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2014 (10) TMI 681

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....yed to declare that proviso to Section 11 of the Central Excise Act, 1944 will have no application in case of a sale made by the petitioner or any Financial Corporation under the provisions of Section 29 of the State Financial Corporations Act, 1951. 2. It is the case on behalf of the petitioner that petitioner is a Government Company registered under the provisions of the Companies Act, 1956. That the Government of India vide notification published in the Government Gazette dated 30.4.1988, in exercise of powers conferred under Section 46(1) of the State Financial Corporations Act, 1951 ( hereinafter referred to as the "SFC Act") has made applicable the provisions of Sections 27(2), 27(3), 29, 30, 31, 32A, 32B, 32C, 32D, 32E, 32F, 41A, 42 and 44 of the SFC Act to the petitioner. It is the case on behalf of the petitioner that petitioner had sanctioned a term loan of Rs. 2,03,00,000/- and Rs. 1,97,00,000/- was disbursed to Rohil Zinc Limited, Mumbai for setting up its Unit at 204/205, GIDC Estate, Junagadh 362001. According to the petitioner, the land, building, plant and machinery of Rohil Zinc situated at 204/205, GIDC Estate, Junagadh were mortgaged in favour of petitioner -GII....

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....he petitioner, by the said letter the officer of the petitioner were to initiate action for sale of any properties of Rohil Zinc Limited were threatened with personal responsibility. That thereafter, respondent no.2 again wrote another letter dated 19.4.2007 to the petitioner and according to the petitioner contents of the said letter are similar to the aforesaid letter dated 13.12.2006 of the respondent no.2. 2.3 That thereafter, petitioner has been served with one another notice of attachment of immovable properties of the Rohil Zinc Limited dated 19.4.2007 (Annexure A) stating that a sum of Rs. 45,25,601/- is to be recovered from Rohil Zinc Limited. 2.4 Feeling aggrieved and dissatisfied with the aforesaid action of the respondent no.2 in attaching movable and immovable properties of Rohil Zinc Limited which according to the petitioner is in their possession, in exercise of powers under Section 29 of the SFC Act and being aggrieved and dissatisfied with the communication dated 13.12.2006 and 19.04.2007, by which, according to the petitioner, officers of the petitioner are threatened that if they initiate any action for sale of any property of the Rohil Zinc Limited they will b....

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....ash and set aside the impugned attachment notice. 3.2 Shri Kapadia, learned advocate for the petitioner has further submitted that even otherwise the provisions of Section 11(E) of the Central Excise Act create statutory charge over the property of the assessee and not mortgage over the property. It is submitted that therefore, the excise dues are secured by a charge, whereas the dues of the petitioner are secured by a mortgage. It is submitted that charge cannot be enforceable in hands of the transferee who had no knowledge of the charge. It is submitted that vested rights have accrued in favour of GIIC by exercising its rights as a mortgagee and taking over possession of the property of Rohil Zinc Limited under Section 29 of the SFC Act. It is submitted that therefore, at present property is not in the hands of the Rohil Zinc Limited but is in the hands of GIIC- petitioner, it is requested to grant relief as prayed for. 3.3 It is further submitted by Shri Kapadia, learned advocate for the petitioner that as such impugned letters dated 19.4.2007 and 13.12.2006 (Annexure C and D) of respondent no.2 are most arbitrary, which deserve to be quashed and set aside. It is submitted tha....

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....arned advocate for the respondent Central Excise Department has also relied upon the decision of the Hon'ble Supreme Court in the case of Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. [2000] 5 SCC 694 which came to be considered by the Hon'ble Supreme Court in the case of State Bank of Indore (Supra). 4.3 It is submitted by Shri Patel, learned advocate for the respondent Central Excise Department that in view of Section 11(E) of the Central Excise Act, Parliament intended to give priority of the Central Government dues over the dues of the Bank, Financial Institutions and other secured creditors and it shall be a statutory first charge in the matter of recovery of the dues of the Central Government i.e. as dues of the Excise Department etc. the petitioner financial institution cannot be permitted to sell the properties and recover their dues first in exercise of powers under Section 29 of the SFC Act under the guise that the properties are mortgaged with them. It is submitted that if the petitioner is permitted to sell the properties over which Central Government dues would have statutory first charge, in that case, it would be giving a priority to the petitioner over the....

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....ould have been first charge and therefore, being a statutory first charge holder, it is always open for the Excise Department to recover the same from the properties so attached. Section 11(E) reads as under: "Section 11(E): Liability under Act to be first charge:-Notwithstanding anything to the contrary contained in any Central Act or State Act, any amount of duty, penalty, interest or any other sum payable by an assessee or any other person under this Act or the rules made thereunder shall, save as otherwise provided in section 529A of the Companies Act, 1956 (1 of 1956), the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 (51 of 1993) and the Securitization and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 (54 of 2002) be the first charge on the property on the assessee or the person, as the case may be." 6. In the case of State Bank of Indore (supra) while considering the pari mateira provisions under M.P. General Sales Tax Act, 1958, more particularly, Section 33(C) of the said Act, it is observed and held by the Hon'ble Supreme Court that charge created by Section 33(C) of the said Act in favour of the Stat....

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.... the opinion that impugned notices of attachment need not be set aside as even otherwise subsequently it permissible for respondent no.2 to attach the properties of Rohil Zinc Limited. Therefore, as such challenge to the impugned notice of attachment had become academic in light of the Section 11(E) of the Central Excise Act. 8. Now, so far as another prayer on behalf of the petitioner and / or relief sought by the petitioner to declare that Section 11(E) of the Central Excise Act, 1944 will have no application in case of a sale made by the petitioner or any Financial Corporation under the provisions of Section 29 of the State Financial Corporations Act, 1951 is concerned, it is the case on behalf of the petitioner that as such movable and immovable properties attached by the respondent no.2 for the Central Excise dues is / are mortgaged with the petitioner and therefore, despite the Central Government having first charge over the properties, the petitioner may not be restrained from selling the mortgaged properties in exercise of powers under Section 29 of the SFC Act. The aforesaid also cannot be accepted and has no substance. It is not in dispute and it cannot be disputed that ....

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....st decision of the Apex Court in State of M.P. v. State Bank of Indore, wherein the court examined the charge created under Section 33C of the M.P. General Sales Tax Act, 1958 and held that Section 33C creates a statutory first charge that prevails over any charge that may be in existence. The Court held that the charge thereby created in favour of the State in respect of the sales tax dues of the second respondent prevailed over the charge created in favour of the Bank. Judicial pronouncements settled the law once for all stating that State has got priority in the matter of recovery of debts due and the specific statutory charge created under the Sales Tax Act notwithstanding the equitable mortgages created by the defaulters in favour of the Banks prior to the liability in favour of the State. A Division Bench of this Court in Sherry Jacob v. Canara Bank, held that revenue recovery authorities shall have the liberty to proceed against the property of the company under the Revenue Recovery Act on the strength of the first charge created over the property by virtue of Section 26B of the Kerala General Sales Tax Act. The Court held that the statutory first charge would prevail over a....