Punjab National Bank v. Union of India & Ors.
VINEET SARAN, J.
1. The present Civil Appeal arises out of the judgment and order
dated 05.08.2008 passed by the Allahabad High Court, wherein the writ
petition filed by the Appellant was dismissed in limine.
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2. The brief facts of the case, relevant for the purpose of the
present appeal, are that the Commissioner, Customs and Central Excise,
Ghaziabad (Respondent No. 2) issued a show cause no tice dated
31.12.1996 to M/s Rathi Ispat Ltd./Respondent No. 4 (for short “RIL”)
for evasion of excise duty and violation of the Central Excise Act, 1944.
By an order dated 25.11.1997, Respondent No. 2 confirmed an excise
duty demand of Rs.6,97,62,102/- against RIL and imposed a penalty of
Rs.7,98,03,000/- under Rule 173Q(1) and confiscated the land, building,
plant and machinery of RIL under Rule 173Q(2) of the Central Excise
Rules, 1944 (for short “1944 Rules”). Sub-rule 2 of Rule 173Q of t he
Central Excise Rules, 1944, came to be omitted by a notification dated
12.05.2000 issued by the Government of India. Subsequently, the order
dated 25.11.1997 was set aside by the Customs, Excise & Gold (Control)
Appellate Tribunal (CEGAT), now known as the Customs Excise and
Service Tax Appellate Tribunal (CESTAT), on the ground of violation of
principles of natural justice, and the matter was remanded back for de
novo proceedings.
3.In 2005, RIL availed credit facilities under various schem es
from the consortium of banks, with the Appellant/Punjab National Bank
as the lead bank, and mortgaged/hypothecated all its m ovable and
immovable properties for securing the loan. RIL created a charge on
both the assets (raw material, stock in progress, finished goods, receivables
etc.) and block (land, building, plant, machinery and other fixed assets)
of the company in favour of the Appellant bank.
4. Subsequently, the Commissioner Customs and Central Excise,
Ghaziabad vide order dt. 26.03.2007, confirmed the demand of excise
duty of Rs.7,98,02,226/- and a penalty of Rs.7,98,03,000/- on RIL. The
Commissioner also ordered, under rule 173Q(2) of the 1944 Rules, for
the confiscation of all the land, building, plant, machinery and materials
used in connection with manufacture and storage.
5. The Central Excise Commissioner, vide another order date d
29.03.2007, confirmed a demand of central excise duty amounting to
Rs.2,67,00,348 and Rs.74,24,332 from RIL. The Commissioner also
imposed a penalty of Rs.3,41,24,680/- and further, under rule 173Q(2) of
the 1944 Rules, ordered confiscation of land, building, plant, machinery,
material, conveyance etc. of RIL that were used in connection with
manufacture, production, storage or disposal of goods.
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
6. However, in light of the fact that RIL had defaulted in clearing
the loan amount and had failed to liquidate outstanding dues, the Appellant
bank, on 02.08.2007, issued notice to RIL under section 13(2) of the
SARFAESI Act, 2002, further, notice was issued to RIL under section
13(4) of SARFAESI Act, 2002.
7.In light of the section 13(4) notice, the Office of the Assistant
Commissioner, Customs and Central Excise Division informed the bank,
vide a letter dated 27.11.2007, that the property was already confiscated
by virtue of Rule 173Q(2) of 1944 Rules and that an appeal is pending
against the orders and the matter is sub-judice. Appellant bank replied to
the above letter on 22.12.2007, whereby it informed the department that
the properties in question had been mortgaged with the ba nk and RIL
was required to satisfy the debts. In furtherance of this, t he Appellant
bank took symbolic possession of the properties on 28.12.2007.
Subsequently, the Appellant bank was informed by th e Assistant
Commissioner, Customs and Central Excise, vide a letter dated 15.01.2008,
that the properties of RIL should not be dealt with without their written
consent.
8.In essence, it has been the contention of the Customs & Excise
Department that in view of the fact that that all the movable and immovable
properties of RIL stand confiscated by the orders p assed by the
Commissioner, Customs & Central Excise, Ghaziabad, the possession
of the property in question cannot be taken by the Appellant bank.
9.Aggrieved by the orders of confiscation (dated 26.03.2007 and
29.03.2007) and the further communications/letters by the department
(dated 27.11.2007 and 15.01.2008), the Appellant bank filed a Writ Petition
before the Allahabad High Court, which was dismisse d with the
observations that:
“We find that in the present case, taxes are not sought to be
recovered from M/s Rathi Ispat Ltd., respondent No. 4, by
way of attachment or otherwise from the movable or
immovable assets of the respondent no.4, but the stand of the
Central Excise Authorities is that the properties s tand
confiscated and vests in the Central Government as a r esult
of the order of confiscation”
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The High Court further held that:
“From the meaning of the word confiscate/confiscation”, w e
find that if any property has been confiscated it vests in the
state and no person can claim any right, title, or interest over
it.”
While dismissing the Writ Petition of the Appellant bank, the
Allahabad High Court, eventually held that:
“In view of the matter, the question of first charge or sec ond
charge over the properties would not arise. The deb t does
not get extinguished but it cannot be recovered fro m the
confiscated property that being the position, we do not find
any merit in the Writ Petition. So far as the challenge to t he
order of confiscation is concerned, we may mention tha t the
petitioner has no locus standi to challenge the ord er of
confiscation as the Respondent no. 4 has already pref erred
an appeal against it. However, if in appeal preferr ed by
Respondent no. 4, the order of confiscation is set asid e then
the bank can proceed against the properties in ques tion in
accordance with law”
10. Aggrieved by the abovementioned High Court Order, this appeal
has been filed by way of Special Leave Petition.
11. Mr. Dhruv Mehta, learned Senior Counsel for the Appellant
Bank has raised before us the following two issues which arise for our
consideration:
Issue No.1 : Whether the Ld. Commissioner Custom and
Central Excise could have invoked the powers under Rule
173(Q)(2) of Central Excise Rules, 1944 on 26.03.2007 a nd
29.03.2007 for confiscation of land, buildings etc., wh en on
such date, the rule 173Q(2) was not on the Statue Book having
been omitted w.e.f. 17.05.2000?
Issue No.2: Whether in the absence of any provisions providing
for First Charge in relation to Central Excise dues in the
Central Excise Act, 1944, the dues of the Excise depa rtment
would have priority over the dues of the Secured Cre ditors
or not?
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
12. With respect to the first issue, it has been argued by the
learned Counsel for the Appellant bank that the Commissioner could not
have passed the orders dated 26.03.2007 and 29.03.2007 by invoking
the powers under Rule 173Q(2), which was not in existence in the Statute
Books as on the said date, having been omitted by a notification dated
12.05.2000.
13. It has been contended that reliance upon the provi sions
contained in Section 38A of the Central Excise Act, 1944 and Section 6
of the General Clauses Act, 1897 to support the ord ers of the
Commissioner is liable to be rejected for the reason that a Constitution
Bench of this Court, in the matter of Kolhapur Canesugar Works Ltd.
Vs Union of India & Ors. [(2000) 2 SCC 536] has held that the
provisions contained in section 6 of the General Clauses Act, 1897 are
not applicable to the Central Excise Rules. It has further been contended
that no reliance can be placed on section 38A for the reason that the
provision contained in the said section 38A are attract ed “unless a
different intention appears”. In the present case, the contra-intention of
the legislature that the legislature did not intent to revi ve/restore the
power of confiscation of any land, building, plant machinery etc., after
omission of the provisions contained in Rule 173Q(2) w.e.f 12.05.2000
is evident from the following:
I. The provisions contained in Rule 173Q(2) i.e. power to
confiscate any land, building, plant, machinery etc. after
omission w.e.f. 12.05.2000 has not been introduced in the
subsequent Central Excise Rules, 2001, Central Excise
Rules, 2002 and Central Excise Rules, 2017.
II. Further, Rule 211 of the Central Excise Rules, 1944, inter
alia, provided that “anything” confiscated under the Rules
shall thereupon vest in Central Government, whereas Rule
28 of the Central Excise Rules of 2001, 2002 and 2017,
which are pari materia to the earlier Rule 211 of the 1944
Rules, instead of the word “anything”, provided for vesting
of confiscated “Goods” in the Central Government.
III. Thus, after omission of Rule 173Q(2) of 1944 Rules w.e.f.
12.05.2000 and after supersession of Rule 211 of 1944 Rules
in the year 2001, the newly enacted Rule 28 of the Rules of
2001, Rule 28 of the Rules of 2002 and Rule 28 of the
Rules of 2017, did not provide for confiscation of any land,
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building, plant, machinery etc. and their consequent vesting
in the Central Government, as Rule 28 only provided for
vesting in the Central Government the “Goods” confiscated
by the Central Excise Authorities under the Excise Act,
1944.
In support of the abovementioned submissions, Mr. Dhruv Mehta
relies upon a judgment of the Gujarat High Court, in the matter of Kotak
Mahindra Bank Ltd. Vs. District Magistrate [2010 SC C online
Gujarat 10656].
14. With respect to the first issue, the Senior Counsel for the
Appellant concluded his submission by stating that the Commissioner
had no power, authority or jurisdiction to invoke the provisions contained
in Rule 173Q(2) of the Central Excise Rules, which stood omitted from
the Statue book w.e.f. 12.05.2000, much prior to the passing of the orders
dated 26.03.2007 and 29.03.2007.
15. The second issue raised by the learned Senior Counsel for
the Appellant is “Whether in the absence of any provisions providing
for First Charge in relation to Central Excise dues in the Central
Excise Act, 1944, the dues of the Excise department would have
priority over the dues of the Secured Creditors or not?” It has been
contended that prior to insertion of Section 11E in the Central E xcise
Act, 1944 w.e.f. 08.04.2011, there was no provision in the Act of 1944
inter alia, providing for First Charge on the property of the Assessee or
any person under the Act of 1944. Therefore, in the event like the present
case, where the land, building, plant machinery, etc. had been mortgaged/
hypothecated in favour of the secured creditor, having regard to t he
provisions contained in section 2(zc) to (zf) of SARFAESI Act, 2002,
read with provisions contained in Section 13 of the SARFAESI Act,
2002, the secured creditor will have a First Charge on the Secured Assets.
16.The learned Senior Counsel has further submitted that section
35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of
the said Act, notwithstanding anything inconsistent therewith contained
in any other law for the time being in force or any instrument ha ving
effect by virtue of any such law, the provisions of the SARFAESI Act,
2002 shall have overriding effect on all other laws. I t was further
contended that even the provisions contained in section 11E of the Central
Excise Act, 1944, which has been inserted w.e.f. 08.04.2011, provides
for First Charge on the property of the Assessee and is a non-obstante
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
Clause. However, the provisions contained in Section 11E are subject to
the provisions contained in the SARFAESI Act, 2002. Thus, the provisions
of SARFAESI Act, 2002, even after insertion of Section 11E in the Central
Excise Act, 1944 w.e.f. 08.04.2011, has overriding effect on the provisions
of the Act of 1944.
17. In addition to the abovementioned submissions, the learned
Senior Counsel for the Appellant has argued that it is well settled law
laid down by this Court that the Crown debts (Unsecured) have no priority
over the Secured dues of the Secured Creditors/ Pawnee/ Bailee. In
support of the above submission, reliance has been placed up on the
following judgements:
i. Bank of Bihar vs State of Bihar [(1972) 3 SCC 196]
ii. Dena Bank vs Bhikhabhai Prabhu Dass Parikh & Anr.
[(2000) 5 SCC 694]
iii. Central Bank of India Vs. Siriguppa Sugurs &
Chemicals Ltd. & Ors. [(2007) 8 SCC 353]
iv. Union of India vs SICOM Ltd. & Anr. [(2009) 2 SCC
121]
v. Rana Girders Ltd. Vs Union of India & Ors. [(2012) 10
SCC 746]
vi. Sitani Textiles and Fabrics (Pvt.) Ltd. Vs. Assi stant
Collector of Customs & Central Excise [1998 SCC
Online Andhra Pradesh 416]
vii. UTI Bank Ltd. Vs. Dy. Commissioner Central Exci se
[2006 SCC Online Madras 1182 (Full Bench)]
viii. Krishna Lifestyle Technologies Ltd. Vs. Union of Indi a
& Ors. [2008 SCC Online Bombay 137]
18. Mr. Mehta has, thus, submitted that in view of the above
submissions and decided cases, the Appellant bank, being a secur ed
creditor under the provisions of SARFAESI Act, 2002, had First Charge
on the secured Assets and is entitled to recover its secured dues, prior to
the dues of the Excise Department. It has also been submitted that the
intention of the Legislature, apart from the provisions contained in Section
11E in the Central Excise Act, 1944 [inserted w.e.f. 08.04.2011], is also
evident from the subsequent provisions inserted in RDBA Act, 1993, by
673
way of Section 31B [notified w.e.f. 01.09.2016] and insertion of Section
26E in the SARFAESI Act [w.e.f. 24.01.2020], that the Legislature has
always intended that the Banks and Financial Institutions will have priority
to recover its secured dues from the Secured Assets prior to payment/
recovery of the dues of Revenue/Taxes, Government dues.
19. Per contra, Mr. K.M. Nataraj, learned Additional Solicitor
General appearing for the respondent has contended that the a ppeal
raises the following two questions of law:
(A) Issue No. 1: Whether a confiscation order passed by
Respondent No. 2 in respect of the land, building, plant
and machinery of the Respondent No. 4 (RIL) can be
defeated by a security interest created by the said
Respondent No. 4 (RIL) in favour of the Appellants and
other banks, almost 8 years after the confiscation
proceedings (under Rule 173Q(2) of the Central Excise
Rules, 1944) had been initiated by the respondent No.
2 against RIL?
(B) Issue No. 2 : Whether the Proceedings initiated by the
Respondent no.2, Commissioner Custom & Central
Excise under rule 173Q(2) of the Central Excise Rules,
1944, prior to the omission of the said Rule from t he
Statute Book are not saved on account of Section 38A(c)
and 38A(e) of the Central Excise Act, 1944 and
consequently, Whether the Commissioner was not
justified in passing orders of confiscation dated
26.03.2007 and 29.03.2007, although on such date,
the said Rule 173Q(2) was omitted and the 1944 rules
were replaced with the Central Excise Rules 2001
subsequently.
20. The learned Additional Solicitor General submitted that the
first issue raised by the Appellant was never raised by the Appellant
either before the Tribunal or in the Appeal before this Cour t and has
been raised for the first time in this Appeal.
21. With respect to the second issue raised by the Appellant , it
has been argued by the Learned ASG that this question, as framed and
answered by the Appellant, is entirely alien to the dispute at hand. The
present dispute is not at all one of priority of charges or debts. On the
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
other hand, what was challenged before the High Court was the or der
of confiscation, and the relevant question for consideration of this Court
is whether a confiscation order passed by the Central Excise Authorities
in respect of the land, building, plant and machinery of RIL can be defeated
by a security interest created by RIL in favour of the Ap pellant and
other banks, almost 8 years after the confiscation proceeding s (under
Rule 173Q(2) of the Central Excise Rules, 1944) had been initiated by
the respondent No. 2 against RIL?
22.Mr. K.M. Nataraj, ASG, has contended that the proceedings
under Rule 173Q(2) of the 1944 Rules commenced by show cause notice
dated 31.12.1996. Notwithstanding the omission of Section 173Q(2) from
the 1944 Rules vide notification dated 12.05.2000, the respondent No. 3
was entitled to continue proceedings on account of Section 38A(c) and
Section 38A(e) of the Central Excise Act, 1944. The respondent No. 2
was therefore entitled to pass orders dated 26.03.2007 and 29.03.2007
in exercise of his powers under the repealed Rule 173Q(2) of the 1944
Rules, even though as on the date of the said orders, the 1944 Rules had
been replaced. In support of the same he submitted that it is not in dispute
that the confiscation proceedings against RIL were initiated in 1996 i.e.
much before the repeal of the 1944 Rules and although the order initially
passed in those proceedings was set aside by the CEGAT on account of
the violation of the principles of natural justice, it is evident from the
remand order itself that the proceedings (post rema nd) were a
continuation of what had been initiated vide show cause notice dated
31.12.1996. To buttress this submission, reliance has been placed upon
the decision rendered in the case of Nagarjuna Construction Company
Ltd. Vs. Government of Andhra Pradesh (2008) 16 SCC 276, wherein
it is held that when an order is stuck down as invalid, being in violation of
principles of natural justice, all that is done is vacation of the order assailed
by virtue of its inherent defect, but the proceedings are not terminated.
While doing so, this court relied upon Canara Bank vs Debasis Das
(2003) 4 SCC 557 ).
23. It was thus urged, that once it is established that the confiscation
proceedings under Rule 173Q started much prior to the omission of the
said Rule from the Statute, the question for consideration would be
whether the proceedings against RIL could be continued under a provision
which no longer existed on the Statute. Mr. K.M. Nataraj, ASG has
submitted in this context that section 38A of the Central Ex cise Act,
1944, provides, inter alia, that even when a Rule is repealed, amended or
675
superseded, unless a different intention appears, such repeal would not
affect any right or liability acquired or accrued or affect any investigation,
legal proceeding or remedy in respect of any such right or liability.
24. In context of the application of section 6 of the General Clauses
Act, 1897, learned ASG relied upon decisions of this Court in the cases
of Gammon India vs Special Chief Secretary [(2006) 3 SCC 354];
Ambalal Sarabhai Enterprises Ltd. Vs Amritlal [(2001) 8 SCC 397 ];
Brihan Maharashtra Sugar Syndicate Ltd. Vs Janarand
Ramachandra Kulkarni (1960 3 SCR 85) and contended that although
Rule 173Q(2) was initially omitted from the 1944 Rules and subsequently
the 1944 Rules were repealed and were substituted by the 2001 Rules,
there was nothing expressly stated in the new Rules which manifested
any intention to destroy the liabilities which came into existence on account
of the 1944 Rules or which manifested any intention to nullify any
investigation that was pending in respect of such accrued liability. Learned
ASG thus submitted, that Section 38A(c) and 38A(e) of the C entral
Excise Act would apply with full force to save the proceedings which
had already been initiated under Rule 173Q(2) of the 1944 Rules, as
Section 38A(c) of the Act saves the rights and liabilities which were not
only acquired but also accrued as on the date of the amendment or
repeal of a provision, and Section 38A(e) of the Act saves investigations
that had commenced into such rights and liabilities.
25. Mr. Natraj, learned ASG has further submitted that the second
issue raised by the Appellant (regarding the priority of the dues of the
secured creditor over that of crown debts or government debts) does
not arise at all in the facts of the present case, sinc e the confiscation
order by the Respondent No. 2 is not merely an order for recovery of
dues but instead is in the nature of a penal order to punish the wrongdoer
i.e. RIL. This, is evident from the fact that even under the 1944 Rules,
confiscation is provided for under Rule 173Q whereas mere recovery of
dues is provided for under section 11 of the Central Excise Act, 1944.
26.It is contended by Mr. K.M. Nataraj, ASG, that in the present
case, the confiscation proceedings were initiated almost 9 years prior to
the charge being created in respect of the very same properties. At the
time of creation of security interest, it was for the Appellant bank to be
aware of the existence of the confiscation proceedings. It is further
submitted that a charge or security interest created on a property cannot
defeat or affect confiscation proceedings initiated by a statutory body in
any manner.
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
27. Mr. Natraj, learned ASG also contended that the decisions
relied upon by the Appellant are distinguishable on facts, since those
cases deal with the question of priority of a secured cred itor over the
Crown’s debts and does not even touch on the issue of confiscati on
proceedings with respect to the interest of a secured creditor.
28.It has been submitted that a similar question did arise in t he
case of Bank of Bihar vs State of Bihar [(1972) 3 SCC 196] , where
a question was as to whether a valid seizure can defeat the right of a
secured creditor. In that case, this Court did not interfere with the seizure
but only held that after the goods had been seized by the g overnment,
the secured creditors may still retain his right to sati sfy his debt. This
principle finds reflection in Section 13(4)(d) of the SARFAESI Act. It
has, thus, been submitted that, at best, the Appellant may resort to the
mechanism prescribed under section 13(4)(d) of the SARFAESI Act to
recover the amounts due to it, if and when the properties are sold by the
respondent authorities. Therefore, assuming the existence of any right
of recovery from Respondents, the Appellant may, at best, be entitled to
issue a notice as envisaged in Section 13(4)(d) of the SARFAESI Act
and then take the further steps mentioned therein.
29. Lastly, Mr. K.M. Nataraj, ASG has submitted that the validity
of the confiscation order cannot be called into question merely on account
of the Appellant being a secured creditor. The question as to whether
the amounts due to the Customs Department would have priority over
the debts due to the secured creditor does not arise in this case, since
what is challenged is the confiscation order and no thing else. A
confiscation order, cannot be quashed merely because a security interest
is created in respect of the very same property.
30.For ready reference, the relevant provisions of the concerned
Act and Rules are extracted below:-
(Central Excise Act, 1944)
“Section 11. Recovery of sums due to Government. - In respect
of duty and any other sums of any kind payable to the Central
Government under any of the provisions of this Act or of the
rules made thereunder including the amount required to be
paid to the credit of the Central Government under Section
11D, the officer empowered by the Central Board of E xcise
and Customs constituted under the Central Boards of Revenue
677
Act, 1963 (54 of 1963) to levy such duty or require the payment
of such sums [may deduct or require any other Central Excise
officer or a proper officer referred to in section 142 of the
customs act, 1962 (52 of 1962) to deduct the amount so
payable from any money owing to the person from whom such
sums may be recoverable or due which may be in his hands
or under his disposal or control or may be in the hand s or
under disposal or control of such other officer, or may rec over
the amount] by attachment and sale of excisable goo ds
belonging to such person; and if the amount payable is not
so recovered, he may prepare a certificate signed b y him
specifying the amount due from the person liable to p ay the
same and send it to the Collector of the district in which s uch
person resides or conducts his business and the said Collect or,
on receipt of such certificate, shall proceed to recov er from
the said person the amount specified therein as if it wer e an
arrear of land revenue.
Provided that where the person (hereinafter referre d to as
predecessor) from whom the duty or any other sums of any
kind, as specified in this section, is recoverable or due,
transfers or otherwise disposes of his business or trade in
whole or in part, or effects any change in the owne rship
thereof, in consequence of which he is succeeded in such
business or trade by any other person, all excisable goods,
materials, preparations, plants, machineries, vessels, ut ensils,
implements and articles in the custody or possessio n of the
person so succeeding may also be attached and sold by such
officer empowered by the Central Board of Excise an d
Customs, after obtaining written approval from the Princip al
Commissioner of Central Excise or Commissioner of Central
Excise, for the purposes of recovering such duty or other
sums recoverable or due from such predecessor at the time of
such transfer or otherwise disposal or change.”
“Section 38A . Effect of amendments, etc., of rules,
notifications or orders. - Where any rule, notification or order
made or issued under this Act or any notification or order
issued under such rule, is amended, repealed, superseded or
rescinded, then, unless a different intention appea rs, such
amendment, repeal, supersession or rescinding shall not -
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
a) revive anything not in force or existing at the time a t which
the amendment, repeal, supersession or rescinding t akes
effect; or
b) affect the previous operation of any rule, notifi cation or
order so amended, repealed, superseded or rescinded or
anything duly done or suffered thereunder; or
c) affect any right, privilege, obligation or liability acquired,
accrued or incurred under any rule, notification or order so
amended, repealed, superseded or rescinded; or
d) affect any penalty, forfeiture or punishment inc urred in
respect of any offence committed under or in violation of any
rule, notification or order so amended, repealed, supers eded
or rescinded; or
e) affect any investigation, legal proceeding or re medy in
respect of any such right, privilege, obligation, l iability,
penalty, forfeiture or punishment as aforesaid, and any such
investigation, legal proceeding or remedy may be ins tituted,
continued or enforced and any such penalty, forfeit ure or
punishment may be imposed as if the rule, notification or order,
as the case may be, had not been amended, repealed,
superseded or rescinded.”
(Central Excise Act, 1944) w.e.f. 08.04.2011
“Section 11E.Liability under Act to be first charge. -
Notwithstanding anything to the contrary contained in any
Central Act or State Act, any amount of duty, penalty, intere st,
or any other sum payable by an assessee or any other person
under this Act or the rules made thereunder shall, save as
otherwise provided in section 529A of the Companies Act,
1956, (1 of 1956) the Recovery of Debts Due to Banks a nd
the Financial Institutions Act, 1993 (51 of 1993) a nd the
Securitisation and Reconstruction of Financial Asse ts and
the Enforcement of Security Interest Act, 2002, (54 of 2002)
be the first charge on the property of the assessee or the
person, as the case may be.”
679
Rule 173 Q of Central Excise Rules. 1944 Prior to 12.5.2000
“Rule 173 Q.Confiscation and Penalty- (1) If any
manufacturer, producer or licensee of a warehouse-
(a) Removes any excisable goods in contravention of any of
the provisions of these rules; or
(b) Does not account for any excisable goods manufacture d,
produced or stored by him; or
(c) Engages in the manufacture, production or storage of any
excisable goods without having applied for the lice nse
required under section 6 of the Act; or
(d) Contravenes any of the provisions of these rules w ith intent
to evade payment of duty,
Then all such goods shall be liable to confiscation and the
manufacturer producer or licensee of the warehouse, as the
case may be shall be liable to a penalty not exceeding t hree
times the value of the excisable goods in respect of which any
contravention of the nature referred to in clause (a) or clau se
(b) or clause (c) or clause (d) has been committed or five
thousand rupees, whichever is greater.
(2) Where-
(a) In case of a contravention of the nature referr ed to in
clause (a) or clause (b) or clause (c) or clause (d) of sub rule
(1), the duty leviable on the excisable goods refer red to in
that sub rule exceeds one lakh rupees, or
(b) Any manufacturer, producer or licensee of a war ehouse,
whose excisable goods were confiscated under sub ru le (1)
and upon whom penalty was imposed under that sub ru le,
contravenes against any of the provisions of clause (a) or
clause (b) or clause (c) or clause (d) of sub rule (1) and the
duty leviable on the excisable goods in respect of the
contravention for the second or any subsequent occa sion
exceeds ten thousand rupees.
Then, in a case falling under clause (a) of this sub rule or in
a case falling under clause (b) thereof (whether th e
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
contravention under that clause has been committed fo r the
second or any subsequent occasion), the officer adj udging
the case under section 33 of the Act may, in addition to the
award of the confiscation and penalty under the sub rule (1),
direct, for reasons to be recorded in writing, the confis cation
of any or all of the following belonging to such manufactur er,
producer or licensee of a warehouse, namely:-
(i) any land, building, plant, machinery, materials ,
conveyance, animal or any other thing used in conne ction
with the manufacture, production, storage, removal or dispo sal
of such goods, or
(ii) any other excisable goods on such land, or in such building
or produced or manufactured with such plant, machin ery,
materials or thing]”
(Central Excise Rules, 1944)
“Rule 211 . On confiscation, property to vest in Central
Government: -
(1) When anything is confiscated under these rules, such thi ngs
shall thereupon vest in” Central Government.
(2) The officer adjudging confiscation shall take a nd hold
possession of the things confiscated, and every Off icer of
Police, on the requisition of such officer, shall assi st him in
taking and holding such possession.”
Rule 28 of Central Excise Rules, 2001
[Issued in supersession of Central Excise Rules, 1944]
“Rule 28.Confiscated property to vest in Central Government:-
When any goods are confiscated under these rules, such thing s
shall thereupon vest in the Central Government.
The Central Excise Officer adjudging confiscation shall tak e
and hold possession of the things confiscated, and every
officer of police, on the requisition of such Centr al Excise
Officer, shall assist him in taking and holding suc h
possession.”
681
Rule 28 of Central Excise Rules, 2002
[Issued in supersession of Central Excise Rules, 2001]
“Rule 28.Confiscated property to vest in Central Government:
When any goods are confiscated under these rules, such thing s
shall thereupon vest in the Central Government.
The Central Excise Officer adjudging confiscation shall tak e
and hold possession of the things confiscated, and every
officer of police, on the requisition of such Centr al Excise
Officer, shall assist him in taking and holding suc h
possession.”
Rule 28 of Central Excise Rules, 2017
[Issued in supersession of Central Excise Rules,2002]
“RULE 28.Confiscation and penalty. — (1) Subject to the
provisions of section 11 AC of the Act, if any prod ucer,
manufacturer, registered person of a warehouse, or an
importer who issues an invoice on which CENVAT credit can
be taken, or a registered dealer,
(a) removes any excisable goods in contravention of any of
the provisions of these rules or the notifications issued under
these rules; or
(b) does not account for any excisable goods produc ed or
manufactured or stored by him; or
(c) engages in the manufacture, production or storage of a ny
excisable goods without having applied for the regi stration
certificate required under section 6 of the Act; or
(d) contravenes any of the provisions of these rule s or the
notifications issued under these rules with intent to evade
payment of duty,
then, all such goods shall be liable to confiscation and the
producer or manufacturer or registered person of th e
warehouse, or an importer who issues an invoice on w hich
CENVAT credit can be taken, or a registered dealer, as the
case may be, shall be liable to a penalty not excee ding the
duty on the excisable goods in respect of which any
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
contravention of the nature referred to in clause (a) or clau se
(b) or clause (c) or clause (d) has been committed, or five
thousand rupees, whichever is greater.
(2) An order under sub-rule (1) shall be issued by the Central
Excise Officer, following the principles of natural ju stice.”
SARFAESI Act, 2002
Section 2(zc) to 2(zf)
“(zc) “secured asset ” means the property on which security
interest is created;
(zd) “secured creditor” means—
(i) any bank or financial institution or any consor tium or
group of banks or financial institutions holding an y right,
title or interest upon any tangible asset or intangible ass et as
specified in clause (l);
(ii) debenture trustee appointed by any bank or fin ancial
institution; or
(iii) an asset reconstruction company whether acting as suc h
or managing a trust set up by
such asset reconstruction company for the securitis ation or
reconstruction, as the case may be; or
(iv) debenture trustee registered with the Board appointed by
any company for secured debt securities; or
(v) any other trustee holding securities on behalf of a bank
or financial institution,
in whose favour security interest is created by any borr ower
for due repayment of any financial
assistance.]
(ze) “secured debt” means a debt which is secured by any
security interest;
(zf) “security interest” means right, title or interest of any
kind, other than those specified in section 31, upon property
created in favour of any secured creditor and includes —
683
(i) any mortgage, charge, hypothecation, assignment or any
right, title or interest of any kind, on tangible asset, re tained
by the secured creditor as an owner of the property, give n on
hire or financial lease or conditional sale or under any other
contract which secures the obligation to pay any un paid
portion of the purchase price of the asset or an obl igation
incurred or credit provided to enable the borrower to acquire
the tangible asset; or
(ii) such right, title or interest in any intangibl e asset or
assignment or licence of such intangible asset which se cures
the obligation to pay any unpaid portion of the purchase p rice
of the intangible asset or the obligation incurred or any cred it
provided to enable the borrower to acquire the inta ngible
asset or licence of intangible asset.”
Section 13
“13. Enforcement of security interest .—(1) Notwithstanding
anything contained in section 69 or section 69A of the Trans fer
of Property Act, 1882 (4 of 1882), any security interest created
in favour of any secured creditor may be enforced, without
the intervention of the court or tribunal, by such c reditor in
accordance with the provisions of this Act.
(2) Where any borrower, who is under a liability to a secure d
creditor under a security agreement, makes any defa ult in
repayment of secured debt or any instalment thereof, and his
account in respect of such debt is classified by the secured
creditor as non-performing asset, then, the secured creditor
may require the borrower by notice in writing to discharge in
full his liabilities to the secured creditor within six ty days from
the date of notice failing which the secured creditor shal l be
entitled to exercise all or any of the rights under sub-section
(4).
(3) The notice referred to in sub-section (2) shall give det ails
of the amount payable by the borrower and the secured assets
intended to be enforced by the secured creditor in the event
of non-payment of secured debts by the borrower.
(4) In case the borrower fails to discharge his liability in full
within the period specified in sub-section (2), the secured
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
creditor may take recourse to one or more of the foll owing
measures to recover his secured debt, namely:—
(a) take possession of the secured assets of the
borrower including the right to transfer by way of lease ,
assignment or sale for realising the secured asset;
[(b) take over the management of the business of
the borrower including the right to transfer by way o f
lease, assignment or sale for realising the secured asset:
Provided that the right to transfer by way of lease,
assignment or sale shall be exercised only where th e
substantial part of the business of the borrower is held
as security for the debt:
Provided further that where the management of
whole of the business or part of the business is
severable, the secured creditor shall take over the
management of such business of the borrower which is
relatable to the security for the debt;
(c) appoint any person (hereafter referred to as
the manager), to manage the secured assets the
possession of which has been taken over by the secured
creditor;
(d) require at any time by notice in writing, any
person who has acquired any of the secured assets from
the borrower and from whom any money is due or may
become due to the borrower, to pay the secured creditor,
so much of the money as is sufficient to pay the secured
debt.
(5) Any payment made by any person referred to in clause (d)
of sub-section (4) to the secured creditor shall give such person
a valid discharge as if he has made payment to the borrower.
(6) Any transfer of secured asset after taking poss ession
thereof or take over of management under sub-sectio n (4),
by the secured creditor or by the manager on behalf of the
secured creditor shall vest in the transferee all rights in, or in
relation to, the secured asset transferred as if th e transfer
had been made by the owner of such secured asset.
685
(7) Where any action has been taken against a borrower under
the provisions of sub-section (4), all costs, charg es and
expenses which, in the opinion of the secured credito r, have
been properly incurred by him or any expenses incid ental
thereto, shall be recoverable from the borrower and the money
which is received by the secured creditor shall, in the abse nce
of any contract to the contrary, be held by him in trust, to be
applied, firstly, in payment of such costs, charges and e xpenses
and secondly, in discharge of the dues of the secured creditor
and the residue of the money so received shall be paid to the
person entitled thereto in accordance with his righ ts and
interests.
8 ……………………..
9 ……………………..
10 ……………………
11 ……………………
12 ……………………
13 ……………………
SARFAESI Act, 2002
Section 35
“35. The provisions of this Act to override other laws .—The
provisions of this Act shall have effect, notwithst anding
anything inconsistent therewith contained in any ot her law
for the time being in force or any instrument having effect by
virtue of any such law.”
(emphasis supplied)
31. We have heard learned counsel for both the parties at length
and have carefully perused the record.
32. The Commissioner Customs and Central Excise, Ghaziabad
vide order dt. 26.03.2007, ordered the confiscation of all the land, building,
plant, machinery etc. of RIL. This confiscation order was passed under
rule 173Q(2) of the Central Excise Rules, 1944. Howev er, in the
impugned order, the High Court has not considered that on the date of
the confiscation orders i.e. 26.03.2007 and 29.03.2007, Rule 173Q(2)
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
stood omitted from the statute books vide government notification dated
12.05.2000.
33. We do not find merit in the submission of the learned Counsel
for the Respondent that notwithstanding the omission of Section 173Q(2)
from the 1944 Rules vide notification dated 12.05.2000, the Respondent
No. 3 was entitled to continue the proceedings on account of Secti on
38A(c) and Section 38A(e) of the Central Excise Act, 1944, read along
with Section 6 of the General Clauses Act, 1897.
34. Constitution bench of this Court in Kolhapur Canesugar
Works Ltd. Vs Union of India & Ors. [(2000) 2 SCC 536] has held
that:
“11. In the factual backdrop of the case discussed earlier the
question that arises for determination is whether after omission
of the old Rule 10 and 10-A and its substitution by the new
Rule 10 by the Notification No 267/77 dated 6.8.77 the
proceedings initiated by the notice dated 27.4.77 c ould be
continued in law. If the question is answered in the affirmat ive
then the order dated 15/27th October, 1977 of the A sstt.
Collector of Central Excise confirming the demand f or re-
credit of the amount of Rs. 61,41,930 cannot be int erfered
with. On the other hand, if the question is answered in the
negative then the said order is to be taken as non-est.
.
.
.
34. (...) It is not correct to say that in considering the question
of maintainability of pending proceedings initiated under a
particular provision of the rule after the said provi sion was
omitted the Court is not to look for a provision in the newly
added rule for continuing the pending proceedings. It is also
not correct to say that the test is whether there is any p rovision
in the rules to the effect that pending proceedings will lapse
on omission of the rule under which the notice was issued. It
is our considered view that in such a case the Court is to lo ok
to the provisions in the rule which has been introduced after
omission of the previous rule to determine whether a pending
687
proceeding will continue or lapse. If there is a provision therein
that pending proceedings shall continue and be dispo sed of
under the old rule as if the rule has not been deleted or omitted
then such a proceeding will continue. If the case is c overed
by Section 6 of the General Clauses Act or there is a pari-
materia provision in the statute under which the rule has been
framed in that case also the pending proceeding will n ot be
affected by omission of the rule. In the absence of a ny such
provision in the statute or in the rule the pending proceedings
would lapse on the rule under which the notice was issued or
proceeding was initiated being deleted/omitted. It is relevant
to note here that in the present case the question of divesti ng
the Revenue of a vested right does not arise since no order
directing refund of the amount had been passed on the da te
when Rule 10 was omitted.
35. We, therefore, hold that the decisions of the Full Bench of
the Gujarat High court and the Division Bench of th e
Karnataka High Court noted above were not correctly
decided. The said decisions are overruled.
36. In the case in hand, Rule 10 or Rule 10-A is neith er a
“Central Act” nor a “Regulation” as defined in the Ac t. It
may be a Rule under Section 3(51) of the Act. Secti on 6 is
applicable where any Central Act or Regulation made after
commencement of the General Clauses Act repeals any
enactment. It is not applicable in the case of omissi on of a
“Rule”.
37. The position is well known that at common law, the normal
effect of repealing a statute or deleting a provisi on is to
obliterate it from the statute book as completely as i f it had
never been passed, and the statute must be considered a s a
law that never existed. To this rule, an exception is eng rafted
by the provisions Section 6(1). If a provision of a statute is
unconditionally omitted without a saving clause in favour of
pending proceedings, all actions must stop where the omissi on
finds them, and if final relief has not been granted before t he
omission goes into effect, it cannot be granted aft erwards.
Savings of the nature contained in Section 6 or in special
Acts may modify the position. Thus, the operation of re peal
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
or deletion as to the future and the past largely depen ds on
the savings applicable. In a case where a particular provi sion
in a statute is omitted and in its place another provision dealing
with the same contingency is introduced without a s aving
clause in favour of pending proceedings then it can be
reasonably inferred that the intention of the legislature i s that
the pending proceeding shall not continue but a fre sh
proceeding for the same purpose may be initiated unde r the
new provision.”
(emphasis supplied)
35. The Gujarat High Court in Kotak Mahindra Bank Ltd. Vs.
District Magistrate [2010 SCC online Gujarat 10656] has held that
from a perusal of Rule 28, it is clear that the Legislature intended to
confiscate only “goods” which is distinct from immovable property like
land, building, plant, machinery etc. We quote, with approval, the reason
for which, the High Court held that “The competent authority of Excise
and Customs Department, including the Commissioner o f Central
Excise and Customs, Vadodara-II had no jurisdiction to confis cate
the land under Rule 173Q (2), the said rule having been omitted
and substituted by Rule 28, by the time the Order dated 25.0 2.2006
was passed. The order being without jurisdiction is nullity in the
eye of law and thereby the authorities cannot derive ad vantage of
the order dated 25.02.2006.”
36. In the case at hand, the proceedings initiated under the erstwhile
Rule 173Q(2) would come to an end on the repeal of the said Rule
173Q(2) of the Central Excise Rules, 1944. Respondent C ounsel’s
submission that the proceedings would be saved on account of Section
38A(c) and 38A(e) of the Central Excise Act, 1944 and Section 6 of the
General Clauses Act, 1897, is misplaced and lacks statutory bac king.
Firstly, as has been held by a Constitution Bench of this Court in Kolhapur
Canesugar Works Ltd. Vs Union of India & Ors. [(200 0) 2 SCC
536], Section 6 of the General Clauses Act, 1897 is applicable where
any Central Act or Regulation made after commencement of the General
Clauses Act repeals any enactment. It is not applicable in the case of
omission of a “Rule”. Hence, the question of applicability of Section 6 is
decided in the negative. Secondly, on the issue of applicability of Section
38A(c) and 38A(e) of the Central Excise Act, 1944, it is hel d that the
Respondent would not be able to enjoy its protection because Section
689
38A(c) and 38A(e) are attracted only when “unless a different intention
appears”. In the present case, the legislature has clarifie d its intent to
not restore/revive the power of confiscation of any land, building, plant
machinery etc., after omission of the provisions contained in Rule 173Q(2)
w.e.f 12.05.2000. This intention of the legislature can be drawn out from
the fact that power to confiscate any land, building, plant, m achinery
etc. after omission w.e.f. 12.05.2000 has not been introduced in the
subsequent Central Excise Rules, 2001, Central Excise Rules, 2002 and
Central Excise Rules, 2017. Additionally, this intent is also fortified by
the fact that Rule 211 of the Central Excise Rules, 1944, inter alia, provided
that “anything” confiscated under the Rules shall thereupon vest in Central
Government, whereas Rule 28 of the Central Excise Rules of 2001,
2002 and 2017, which are pari materia to the earlier Rule 211 of the
1944 Rules, instead of the word “anything”, provided for vesting of
confiscated “Goods” in the Central Government. Lastly, after omission
of Rule 173Q(2) of 1944 Rules w.e.f. 12.05.2000 and after supersession
of Rule 211 of 1944 Rules in the year 2001, the newly enacted Rule 28
of the Rules of 2001, Rule 28 of the Rules of 2002 and Rule 28 of the
Rules of 2017, did not provide for confiscation of any land, buil ding,
plant, machinery etc. and their consequent vesting in the Central
Government, as Rule 28 only provided for vesting in the Central
Government of the “Goods” confiscated by the Central Excise Authorities
under the Excise Act, 1944. This derivation of the legislature’s intent, in
conjunction with the ratio laid in the case of Kotak Mahindra
Bank(supra) makes it apparent that the confiscation proceedings were
not saved by these mentioned provisions and that the final confiscation
order dated 26.03.2007 and 29.03.2007 were passed without jurisdiction
by the Commissioner of Central Excise and Customs.
37.Secondly, coming to the issue of priority of secured creditor’s
debt over that of the Excise Department, the High Court in the impugned
judgment has held that “In view of the matter, the question of first charge
or second charge over the properties would not arise.” In this context,
we are of the opinion that the High Court has misinterpreted the issue to
state that the question of first charge or second charge over the properties,
would not arise.
38.A Full Bench of the Madras High Court in the case of UTI
Bank Ltd. Vs. Dy. Commissioner Central Excise [2006 SCC Online
Madras 1182], while dealing with a similar issue, has held that:
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
“25. In the case on hand, the petitioner Bank which took
possession of the property under Section 13 of the SARFA ESI
Act, being a special enactment, undoubtedly is a se cured
creditor. We have already referred to the provision s of the
Central Excise Act and the Customs Act. They envisa ge
procedures to be followed and how the amounts due t o the
Departments are to be recovered. There is no specific provision
either in the Central Excise Act or the Customs Act, c laiming
“first charge” as provided in other enactments, which we hav e
pointed out in earlier paragraphs.
26. In the light of the above discussion, we conclude,
“(i) Generally, the dues to Government, i.e., tax, d uties, etc.
(Crown’s debts) get priority over ordinary debts.
(ii) Only when there is a specific provision in the statute
claiming “first charge” over the property, the Crown’s d ebt is
entitled to have priority over the claim of others.
(iii) Since there is no specific provision claiming “first charge”
in the Central Excise Act and the Customs Act, the cla im of
the Central Excise Department cannot have precedence over
the claim of secured creditor, viz., the petitioner Bank.
(iv) In the absence of such specific provision in the Central
Excise Act as well as in Customs Act, we hold that the claim of
secured creditor will prevail over Crown’s debts.”
In view of our above conclusion, the petitioner UTI Bank,
being a secured creditor is entitled to have preferen ce over
the claim of the Deputy Commissioner of Central Excise, f irst
respondent herein.”
(emphasis supplied)
This Court, while dismissing the Civil Appeal No.3627 of 2007
filed against the judgment of the Full Bench, vide order dated 12.09.2009
held as under:
“Having gone through the provisions of the Securiti zation
Act, 2002, in light of the judgment of the Division Ben ch of
this court in the case of Union of India vs Sicom Ltd. & Anr. ,
reported in 2009 (1) SCALE 10, we find that under t he
691
provisions of the said 2002 Act, the appellants did not have
any statutory first charge over the property secure d by the
respondent bank. In the circumstances, the Civil Appeal is
dismissed with no order as to costs”
(emphasis supplied)
Hence the reasoning given by the High Court stands strong and
has been affirmed by this Court.
39. This Court, in Dena Bank vs Bhikhabhai Prabhu Dass
Parikh & Anr. [(2000) 5 SCC 694], wherein the question raised was
whether the recovery of sales tax dues (amounting to Crown debt) shall
have precedence over the right of the bank to proceed against the property
of the borrowers mortgaged in favour of the bank, observed as under:
“10. However, the Crowns preferential right of recov ery of
debts over other creditors is confined to ordinary or unsecure d
creditors. The common law of England or the principles of
equity and good conscience (as applicable to India) d o not
accord the Crown a preferential right of recovery of its debts
over a mortgagee or pledgee of goods or a Secured Creditor.”
(emphasis supplied)
40. Further, in Central Bank of India Vs. Siriguppa Sugars &
Chemicals Ltd. & Ors. [(2007) 8 SCC 353], while adjudicating a
similar matter, this Court has held as under:
“18. Thus, going by the principles governing the ma tter,
propounded by this Court there cannot be any doubt that the
rights of the appellant-bank over the pawned sugar had
precedence over the claims of the Cane Commissioner and
that of the workmen. The High Court was, therefore, in error
in passing an interim order to pay parts of the proc eeds to
the Cane Commissioner and to the Labour Commissioner for
disbursal to the cane growers and to the employees. There is
no dispute that the sugar was pledged with the appellant bank
for securing a loan of the first respondent and the lo an had
not been repaid. The goods were forcibly taken possession of
at the instance of the revenue recovery authority f rom the
custody of the pawnee, the appellant-bank. In view of the
fact that the goods were validly pawned to the appellant bank,
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
the rights of the appellant-bank as pawnee cannot be affect ed
by the orders of the Cane Commissioner or the demands made
by him or the demands made on behalf of the workmen. Both
the Cane Commissioner and the workmen in the absence of a
liquidation, stand only as unsecured creditors and their rights
cannot prevail over the rights of the pawnee of the goo ds.”
(emphasis supplied)
41. The Bombay High Court in Krishna Lifestyle Technologies
Ltd. Vs. Union of India & Ors. [2008 SCC Online Bombay 137],
wherein the issue for consideration was “whether tax dues recoverable
under the provisions of The Central Excise Act, 1944 have priority of
claim over the claim of secured creditors under the provisio ns of the
Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002” held that:
“Considering the language of Section 35 and the dec ided
case law, in our opinion it would be of no effect, as the
provisions of SARFAESI Act override the provisions of the
Central Sales Tax Act and as such the priority give n to a
secured creditor would override Crown dues or the State dues .
In so far as the SARFAESI Act is concerned a Full Bench of
the Madras High Court in UTI Bank Ltd. v. Deputy
Commissioner of C. Excise, Chennai-II has examined the iss ue
in depth. The Court was pleased to hold that tax dues under
the Customs Act and Central Excise Act, do not have priority
of claim over the dues of a secured creditor as the re is no
specific provision either in the Central Excise Act or the
Customs Act giving those dues first charge, and that the clai ms
of the secured creditors will prevail over the claim s of the
State. Considering the law declared by the Apex Court in t he
matter of priority of state debts as already discussed and the
provision of Section 35 of SARFAESI Act we are in respectful
agreement with the view taken by the Madras High Court. ”
(emphasis supplied)
42. An SLP (No. 12462/2008) against the above judgement of the
Bombay High Court stands dismissed by this Court on 17.07.2009 by
relying upon the judgement in the matter of Union of India vs SICOM
693
Ltd. & Anr. Reported in [(2009) 2 SCC 121], wherein the question
involved was “Whether realization of the duty under the Central Excise
Act will have priority over the secured debts in terms of the State Financial
Corporation Act, 1951” and this Court held as under:
“9. Generally, the rights of the crown to recover t he debt
would prevail over the right of a subject. Crown debt means
the debts due to the State or the king; debts which a prerogative
entitles the Crown to claim priority for before all other
creditors. [See Advanced Law Lexicon by P. Ramanath a
Aiyear (3rd Edn.) p. 1147]. Such creditors, however, must be
held to mean unsecured creditors . Principle of Crown debt as
such pertains to the common law principle. A common law
which is a law within the meaning of Article 13 of the
Constitution is saved in terms of Article 372 there of. Those
principles of common law, thus, which were existing at the
time of coming into force of the Constitution of India are saved
by reason of the aforementioned provision. A debt w hich is
secured or which by reason of the provisions of a s tatute
becomes the first charge over the property having re gard to
the plain meaning of Article 372 of the Constitution of India
must be held to prevail over the Crown debt which i s an
unsecured one. (emphasis supplied)
43. In view of the above, we are of the firm opinion that the
arguments of the learned counsel for the Appellant, on the second issue,
hold merit. Evidently, prior to insertion of Section 11E in the Central
Excise Act, 1944 w.e.f. 08.04.2011, there was no provision in the Act of
1944 inter alia, providing for First Charge on the property of the Assessee
or any person under the Act of 1944. Therefore, in the event like in the
present case, where the land, building, plant machinery, etc. have been
mortgaged/hypothecated to a secured creditor, having regard to the
provisions contained in section 2(zc) to (zf) of SARFAESI Act, 2002,
read with provisions contained in Section 13 of the SARFAESI Act,
2002, the Secured Creditor will have a First Charge on the Se cured
Assets. Moreover, section 35 of the SARFAESI Act, 2002 inte r alia,
provides that the provisions of the SARFAESI Act, shall have overriding
effect on all other laws. It is further pertinent to note that even the
provisions contained in Section 11E of the Central Excise Act, 1944 are
subject to the provisions contained in the SARFAESI Act, 2002.
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
44. Thus, as has been authoritatively established by the
aforementioned cases in general, and Union of India vs SICOM Ltd.
(supra) in particular, the provisions contained in the SARFA ESI Act,
2002, even after insertion of Section 11E in the Central Excise Act, 1944
w.e.f. 08.04.2011, will have an overriding effect on the provisions of the
Act of 1944.
45.Moreover, the submission that the validity of the confiscation
order cannot be called into question merely on account of the Appellant
being a secured creditor is misplaced and irrelevant to the issue at hand.
The contention that a confiscation order cannot be quashed m erely
because a security interest is created in respect of the very same property
is not worthy of acceptance. However, what is required to be appreciated
is that, in the present case, the confiscation order is not being quashed
merely because a security interest is created in respect of the very same
property. On the contrary, the confiscation orders, in the present case,
deserve to be quashed because the confiscation orders themselves lack
any statutory backing, as they were rooted in a provision that stood
omitted on the day of the passing of the orders. Hence, it is this inherent
defect in the confiscation orders that paves way for its quashing and not
merely the fact that a security interest is created in respect of the very
same property that the confiscation orders dealt with.
46. Further, the contention that in the present case, the confiscation
proceedings were initiated almost 8-9 years prior to t he charge being
created in respect of the very same properties in favour of the bank is
also inconsequential. The fact that the charge has been crea ted after
some time period has lapsed post the initiation of t he confiscation
proceedings, will not provide legitimacy to a confiscation order that is
not rooted in any valid and existing statutory provision.
47. To conclude, the Commissioner of Customs and Central Excise
could not have invoked the powers under Rule 173Q(2) of the Central
Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of
land, buildings etc., when on such date, the said Rule 173Q(2) was not in
the Statute books, having been omitted by a notification dated 12.05.2000.
Secondly, the dues of the secured creditor, i.e. the Appellant-bank, will
have priority over the dues of the Central Excise Department, as even
after insertion of Section 11E in the Central Excise Act, 1944 w.e .f.
08.04.2011, and the provisions contained in the SARFAESI Act, 2002
will have an overriding effect on the provisions of the Centra l Excise
Act of 1944.
695
48.Accordingly, the Appeal is Allowed and the confiscation orders
dated 26.03.2007 and 29.03.2007, passed by the Commissioner Customs
and Central Excise, Ghaziabad, are quashed.
Nidhi Jain Appeal allowed.
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]