2024 (10) TMI 411 - HC - Customs

Central excise dues lack priority over secured creditors in debt recovery proceedings under Central Excise Act 1944

M/s MAYA SPINNERS LTD. AND OTHERS Versus BANK OF BARODA AND OTHERS And COMMISSIONER Versus MANAGING DIRECTOR AND OTHERS, DEBTS RECOVERY TRIBUNAL AND OTHERS

The MP HC dismissed a petition challenging attachment orders for central excise dues recovery. The court held that central excise dues do not have ... Challenge to order of attachment for recovery of dues by way of attachment of properties - Priority of dues between the Central Excise Department and secured creditors - HELD THAT:- In the case of Punjab National Bank [2022 (2) TMI 1171 - SUPREME COURT], issue that came into consideration whether in the absence of any provision providing for first charge in relation to the central excise dues in the Central Excise Act, 1944, the dues of the excise department would have priority over the dues of the secured creditor or not? The Hon’ble Apex Court has answered this issue in favour of the secured creditors that there is no provision under Section 11-E of 1944 providing for the first charge on the property of the assessee or any person. So far as the judgment of the State Tax Officer [2022 (9) TMI 317 - SUPREME COURT] is concerned, that relates to the recovery of Sales Tax and VAT. The question raised by the appellant therein is whether Section 53 of the Insolvency and Bankruptcy Code, 2016 overrides Section 48 of the Gujarat Vat Act. After considering Section 48 of GVAT, the Apex Court has held that the State is also a secured creditor as defined under Section 3(30) of IBC. The Debt Recovery Tribunal has not committed any error while dismissing the objections raised by M/s Maya Spinners Ltd. - Petition dismissed. Issues Involved:1. Priority of dues between the Central Excise Department and secured creditors.2. Legitimacy of the actions taken by the Madhya Pradesh State Industrial Development Corporation (MPSIDC) and the Debt Recovery Tribunal (DRT) regarding the mortgaged property.3. Applicability of judgments and statutory provisions concerning the priority of secured creditors over government dues.Issue-wise Detailed Analysis:1. Priority of Dues:The primary issue in these writ petitions revolves around the priority of dues between the Central Excise Department and secured creditors, such as banks. The Central Excise Department claimed priority over the mortgaged property to recover unpaid excise duties. However, the court referred to the judgment in *Punjab National Bank v. Union of India* (2022), which established that secured creditors have priority over central excise dues. The court highlighted that there was no provision in the Central Excise Act, 1944, providing for a first charge on the property of the assessee. The provisions of the SARFAESI Act, 2002, which grant secured creditors a first charge, have an overriding effect on the Central Excise Act, even after the insertion of Section 11-E in the latter. This principle was reaffirmed by the Supreme Court, emphasizing that the SARFAESI Act's provisions supersede those of the Central Excise Act.2. Legitimacy of Actions by MPSIDC and DRT:In Writ Petition No. 2218 of 2006, the Central Excise Department challenged the MPSIDC's tender notice for the sale of mortgaged property. The court noted that the Dena Bank (now Bank of Baroda), as part of a consortium including MPSIDC, had already obtained a recovery order from the DRT. Consequently, the petition became infructuous due to the stay granted by the court and the subsequent developments in the recovery process. Similarly, in Writ Petition No. 2241 of 2014, the court dismissed the objections raised by M/s Maya Spinners Ltd. against the DRT's actions, affirming that the DRT correctly initiated recovery proceedings in favor of the bank. The court found no error in the DRT's dismissal of objections, reinforcing the legitimacy of the recovery actions taken by the secured creditors.3. Applicability of Judgments and Statutory Provisions:The court examined several judgments to address the applicability of statutory provisions regarding the priority of secured creditors over government dues. The judgment in *Industrial Development Bank of India v. Superintendent of Central Excise and Customs* (2023) was cited, which clarified that the Customs Act does not override the statutory preference given to secured creditors under Section 529-A of the Companies Act, 1956. The court also referenced the *State Tax Officer v. Rainbow Papers Limited* (2023) case, which dealt with the recovery of sales tax and VAT, but concluded that it did not aid the Union of India's position in this case. The court reiterated that the SARFAESI Act, 2002, and the Insolvency and Bankruptcy Code, 2016, provide secured creditors with priority over government dues, thereby dismissing the writ petitions filed by the Central Excise Department.In conclusion, the court dismissed all three writ petitions, upholding the priority of secured creditors over the Central Excise Department's claims and affirming the legitimacy of the recovery actions taken by MPSIDC and the DRT.