Overriding Effect of SARFAESI Act: AP High Court Nullifies GST Attachment on Mortgaged Assets

The intersection of taxation recovery mechanisms and banking security enforcement frequently leads to complex legal battles. A recurring point of friction is the concept of "Crown Debt" versus the rights of a secured creditor. The Andhra Pradesh High Court, in the landmark judicial pronouncement of Can Fin Homes Limited Vs State of AP and Others, has once again clarified this legal hierarchy. The Court emphatically ruled that financial institutions holding a valid mortgage possess a superior claim over the property compared to the statutory dues claimed by the Goods and Services Tax (GST) department.

This comprehensive analysis delves into the factual background, the statutory provisions invoked, the historical precedents relied upon, and the ultimate judicial reasoning that led to the quashing of the GST department's attachment notice.

Factual Matrix of the Dispute

The legal controversy was initiated by Can Fin Homes Limited, an entity incorporated under the Companies Act and operating under the strict regulatory framework of the National Housing Bank. The institution's primary business involves extending housing finance and allied financial services across various branches.

The Loan and the Mortgage

The genesis of the dispute traces back to a financial arrangement where specific individuals approached the financial institution for a housing loan. Their objective was to acquire a residential property, specifically identified as Flat No. 202, Seedhi Vinayaka Residency, Gandhibomma Center, Vidhyadharapuram, Vijayawada.

Evaluating the application, the institution sanctioned a credit facility amounting to ₹20,00,000. To secure this financial exposure, the borrowers executed a registered equitable mortgage in favor of the lender. This security interest was formally documented and registered via document No.1723/2020 on the date of 27.02.2020, which involved the standard banking practice of depositing the original title deeds.

The Tax Department's Intervention

The situation grew complicated when the commercial tax authorities initiated recovery proceedings against a defaulting assessee, identified as M/s. Shirdi Sai Enterprises. In pursuit of recovering these tax arrears, the tax department issued proceedings on 21.05.2025, directing the financial institution to disclose comprehensive details regarding the loan accounts of the borrowers.