Charge created earlier will prevail during conflict between GST Act and SARFAESI Act: Karnataka High Court  

If there is a conflict between the GST Act and the SARFAESI Act, the priority of the charge must be determined based on the order in which the charges were created, said the Karnataka High Court.

“If the charge under the Goods and Services Tax (Tax) Act was created prior to that under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, the GST Act will prevail, and vice versa,” the court said while clarifying the position of law when charges were created separately on a same property under these two enactments.

Justice Suraj Govindaraj passed the order while allowing a petition filed by Canara Bank while challenging the charge/encumbrance created by the State Commercial Tax Department over an immovable property, which was already mortgaged to the bank, for GST dues.

The court declined to accept the Commercial Tax Department’s argument that only the claims under the Insolvency and Bankruptcy Code (IBC) can override those under the GST Act, and that, since the GST Act is subsequent to the SARFAESI Act, the GST Act should prevail in all circumstances of charges.

The claim under the GST Act, the court said, is not directly enforceable until the tax authorities have made an assessment and an entry is made on public records, like the encumbrance certificate or property card. What needs to be considered is the date of creation of the charge, the court pointed out.

If the charge under the SARFAESI Act was created before the charge under the GST Act, the SARFAESI Act charge would take precedence, the court said while pointing that the charge in the present was created in 2017 by the Bank and the charge over the same immovable property was created by the department only in 2019

While directing the department to remove the encumbrance or charge created over the property in question, the court permitted the bank to auction the property to recover dues to it and if any surplus amount remains after dues to the bank, the same should be deposited with the department for adjustment towards GST dues.