Customs liability on exempted imported goods survives breach of conditions, but it does not extend to all secured assets.

Customs recovery can attach to imported capital goods that were cleared under exemption subject to export conditions, and liability may survive breach of those conditions against the specifically identified goods. The discussion also notes that a State Financial Corporation acting as a secured creditor does not automatically take priority over customs dues for unrelated secured assets, so recovery cannot extend beyond the goods to which customs liability attached. Section 46B of the State Financial Corporations Act is described as operating only within its own field and not overriding the Customs Act where no real statutory conflict exists. The materials therefore distinguish between liability on the imported goods and the Corporation's other secured assets.

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Issues: (i) Whether, in respect of assets sold by the Corporation under Section 29 of the State Financial Corporations Act, 1951, the Corporation and its nominees were liable as successors for customs dues payable by the defaulting importer. (ii) Whether the State Financial Corporations Act, 1951 prevailed over the Customs Act, 1962 by virtue of Section 46B of the State Financial Corporations Act, 1951.

Issue (i): Whether, in respect of assets sold by the Corporation under Section 29 of the State Financial Corporations Act, 1951, the Corporation and its nominees were liable as successors for customs dues payable by the defaulting importer.

Analysis: The Corporation was treated as a secured creditor, and the general rule was that government dues do not enjoy priority over secured debts. However, the Court distinguished the imported capital goods that had been brought in under customs exemption subject to fulfillment of export conditions. On breach of those conditions, the goods themselves became liable to customs duty. The Court further applied the successor-liability principle reflected in the customs recovery provision and held that the liability attached only to the specifically imported goods which had attracted the exemption and not to the entire sale proceeds or other assets over which the Corporation claimed security.

Conclusion: The Corporation and its transferee were liable only in respect of the imported goods that remained subject to customs duty, and not in respect of the other secured assets; the issue was answered partly in favour of the Revenue and partly in favour of the assessee.

Issue (ii): Whether the State Financial Corporations Act, 1951 prevailed over the Customs Act, 1962 by virtue of Section 46B of the State Financial Corporations Act, 1951.

Analysis: The Court held that both enactments were special enactments operating in their respective fields. Section 46B did not create an overriding priority in favour of the Corporation where no real conflict arose between the two statutes. Since the customs liability attached to the imported goods under the customs framework, the non obstante clause in the State Financial Corporations Act, 1951 did not displace the Customs Act, 1962.

Conclusion: The State Financial Corporations Act, 1951 did not prevail over the Customs Act, 1962 on the facts of the case, and the issue was decided against the assessee.

Final Conclusion: The petitions succeeded only to the limited extent that customs recovery could not extend to all secured assets, while liability was sustained in relation to the imported goods that remained liable to duty under the customs regime.

Ratio Decidendi: Government dues do not rank above secured debts, but customs liability can attach to specifically identified imported goods that were exempted subject to conditions and became liable upon breach, and a general non obstante clause in a financing statute does not override the customs recovery scheme absent a real statutory conflict.

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