2026 (1) TMI 952 - HC - Central Excise

Priority of Central Excise dues versus secured creditor's registered charge: secured creditor's charge prevails; departmental notices quashed

Whether Central Excise dues rank superior to secured creditor: HC relied on SC precedent holding SARFAESI provisions override Central Excise Act, and that ... Recovery of dues - priority of debts between secured creditor vis-a-vis claim of Central Excise - Central Excise dues are unsecured debt and a Crown debt or not - HELD THAT:- The issue regarding priority of debts between secured creditor vis-a-vis claim of Central Excise is no longer res integra. The Supreme Court in Punjab National Bank Vs. Union of India and Ors [2022 (2) TMI 1171 - SUPREME COURT] has held that dues of the secured creditors will have priority over the dues of the Central Excise Department, as even after insertion of Section 11-E of the Central Excise Act, 1944 the provisions contained in the SARFAESI Act will have an overriding effect on the provisions of the Central Excise Act. In the present case, the Petitioner – secured creditors has registered its charge over the said premises with CERSAI on 14th September, 2012. The use of the word ‘priority’ in Section 26E of the SARFAESI Act is that the rights accorded to ‘first charge’ holders by Central as well as State legislation would be subordinate to the dues of the Secured Creditor. It has been further held by the Full Bench in the Jalgaon Janta Sahakari Bank Ltd. [2022 (9) TMI 163 - BOMBAY HIGH COURT] that the attachment order is required to be followed by a proclamation according to law and it is only then that the 'priority' accorded by Section 26E of the SARFAESI Act, and Section 31B of the RDDB Act, would not get attracted. Considering that in the present case there is no attachment order and / or proclamation according to law, the Petitioner - secured creditor would have priority in respect of its dues over and above any claim made by Respondent No. 1 – Central Excise Department. The impugned Letters dated 15th February, 2010; 25th April, 2012; 23rd January, 2014 and 26th August, 2015 issued by the Authorities of the Central Excise Department, are quashed and set aside - the petition is disposed off. Issues: Whether a secured creditor whose charge over immovable property is registered with CERSAI has priority over claims of the Central Excise Department and whether the impugned demand/ restraint letters issued by the Central Excise authorities that fetter enforcement of SARFAESI remedies should be quashed.Analysis: The dispute turns on the interplay between the SARFAESI Act and Central Excise statutory claims, and on whether prerequisites for governmental priority (attachment followed by proclamation and registration where applicable) have been satisfied. Relevant statutory provisions include Section 26E of the SARFAESI Act and Section 31B of the RDDB Act which address priority of secured creditors, and Section 11-E of the Central Excise Act which does not oust the overriding operation of SARFAESI provisions. Authorities and full-bench precedent referenced establish that a secured creditor with a registered charge at CERSAI obtains priority over departmental claims unless a valid attachment and proclamation (and registration where required) by the department precede and comply with statutory requirements. In the present facts no attachment order and no lawful proclamation by the department have been shown to displace the registered charge, and the petitioners charge was registered with CERSAI prior to enforcement by the department.Conclusion: The secured creditor with a charge registered at CERSAI has priority over the Central Excise Department's claims on the stated facts; the impugned letters of restraint issued by the Central Excise authorities are quashed and set aside.Ratio Decidendi: Where a secured creditor has a registered charge with CERSAI, that secured creditors priority over competing departmental claims arises under Section 26E of the SARFAESI Act and will prevail unless the department effects an attachment followed by proclamation and any required registry formalities in accordance with law.