TaxTMI 
TaxTMI 
2010 (9) TMI 758
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.... liabilities and statutory charges. 2. In the year 2002, SBI filed Original Application for recovery of its dues before the Debts Recovery Tribunal, Ahmedabad. When the matter was pending, the debts of the borrower due to SBI was assigned to the petitioner Kotak Mahindra Bank Ltd. ('the bank' for short) on 23-3-2006 alongwith all underlying securities. The petitioner initially issued notice on the borrower on 25-1-2007 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2005 (hereinafter referred to as 'the Securitization Act'). The borrower having failed to pay the dues, the petitioner took measures under Section 13(4) of the Securitization Act on 12-4-2007 for taking possession. An application under Section 14 of the Securitization Act was filed by the petitioner before the 1st respondent, District Magistrate, Bharuch, who by order dated 23-9-2008 allowed the application and directed the Mamlatdar, Amod to arrange for police protection and videography and to take possession of the secured assets. 3. The 2nd respondent is an Officer of the Excise & Customs Department of the Central Government. H....
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....that the Central Government has the priority claim over the charge created in favour of the petitioner-bank. The learned counsel relied upon sub-rule (2) of Rule 173Q of the Central Excise Rules, 1944 wherein the power has been vested with the competent authority of the Excise & Customs Department of the Central Government to confiscate the land, building, plant, machinery, etc. It was contended that the adjudicating Commissioner having confiscated the land, building, plant and machinery, etc. of M/s. Amod Transformers Pvt. Ltd. in exercise of the power conferred under sub-rule (2) of Rule 173Q, such confiscated property stands vested with the Central Government under Rule 211. 9. Per contra, the learned counsel appearing on behalf of the petitioner while opposed such submission, submitted that Rule 173Q(2) and Rule 211 are not attracted, having deleted. But, according to the learned counsel for the 2nd respondent, action having taken much prior to deletion of the Rules, the parties will be guided by the old Rules. 10. From the record, the following facts emerge. For manufacturing and illicitly removing 429 transformers by M/s. Amod during the year 1985-86 and 19....
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....and the order of confiscation of land, building, plant, machinery, etc. was confirmed with option to redeem the confiscation on payment of redemption fine of Rs. 2,00,000/-. 14. The case of the 2nd respondent is that the order of the Commissioner is appealable under Section 35B of the Central Excise Act, 1944 within three months, but the said order was not challenged by M/s. Amod Transformers Pvt. Ltd. within the time allowed or even thereafter. Thus, the action in the meantime taken to confiscate the land, plant and machinery, etc. of M/s. Amod Transformers Pvt. Ltd. in exercise of the powers conferred under Rule 173Q(2) has attained the finality at the first point of time on expiry of the period of limitation. Therefore, as per Rule 211 of the Central Excise Rules, 1944, the land vested with the Central Government. 15. The learned counsel for the 2nd respondent placed much reliance on Section 38A of the Central Excise Act, 1944 whereunder the effect of amendments to the rules, notifications, orders, etc. has been provided. He would submit that as the legal proceedings deemed to have continued, the operation of Rule 173Q(2) and Rule 211 deemed to be in operation ha....
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....rom the said Rule and mentioned hereunder :- 211. On confiscation, property to vest in Central Government.- (1) When anything is confiscated under these rules, such things shall thereupon vest in Central Government. (2) The officer adjudging confiscation shall take and hold possession of the things confiscated, and every officer of Police, on the requisition of such officer, shall assist him in taking and holding such possession. 18. It is not in dispute that Rule 173Q(2) has been omitted by notification dated 12-5-2000 issued in exercise of the powers conferred by Section 37 read with sub-section (3) of Section 3A of the Central Excise Act, 1944. In view of such amendment, Rule 211 has also been omitted with effect from 1-7-2001. 19. In the present case, the proceedings under the Central Excise Act, 1944 were initiated on 24-2-1987 and 26-2-1991 when Rule 173Q(2) and Rule 211 were in vogue at that stage. At the time the first order of confiscation was passed, the authority had jurisdiction under Rule 173Q(2) to confiscate the land, building, plant, machinery, etc.. But the said order was set aside and remitted for de novo decision. The final order w....
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....e evident that while the amendment, repeal, supersession or rescinding of any rule, as referred to under Clauses (a), (b), (c), (d) and (e), in normal course will not be effected, but if the intention of the legislature is different, Section 38A is not attracted. Initially, the legislature empowered the Commissioner of Central Excise & Customs to confiscate anything, whether movable or immovable, such as land, building, plant, machinery, materials, conveyance, etc., but later on after deletion of the Rule, a new Rule 28 was inserted in the Central Excise Rules, 2001, as quoted hereunder :- 28. Property to vest in Central Government. - (1) When any goods are confiscated under these rules, such thing shall thereupon vest in the Central Government. (2) The Central Excise Officer adjudging confiscation shall taken and hold possession of the things confiscated, and every Officer of Police, on the requisition of such Central Excise Officer, shall assist him in taking and holding such possession. From the aforesaid Rule 28, it is clear that the legislature intended to confiscate only 'goods' which has distinct from immovable property like land, building, plant, machi....
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....f a competent Court or an execution taken out in respect of a decree unless specially empowered by law. Section 11, Bombay City Land Revenue Act, is an illustration where the Legislature has empowered the State to override decrees, judgments and executions of a Court." Thus, we find that the Bombay High Court held that if Crown debt is unsecured debt, it can compete with other unsecured debt and has priority and precedence of the same, but no such priority can be claimed on secured debt. 24. In the case of Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., reported in (2000) 5 SCC 694, the Supreme Court held as follows :- "8. The principle of priority of government debts is founded on the rule of necessity and of public policy. The basic justification for the claim for priority of State debts rests on the well-recognized principle that the State is entitled to raise money by taxation because unless adequate revenue is received by the State, it would not be able to function as a sovereign Government at all. It is essential that as a sovereign, the State should be able to discharge its primary governmental functions and in order to be able to discharge such functions ....
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....e principle that the rights of the pawnee who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. 26. In Central Bank of India v. State of Kerala, reported in (2009) 4 SCC 94, the Supreme Code decided the question whether the Crown debt was in conflict with any provision of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The Apex Court held that the State Act was not in conflict with the Securitization Act. 27. Priority or precedence of Crown debts under the Central Excise Act vis-a-vis secured debts under the State Financial Corporations Act, 1951 fell for consideration before the Supreme Court in Union of India v. Sicom Ltd., reported in (2009) 2 SCC 121 = 2009 (233) E.L.T. 433 (S.C.) = 2010 (18) S.T.R. 673 (S.C.). In the said case, the Supreme Court while held that a debt which is secured or which by reason of the provisions of a statute....
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....te, should have precedence over the secured creditors or not. Considering the facts of the said case that the bank had taken possession of the property under Section 13(4) of the Securitization Act and having noticed that there are no specific provisions under the Central Excise Act or the Customs Act to claim first charge, as provided under other enactments, the Full Bench held that generally the dues to the Government i.e. tax, duties, etc. (Crown's debts) get priority over ordinary debts; only when there is a specific provision in the statute claiming first charge over the property, the Crown's debt is entitled to have priority over the claim of others and in absence of any such provision to claim first charge, the Government cannot claim precedence under the Central Excise Act over the claim of the secured creditor under the Securitization Act. 29. A Division Bench of this Court having noticed different judgments of other Courts and the Supreme Court, in the case of Baroda City Co-operative Bank Ltd. v. State of Gujarat, reported in 2010 (2) GLH 525, held as follows :- "16. From the judgments referred to above, it will be evident that - (a) The arrears o....