TaxTMI 
TaxTMI 
2006 (4) TMI 162
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....ntation for the Petitioner in W.P. No. 4280 of 2005, both the writ petitions were heard and considered together. The parties are referred to in their rank in W.P. No. 8259 of 2005. 4. Facts which led to the filing of the writ petitions could briefly be stated thus :- The Third Respondent is a manufacturer of cement. It is registered with the Central Excise Department and the Registration Number is AABCB 1969EXM001. As per the provisions of Central Excise Act, 1944 and the Rules made thereunder, all excisable goods shall be cleared from the factory of manufacture only on payment of Central Excise Duty in the manner provided in the Rules. Rule 8 of Central Excise Rules, 2002 stipulates that the duty on the goods removed from a factory during a month shall be paid by the fifth of the following month, and if an assessee fails to pay the amount of duty by the due date, the assessee is liable to pay interest and penalty. The Third Respondent committed default in payment of Central Excise Duty to the tune of Rs. 37,85,832/- and the duty is due from September 2004 to January 2005. The Third Respondent, on sale of the cement manufactured by it, collected duty amount from its customers....
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....ted 8-8-2005 stating that the machineries available in the factory had already been attached and that as per the judgment of the Supreme Court in the case of Dena Bank, first priority is to be given to the Government dues and the same is to be treated as a Crown Debt than other claims. Thereafter, the Petitioner Bank has filed W.P.No. 8259 of 2005 seeking to quash the Impugned Proceedings of the Second Respondent dated 21-2-2005. 10. Central Excise Department has filed the Counter Affidavit stating that the Third Respondent has failed to pay the amount. Though the Third Respondent has collected the Central Excise Duty payable from its customers, failed to pay the duty as required under Rule 8. If the Assessee fails to pay the amount of duty by due date, he shall be liable to pay the outstanding amount along with interest at the rate specified by the Central Government. In W.P.No. 8259 of 2005 the Department has filed the Counter Affidavit stating that the Central Excise Duty payable by the Third Respondent would have priority over the Petitioner's Debt. The Petitioner Bank has not furnished any details regarding the description and specification of the properties said to have be....
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....hird Respondent has collected the above stated amounts of duty from its customers, but failed to pay the same as required under Rule 8. Therefore, proceedings for recovery were initiated by the First Respondent under Section 142(1)(c)(ii) of Customs Act, 1962. Since the Third Respondent has not paid the amount, the order dated 21-2-2005 was issued attaching the movable properties of the Third Respondent Company viz., machineries, cement and clinker. 14. Challenging the order of Attachment, the Third Respondent has filed W.P.No. 4280 of 2005. Interim Stay was granted on condition that the Third Respondent should pay 25% of the amount demanded by the Respondents prior to the Auction. But, the Third Respondent did not pay 25% of the amount due and hence, the Interim Stay stood automatically vacated. 15. When the Department was planning next Auction-cum-Tender Proceedings, the Petitioner Bank has filed the Writ Petition challenging the order of Attachment. The main contention of the Petitioner is that amount of more than Rs. 917 lacs is due to the Petitioner Bank and that plant, Machineries and Accessories are subject to hypothecation long prior to the alleged dues by way of Cent....
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.... State should be able to discharge its primary Governmental functions and in order to be able to discharge such functions efficiently, it must be in possession of necessary funds and this consideration emphasizes the necessity and the wisdom of conceding to the State, the right to claim priority in respect of its tax dues (A.I.R. 1965 S.C. 1061). In the same case, the Constitution Bench has noticed a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts and that this rule of common law amounts to law in force in the territory of British India at the relevant time within the meaning of Article 372(1) of the Constitution of India and therefore continues to be in force thereafter. On the very principle on which the rule is founded, the priority would be available only to such debts as are incurred by the subjects of the Crown by reference to the State's sovereign power of compulsory exaction and would not extend to charges for commercial services or obligation incurred by the subjects to the State pursuant to commercial transactions. Having reviewed the available judicial Pronouncements their Lordships have summer up the law as un....
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....wn has no precedence over a Pledgee of goods. In Bank of Bihar v. State of Bihar (A.I.R. 1972 S.C. 1210), the principle has been recognized by this Court holding 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. Rashbehary Ghose states in Law of Mortgage - "It seems a Government Debt in India is not entitled to precedence over a prior secured debt." 21. In the facts of the case, it is to be seen whether the claim of the Petitioner Bank is complete and perfect. The Department has attached the following properties and issued Notice for Auction Sale proposing the Auction on 5-4-2006 :- Nature of the Property Reserve Price Earnest Money Cement 1100 MT (Approx.) Rs. 5,00,000/- Rs. 1,25,000/- Clinker 3143.221 MT (Approx.) Rs. 12,00,000/- Rs. 3,00,000/- Machineries for manufacturing Cement (8 in numbers) Rs. 23,00,000/- Rs. 5,75,000/- 22. According to the Petitioner Bank, as security to the credit facilities, th....
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....utstanding. Even if we were to set aside the sale held by the State, it will merely revive the arrears outstanding on account of sales tax to which further interest and penalty shall have to be added. The amended Section 15(2-A) of the Karnataka Sales Tax Act shall apply. The State shall have a preferential right to recover its dues over the rights of the Appellant Bank and the property of the partners shall also be liable to be proceeded against. No useful purpose would, therefore, be served by allowing the appeal which will only further complicate the controversy." 25. Likewise, in the instant case, though the Petitioner Bank claims hypothecation of goods and machineries, its right has not crystallized in completion and perfection to have precedence over the Crown's Debt. The Petitioner Bank is yet to take proceedings to recover the huge amount of due of Rs. 917 lacs. At this stage, it cannot be said that its right has become perfect and complete to have precedence over the State's Debt. 26. By perusal of the letter from the Third Respondent sent to the Petitioner Bank (dated 26-7-2005), it is seen that the Third Respondent is heavily indebted and in a terrible financial cr....