TaxTMI 
TaxTMI 
2022 (2) TMI 1171
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....ted 31.12.1996 to M/s Rathi Ispat Ltd./Respondent No. 4 (for short "RIL") for evasion of excise duty and violation of the Central Excise Act, 1944. By an order dated 25.11.1997, Respondent No. 2 confirmed an excise duty demand of Rs. 6,97,62,102/against RIL and imposed a penalty of Rs. 7,98,03,000/under Rule 173Q(1) and confiscated the land, building, plant and machinery of RIL under Rule 173Q(2) of the Central Excise Rules, 1944 (for short "1944 Rules"). Subrule 2 of Rule 173Q of the Central Excise Rules, 1944, came to be omitted by a notification dated 12.05.2000 issued by the Government of India. Subsequently, the order dated 25.11.1997 was set aside by the Customs, Excise & Gold (Control) Appellate Tribunal (CEGAT), now known as the Customs Excise and Service Tax Appellate Tribunal (CESTAT), on the ground of violation of principles of natural justice, and the matter was remanded back for de novo proceedings. 3. In 2005, RIL availed credit facilities under various schemes from the consortium of banks, with the Appellant/Punjab National Bank as the lead bank, and mortgaged/hypothecated all its movable and immovable properties for securing the loan. RIL created a charge on both....
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....ated by the orders passed by the Commissioner, Customs & Central Excise, Ghaziabad, the possession of the property in question cannot be taken by the Appellant bank. 9. Aggrieved by the orders of confiscation (dated 26.03.2007 and 29.03.2007) and the further communications/letters by the department (dated 27.11.2007 and 15.01.2008), the Appellant bank filed a Writ Petition before the Allahabad High Court, which was dismissed with the observations that: "We find that in the present case, taxes are not sought to be recovered from M/s Rathi Ispat Ltd., respondent No. 4, by way of attachment or otherwise from the movable or immovable assets of the respondent no.4, but the stand of the Central Excise Authorities is that the properties stand confiscated and vests in the Central Government as a result of the order of confiscation" The High Court further held that: "From the meaning of the word confiscate/confiscation", we find that if any property has been confiscated it vests in the state and no person can claim any right, title, or interest over it." While dismissing the Writ Petition of the Appellant bank, the Allahabad High Court, eventually held that: ....
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....cise Rules. It has further been contended that no reliance can be placed on section 38A for the reason that the provision contained in the said section 38A are attracted "unless a different intention appears". In the present case, the contraintention of the legislature that the legislature did not intent to revive/restore the power of confiscation of any land, building, plant machinery etc., after omission of the provisions contained in Rule 173Q(2) w.e.f 12.05.2000 is evident from the following: I. The provisions contained in Rule 173Q(2) i.e. power to confiscate any land, building, plant, machinery etc. after omission w.e.f. 12.05.2000 has not been introduced in the subsequent Central Excise Rules, 2001, Central Excise Rules, 2002 and Central Excise Rules, 2017. II. Further, Rule 211 of the Central Excise Rules, 1944, inter alia, provided that "anything" confiscated under the Rules shall thereupon vest in Central Government, whereas Rule 28 of the Central Excise Rules of 2001, 2002 and 2017, which are pari materia to the earlier Rule 211 of the 1944 Rules, instead of the word "anything", provided for vesting of confiscated "Goods" in the Central Government. ....
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....g effect by virtue of any such law, the provisions of the SARFAESI Act, 2002 shall have overriding effect on all other laws. It was further contended that even the provisions contained in section 11E of the Central Excise Act, 1944, which has been inserted w.e.f. 08.04.2011, provides for First Charge on the property of the Assessee and is a nonobstante Clause. However, the provisions contained in Section 11E are subject to the provisions contained in the SARFAESI Act, 2002. Thus, the provisions of SARFAESI Act, 2002, even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, has overriding effect on the provisions of the Act of 1944. 17. In addition to the abovementioned submissions, the learned Senior Counsel for the Appellant has argued that it is well settled law laid down by this Court that the Crown debts (Unsecured) have no priority over the Secured dues of the Secured Creditors/ Pawnee/ Bailee. In support of the above submission, reliance has been placed upon the following judgements: i. Bank of Bihar vs State of Bihar [(1972) 3 SCC 196] ii. Dena Bank vs Bhikhabhai Prabhu Dass Parikh & Anr. [(2000) 5 SCC 694] iii. Cen....
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....(c) and 38A(e) of the Central Excise Act, 1944 and consequently, Whether the Commissioner was not justified in passing orders of confiscation dated 26.03.2007 and 29.03.2007, although on such date, the said Rule 173Q(2) was omitted and the 1944 rules were replaced with the Central Excise Rules 2001 subsequently. 20. The learned Additional Solicitor General submitted that the first issue raised by the Appellant was never raised by the Appellant either before the Tribunal or in the Appeal before this Court and has been raised for the first time in this Appeal. 21. With respect to the second issue raised by the Appellant, it has been argued by the Learned ASG that this question, as framed and answered by the Appellant, is entirely alien to the dispute at hand. The present dispute is not at all one of priority of charges or debts. On the other hand, what was challenged before the High Court was the order of confiscation, and the relevant question for consideration of this Court is whether a confiscation order passed by the Central Excise Authorities in respect of the land, building, plant and machinery of RIL can be defeated by a security interest created by RIL in favour of the ....
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....uld not affect any right or liability acquired or accrued or affect any investigation, legal proceeding or remedy in respect of any such right or liability. 24. In context of the application of section 6 of the General Clauses Act, 1897, learned ASG relied upon decisions of this Court in the cases of Gammon India vs Special Chief Secretary [(2006) 3 SCC 354]; Ambalal Sarabhai Enterprises Ltd. Vs Amritlal [(2001) 8 SCC 397]; Brihan Maharashtra Sugar Syndicate Ltd. Vs Janarand Ramachandra Kulkarni (1960 3 SCR 85) and contended that although Rule 173Q(2) was initially omitted from the 1944 Rules and subsequently the 1944 Rules were repealed and were substituted by the 2001 Rules, there was nothing expressly stated in the new Rules which manifested any intention to destroy the liabilities which came into existence on account of the 1944 Rules or which manifested any intention to nullify any investigation that was pending in respect of such accrued liability. Learned ASG thus submitted, that Section 38A(c) and 38A(e) of the Central Excise Act would apply with full force to save the proceedings which had already been initiated under Rule 173Q(2) of the 1944 Rules, as Section 38A(c) of....
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.... the amounts due to it, if and when the properties are sold by the respondent authorities. Therefore, assuming the existence of any right of recovery from Respondents, the Appellant may, at best, be entitled to issue a notice as envisaged in Section 13(4)(d) of the SARFAESI Act and then take the further steps mentioned therein. 29. Lastly, Mr. K.M. Nataraj, ASG has submitted that the validity of the confiscation order cannot be called into question merely on account of the Appellant being a secured creditor. The question as to whether the amounts due to the Customs Department would have priority over the debts due to the secured creditor does not arise in this case, since what is challenged is the confiscation order and nothing else. A confiscation order, cannot be quashed merely because a security interest is created in respect of the very same property. 30. For ready reference, the relevant provisions of the concerned Act and Rules are extracted below: ( Central Excise Act, 1944) "Section 11. Recovery of sums due to Government. In respect of duty and any other sums of any kind payable to the Central Government under any of the provisions of this Act or of the rules....
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....rescinded, then, unless a different intention appears, such amendment, repeal, supersession or rescinding shall not - a) revive anything not in force or existing at the time at which the amendment, repeal, supersession or rescinding takes effect; or b) affect the previous operation of any rule, notification or order so amended, repealed, superseded or rescinded or anything duly done or suffered thereunder; or c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any rule, notification or order so amended, repealed, superseded or rescinded; or d) affect any penalty, forfeiture or punishment incurred in respect of any offence committed under or in violation of any rule, notification or order so amended, repealed, superseded or rescinded; or e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced and any such penalty, forfeiture or punishment may be imposed as if the rule, notification or order, as ....
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....or clause (d) of sub rule (1) and the duty leviable on the excisable goods in respect of the contravention for the second or any subsequent occasion exceeds ten thousand rupees. Then, in a case falling under clause (a) of this sub rule or in a case falling under clause (b) thereof (whether the contravention under that clause has been committed for the second or any subsequent occasion), the officer adjudging the case under section 33 of the Act may, in addition to the award of the confiscation and penalty under the sub rule (1), direct, for reasons to be recorded in writing, the confiscation of any or all of the following belonging to such manufacturer, producer or licensee of a warehouse, namely: (i) any land, building, plant, machinery, materials, conveyance, animal or any other thing used in connection with the manufacture, production, storage, removal or disposal of such goods, or (ii) any other excisable goods on such land, or in such building or produced or manufactured with such plant, machinery, materials or thing]" (Central Excise Rules, 1944) "Rule 211. On confiscation, property to vest in Central Government: (1) When ....
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....fiscation and the producer or manufacturer or registered person of the warehouse, or an importer who issues an invoice on which CENVAT credit can be taken, or a registered dealer, as the case may be, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or clause (c) or clause (d) has been committed, or five thousand rupees, whichever is greater. (2) An order under subrule (1) shall be issued by the Central Excise Officer, following the principles of natural justice." SARFAESI Act, 2002 Section 2(zc) to 2(zf) "(zc) "secured asset" means the property on which security interest is created; (zd) "secured creditor" means- (i) any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (l); (ii) debenture trustee appointed by any bank or financial institution; or (iii) an asset reconstruction company whether acting as such or managing a trust set up by such asset reconstructio....
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....l or any of the rights under subsection (4). (3) The notice referred to in subsection (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of nonpayment of secured debts by the borrower. (4) In case the borrower fails to discharge his liability in full within the period specified in subsection (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:- (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; [(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole of the business or part of the business is severable, the secured credito....
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....have heard learned counsel for both the parties at length and have carefully perused the record. 32. The Commissioner Customs and Central Excise, Ghaziabad vide order dt. 26.03.2007, ordered the confiscation of all the land, building, plant, machinery etc. of RIL. This confiscation order was passed under rule 173Q(2) of the Central Excise Rules, 1944. However, in the impugned order, the High Court has not considered that on the date of the confiscation orders i.e. 26.03.2007 and 29.03.2007, Rule 173Q(2) stood omitted from the statute books vide government notification dated 12.05.2000. 33. We do not find merit in the submission of the learned Counsel for the Respondent that notwithstanding the omission of Section 173Q(2) from the 1944 Rules vide notification dated 12.05.2000, the Respondent No. 3 was entitled to continue the proceedings on account of Section 38A(c) and Section 38A(e) of the Central Excise Act, 1944, read along with Section 6 of the General Clauses Act, 1897. 34. Constitution bench of this Court in Kolhapur Canesugar Works Ltd. Vs Union of India & Ors. [(2000) 2 SCC 536] has held that: "11. In the factual backdrop of the case discussed earlier the ....
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....s are overruled. 36. In the case in hand, Rule 10 or Rule 10A is neither a "Central Act" nor a "Regulation" as defined in the Act. It may be a Rule under Section 3(51) of the Act. Section 6 is applicable where any Central Act or Regulation made after commencement of the General Clauses Act repeals any enactment. It is not applicable in the case of omission of a "Rule". 37. The position is well known that at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute book as completely as if it had never been passed, and the statute must be considered as a law that never existed. To this rule, an exception is engrafted by the provisions Section 6(1). If a provision of a statute is unconditionally omitted without a saving clause in favour of pending proceedings, all actions must stop where the omission finds them, and if final relief has not been granted before the omission goes into effect, it cannot be granted afterwards. Savings of the nature contained in Section 6 or in special Acts may modify the position. Thus, the operation of repeal or deletion as to the future and the past largely depends on the savings ....
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....intention appears". In the present case, the legislature has clarified its intent to not restore/revive the power of confiscation of any land, building, plant machinery etc., after omission of the provisions contained in Rule 173Q(2) w.e.f 12.05.2000. This intention of the legislature can be drawn out from the fact that power to confiscate any land, building, plant, machinery etc. after omission w.e.f. 12.05.2000 has not been introduced in the subsequent Central Excise Rules, 2001, Central Excise Rules, 2002 and Central Excise Rules, 2017. Additionally, this intent is also fortified by the fact that Rule 211 of the Central Excise Rules, 1944, inter alia, provided that "anything" confiscated under the Rules shall thereupon vest in Central Government, whereas Rule 28 of the Central Excise Rules of 2001, 2002 and 2017, which are pari materia to the earlier Rule 211 of the 1944 Rules, instead of the word "anything", provided for vesting of confiscated "Goods" in the Central Government. Lastly, after omission of Rule 173Q(2) of 1944 Rules w.e.f. 12.05.2000 and after supersession of Rule 211 of 1944 Rules in the year 2001, the newly enacted Rule 28 of the Rules of 2001, Rule 28 of the Ru....
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....tral Excise Act and the Customs Act, the claim of the Central Excise Department cannot have precedence over the claim of secured creditor, viz., the petitioner Bank. (iv) In the absence of such specific provision in the Central Excise Act as well as in Customs Act, we hold that the claim of secured creditor will prevail over Crown's debts." In view of our above conclusion, the petitioner UTI Bank, being a secured creditor is entitled to have preference over the claim of the Deputy Commissioner of Central Excise, first respondent herein." (emphasis supplied) This Court, while dismissing the Civil Appeal No.3627 of 2007 filed against the judgment of the Full Bench, vide order dated 12.09.2009 held as under: "Having gone through the provisions of the Securitization Act, 2002, in light of the judgment of the Division Bench of this court in the case of Union of India vs Sicom Ltd. & Anr., reported in 2009 (1) SCALE 10, we find that under the provisions of the said 2002 Act, the appellants did not have any statutory first charge over the property secured by the respondent bank. In the circumstances, the Civil Appeal is dismissed with no order as....
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....ue for consideration was "whether tax dues recoverable under the provisions of The Central Excise Act, 1944 have priority of claim over the claim of secured creditors under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002" held that: "Considering the language of Section 35 and the decided case law, in our opinion it would be of no effect, as the provisions of SARFAESI Act override the provisions of the Central Sales Tax Act and as such the priority given to a secured creditor would override Crown dues or the State dues. In so far as the SARFAESI Act is concerned a Full Bench of the Madras High Court in UTI Bank Ltd. v. Deputy Commissioner of C. Excise, ChennaiII has examined the issue in depth. The Court was pleased to hold that tax dues under the Customs Act and Central Excise Act, do not have priority of claim over the dues of a secured creditor as there is no specific provision either in the Central Excise Act or the Customs Act giving those dues first charge, and that the claims of the secured creditors will prevail over the claims of the State. Considering the law declared by the Apex C....
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....ns contained in Section 13 of the SARFAESI Act, 2002, the Secured Creditor will have a First Charge on the Secured Assets. Moreover, section 35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of the SARFAESI Act, shall have overriding effect on all other laws. It is further pertinent to note that even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002. 44. Thus, as has been authoritatively established by the aforementioned cases in general, and Union of India vs SICOM Ltd. (supra) in particular, the provisions contained in the SARFAESI Act, 2002, even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, will have an overriding effect on the provisions of the Act of 1944. 45. Moreover, the submission that the validity of the confiscation order cannot be called into question merely on account of the Appellant being a secured creditor is misplaced and irrelevant to the issue at hand. The contention that a confiscation order cannot be quashed merely because a security interest is created in respect of the very same property is not worthy of accept....