Facts of the Case

M/s. Kotak Mahindra Bank Ltd. challenged the action of the Assistant Commissioner (ST), Vijayawada, in proceeding to auction a secured property to recover tax arrears due from the borrower under the Andhra Pradesh Goods and Services Tax Act, 2017, over which the Bank held a prior security interest as a secured creditor under the SARFAESI Act, 2002. The Bank contended that its right to recover dues by sale of the secured asset had overriding priority over the State's tax arrears. The Andhra Pradesh High Court at Amaravati, per Chief Justice Dhiraj Singh Thakur and Justice Ravi Cheemalapati, disposed of the writ petition on 29 July 2025, applying its own recent Division Bench ruling in Central Bank of India v. State of Andhra Pradesh (W.P.No.12247 of 2024, decided 21.05.2025).

Issues Involved

  1. Whether a secured creditor's right under the SARFAESI Act, 2002 to recover its dues by sale of a secured asset has priority over State tax arrears sought to be recovered under the GST Act, 2017.
  2. Whether the priority principle laid down in the context of the A.P. Value Added Tax Act, 2005 (Central Bank of India) applies equally where recovery is sought under the GST Act, 2017.
  3. Whether the auction proceedings initiated by the State should accordingly be set aside or restrained.

Petitioner's Arguments

  • The action of the respondents in proceeding to auction the Schedule Property to recover State tax arrears was illegal, arbitrary and a colourable exercise of power, being in violation of the SARFAESI Act, which has an overriding effect over other laws, including Central and State GST enactments.
  • As a secured creditor holding security interest over the property, the Bank's right to realise its dues by sale of the secured asset takes precedence over the State's claim to recover tax arrears from the same asset.
  • Sought a stay of the auction proceedings pending disposal of the writ petition.

Respondent's Arguments

  • Learned Government Pleader for Commercial Tax fairly acknowledged that the issue was squarely covered by the Division Bench's ruling in Central Bank of India v. State of Andhra Pradesh, which held that a secured creditor's right to recover dues by sale of a secured asset has priority over State tax arrears.
  • It was submitted that although that ruling arose under the A.P. Value Added Tax Act, 2005, the same principle would apply where recovery is sought under the GST Act, 2017, since the underlying statutory priority scheme is comparable.

Court Order / Findings

  • No appearance was recorded for the petitioner at the hearing, but the Court proceeded on the basis of the respondents' own concession and its previously expressed view in Central Bank of India v. State of Andhra Pradesh.
  • The right of a secured creditor to recover its dues by sale of the secured asset has priority over State tax arrears sought to be recovered under the GST Act, 2017, just as it does over dues under the A.P. Value Added Tax Act, 2005 — the statutory priority principle applies equally to GST recovery.
  • Accordingly, the Court held that the Bank/petitioner's right to recover its dues by sale of the secured asset would have priority over the arrears sought to be recovered by the State.
  • The writ petition was disposed of on this basis, without costs.

Important Clarification

  • The priority accorded to a secured creditor's SARFAESI recovery rights over State tax dues, earlier settled in the VAT regime, extends equally to arrears sought to be recovered under the GST Act, 2017 — a change in the underlying tax statute does not alter the priority analysis.
  • Banks and financial institutions holding security interests over an assessee's assets can rely on this priority to resist State GST authorities' attempts to auction or attach the same secured asset for recovery of GST arrears.

Sections Involved

  • Andhra Pradesh Goods and Services Tax Act, 2017 (recovery provisions) — the State's claim to recover tax arrears by auctioning the secured property.
  • SARFAESI Act, 2002 (priority of secured creditors) — basis of the Bank's overriding priority to recover dues from the secured asset.

Decision – In Favour of

In favour of the petitioner-Bank (secured creditor), whose recovery priority over the GST arrears was upheld.

Case Details

Court: High Court of Andhra Pradesh at Amaravati. Case No.: Writ Petition No. 16968 of 2024. Coram: Hon'ble the Chief Justice Dhiraj Singh Thakur and Hon'ble Sri Justice Ravi Cheemalapati. Date of Order: 29 July 2025.

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