax Act gave it a first charge over the property, rendering the Full Bench ruling in Jalgaon Janta Sahakari Bank Ltd. inapplicable.

It also submitted that it had approached the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) in 2018, but the request could not be processed because filing of attachment orders with CERSAI had not yet been notified by the Central Government.

The court rejected those submissions. It observed that the same contention had already been considered and rejected in Bank of Baroda v. Assistant Commissioner of Sales Tax. The bench further noted that the bank had registered its security interest with CERSAI on December 8, 2011, whereas the Department had not registered its charge.

It also found that the State authorities' affidavits did not disclose compliance with the attachment procedure prescribed under the Maharashtra Land Revenue Code and the Rules framed under it. In those circumstances, the court held that the secured creditor's claim had priority over the Department's dues.

Allowing the petition, the court quashed the attachment order, directed the revenue authorities to remove the encumbrance from the property records, and ordered the Sub-Registrar to register the sale certificate without insisting on a No Objection Certificate from the Sales Tax Department. The consequential changes to the revenue records are to be completed within four weeks.

For Petitioner: Sidharth Samantray

For Respondent: Rita Joshi, AGP (for state) and Ms. Savita Nangare along with Mr. Vinod Sagula, instructed by Law Focus (for bank)