2008 (2) TMI 13 - HC - Central Excise

Court directs authorities to regularize registration, release deposit with interest, and clarifies priority of claims under SARFAESI Act.

The court ruled in favor of the Petitioner, directing the authorities to treat the provisional registration as regular or issue a fresh registration. ... Denial of central excise registration – there is no power (expressed or implied) in sec.6 or rule 9 or notification to deny registration – recovery of dues – department has no priority of claim over secured creditor – provisions of SARFAESI Act prevails over the provisions of Customs and Excise Issues Involved:1. Rejection of registration application under the Central Excise Rules.2. Liability for payment of state dues under Section 11 of the Central Excise Act.3. Priority of Central Excise and Customs dues over secured creditors' dues under the SARFAESI Act.4. Validity of demands under Section 28 of the Customs Act.5. Provisional registration and subsequent orders.Issue-wise Detailed Analysis:1. Rejection of Registration Application:The Petitioner's application for registration under the Central Excise Rules was rejected because the premises already had an existing registration in favor of Respondent No. 7, which had not been canceled due to pending government dues. The court noted that the Petitioner had acquired only some assets and had not succeeded to the business of Respondent No. 7. The court highlighted that the registration must be by the 'Person' as per Section 6 of the Central Excise Act and Rule 9 of the Central Excise Rules. The court found that the Respondent No. 3 acted without jurisdiction in refusing to grant registration.2. Liability for Payment of State Dues:The Respondent contended that the Petitioner was liable for the state dues under Section 11 of the Central Excise Act because they had acquired assets of M/s. Usha Ispat Ltd. The court, however, distinguished this case from the precedent set in Manibhadra Processors, noting that the Petitioner had not taken over the business but only some assets. Therefore, there was no statutory obligation on the Petitioner to discharge the outstanding dues of Respondent No. 7.3. Priority of Central Excise and Customs Dues:The court examined whether Central Excise and Customs dues have priority over the secured creditors' dues under the SARFAESI Act. Referring to the Krishna Lifestyle Technologies Ltd. case, the court held that government dues do not have priority over the claims of secured creditors unless explicitly stated by the legislature. The court concluded that the provisions of the SARFAESI Act prevail over the Customs Act and Central Excise Act, and thus, the Petitioners hold the assets free from any encumbrances.4. Validity of Demands Under Section 28 of the Customs Act:The Petitioner received a show cause notice cum demand notice under Section 28 of the Customs Act for customs duty arising from non-fulfillment of conditions by Respondent No. 7. The court found that the Petitioner, having purchased assets under the SARFAESI Act, is not liable for the customs dues of Respondent No. 7. The demand was deemed without jurisdiction, and the court directed that the revenue should recover the amount from Respondent No. 7.5. Provisional Registration and Subsequent Orders:The court noted that interim orders had granted provisional registration to the Petitioner. Given the findings, the court directed that the provisional registration be treated as regular registration or a fresh registration be issued from the date of the provisional registration certificate. Additionally, the court ordered the release of Rs. 5 Crores with interest to the Petitioner.Conclusion:The court made the rule absolute in favor of the Petitioner, directing Respondent Nos. 1 to 3 to treat the provisional registration as regular or issue a fresh registration. The Respondent No. 2 was also directed to release the deposited amount with interest. The demands for customs dues were declared without jurisdiction, and the revenue was instructed to recover dues from Respondent No. 7. The petitions were disposed of accordingly.