Secured creditor priority over excise dues prevails where mortgaged property is sold under the State Financial Corporations Act.

A secured creditor under the State Financial Corporations Act, 1951 had priority over Central Excise dues where the property was already mortgaged and sold in exercise of Section 29 powers. The HC applied the overriding effect of Section 46B and the settled distinction between secured and unsecured debts, holding that excise duty is not a secured debt and that no excise charge existed over the land, plant or machinery. Rule 230(2) of the Central Excise Rules, 1944 could not defeat the prior rights created by the mortgage and sale under the special statute, so the demand notice and detention order were unsustainable.

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Issues: Whether the secured creditor under the State Financial Corporations Act, 1951 had priority over the Central Excise Department's claim and whether the department could proceed against the mortgaged property or its transferee under the Central Excises and Salt Act, 1944 and Rule 230(2) of the Central Excise Rules, 1944.

Analysis: The property in question stood mortgaged to the financial corporation, which exercised its power under Section 29 of the State Financial Corporations Act, 1951 to sell the asset. Section 46B gives that Act overriding effect over inconsistent laws. The Court applied the principle that a secured creditor's rights are not displaced by subsequent claims of unsecured creditors, relying on the settled distinction between secured and unsecured debts and on the absence of any charge under the excise law over the land, plant and machinery. It held that excise duty is not a secured debt and that Rule 230(2) cannot defeat the prior rights arising from the mortgage and sale under the special statute.

Conclusion: The secured creditor had a preferential right over the excise dues, and the demand notice and detention order could not be sustained.

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