Prior secured mortgage prevails over customs dues; departmental seizure cannot override an earlier crystallised security interest.

A prior mortgage and other crystallised security interests prevail over later excise or customs dues; crown debt has priority only against ordinary or unsecured creditors and does not displace a secured creditor. Rule 230(2) of the Central Excise Rules, 1944 was inapplicable because the facts did not involve the transfer or ownership change contemplated by that rule. The Court also recognised the superior position of the Corporation's prior secured interest under the recovery framework considered, and the departmental seizure could not be sustained.

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Issues: Whether the petitioner, as a secured creditor holding a prior mortgage over the borrower's assets, had priority over the Customs Department's claim for excise/customs dues, and whether the departmental seizure could be sustained.

Analysis: The petitioner's mortgage and security interest were created in 1986, whereas the departmental dues arose later. The settled principle applied was that Crown debt has priority only over ordinary or unsecured creditors and does not displace the rights of a mortgagee or other secured creditor whose interest has already crystallised. Rule 230(2) of the Central Excise Rules, 1944 was held inapplicable on the facts, as the case did not involve the kind of transfer or change in ownership contemplated by that rule. The Court also considered the recovery scheme under the State Financial Corporations Act, 1951 and the Maharashtra Land Revenue Code, 1966, and found that the Corporation's prior secured interest remained superior.

Conclusion: The petitioner's secured claim prevailed over the Customs Department's dues, and the seizure could not be maintained.

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