TMI Blog2012 (10) TMI 873X X X X Extracts X X X X X X X X Extracts X X X X ..... Act - two provisions would do not support the Dept. - When they were about to conduct auction or about to confirm auction sale, the Assistant Commissioner intervened objecting Bank sale. So also the auction initiated under the SARFAESI Act in all these matters, is not yet completed. These are, therefore, saved by Section 11E of the Central Excise Act and Section 142A of the Customs Act, and the Dept., cannot claim first charge or priority in recovery - 17742 of 2005, 27102 of 2008 & 10515-10516 of 2011 and 5993 of 2012 - - - Dated:- 4-4-2012 - V.V.S. Rao and G. Krishna Mohan Reddy, JJ. REPRESENTED BY : S/Shri Ashok Anand Kumar, Ambadipudi Satyanarayana, Jalakam Sathyaram, Counsels, for the Petitioner. S/Shri V. Gopalakrishna, B. Chandra Sen Reddy, Jalakam Sathyaram, V. Raghu and Deepak Bhattacharjee, Counsels, for the Respondent. [Order per : V.V.S. Rao, J. (Common)]. - The question of considerable significance that would arise in these writ petitions is whether the department of Customs, Central Excise and Service Tax, Government of India (GoI) (hereafter the Dept.,) is entitled to claim that the central excise and customs duty arrears (excise/customs arrears, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10-8-2005, restrained the first respondent from confirming the sale in favour of the highest bidder but allowed the auction sale. The first respondent moved an application being WVMP No. 979 of 2006 for vacating the interim order and also filed counter affidavit. This Court passed an ex parte order on 24-8-2006 vacating the interim order. The petitioner moved WPMP No. 23044 of 2006 to set aside the ex parte order, which is also listed along with the main writ petition. In the mean while, the first respondent conducted auction. One Sri A. Krishna Murthy, who became highest bidder by offering Rs. 30,50,000/- and in whose favour the auction was confirmed by the authorized officer of the Dept., filed WPMP No. 34810 of 2005 to implead him as eighth respondent in the writ petition. There is no serious objection for his impleadment. Accordingly the application is ordered by this Court. 5. The case of the first respondent is that the department of Central Excise appointed auctioneers M/s. Varma and Company, who conducted auction in which 22 bidders participated and the bid of the eighth respondent, was accepted. It is alleged that though the petitioners had enough time to file their cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice under Section 13(4) on 9-8-2007, they also issued notice of intended sale on 10-10-2008 under Rules 6(2) and 8(6) of the Security Interest (Enforcement) Rules 2002. Having come to know this, the Superintendent issued impugned proceedings. 9. The Assistant Commissioner of Central Excise, Tirupati, filed counter affidavit alleging that the Central Excise assessee is liable to pay an amount of Rs. 39,58,527/- and an amount of Rs. 41,58,527/- towards penalty and interest thereon and therefore he addressed a letter to the Bank on 18-9-2008 explaining Section 11 of the Central Excise Act and informed that the buyer should be notified about liability to discharge central excise duty. It is further alleged that the goods cannot be removed from the factory without paying the excise duty. Writ Petition Nos. 10515 and 10516 of 2011 10. These two matters are filed by the Assistant Commissioner, Tirupati. The common cause of action as also factual background for both the writ petitions, is the action under the SARFAESI Act of the Chief Manager and the authorized officer, Andhra Bank, Chittoor, to recover the loan amount due from two sister concerns, namely, M/s. Shiv Shakthi Cellul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counter affidavit, but the Standing Counsel obtained instructions and made submissions opposing the writ petition, which are referred to at appropriate place. Submissions 14. The two writ petitions being W.P. Nos. 17742 of 2005 and W.P. No. 27102 of 2008 are filed by the Banks, who gave loans to industries, which also happened to be Central Excise or Customs assessees. The other three writ petitions being W.P. Nos. 10515 and 10516 of 2011 and 5993 of 2012 are filed by the Assistant Commissioner, Tirupati, seeking directions referred to supra. 15. The counsel for the Banks and the counsel for the Central Excise and Customs Department made their submissions adverted to infra at appropriate place. They also relied on the following decisions. Builders Supply Corpn. v. Union of India - AIR 1965 SC 1061, Delta Paper Mills Ltd. v. Collector of Central Excise, Guntur - 1995 (77) E.L.T. 544 (AP), Sitani Textiles Fabrics (P) Ltd. v. Asst. Commissioner of Cus. C.E., Hyderabad - 1999 (106) E.L.T. 296 (A.P.), S.K. Pattanaik v. State of Orissa - (2000) 1 SCC 413 : AIR 2000 SC 612 = 2000 (115) E.L.T. 9 (S.C.), Allahabad Bank v. Canara Bank - (2000) 4 SCC 406 : AIR 2000 SC 1535, Dena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnmental functions of the state. 18. The ratio in Builders Supply Corpn. has been consistently followed in India. In Dena Bank, the following essential features of the common law principles have been summed up. 1. There is a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts. 2. The common law doctrine about priority of Crown debts which was recognised by Indian High Courts prior to 1950 constitutes law in force within the meaning of Article 372(1) and continues to be in force. 3. The basic justification for the claim for priority of State debts is the rule of necessity and the wisdom of conceding to the State the right to claim priority in respect of its tax dues. 4. The doctrine may not apply in respect of debts due to the State if they are contracted by citizens in relation to commercial activities which may be undertaken by the State for achieving socio-economic good. In other words, where the welfare State enters into commercial fields which cannot be regarded as an essential and integral part of the basic government functions of the State and seeks to recover debts from its debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purport of the relevant statutes hereafter analysed, in these cases, the Dept., cannot claim priority or precedence over the recovery of Bank loans. For other reasons also, we accept the submissions of the Counsel for the Banks and hold that the Central Excise department in common law cannot claim priority in the recovery of their dues. Of course, subject to other Parliamentary enactments, the officers empowered under the Central Excise Act or Customs Act can always initiate appropriate steps for recovery of excise or customs duties. Recovery mechanisms under Revenue Laws 22. Article 265 of the Constitution of India declares that no tax shall be levied or collected except by the authority of law. In S.K. Pattanaik, it was held that, the expression levy may include the process of taxation as well as determination of the amount of tax or duty, the expression collection refers to actual collection of the payable duty or the tax as the case may be . In Somaiya Organics, a Constitution Bench of the Supreme Court ruled that, in Taxing statute the words levy and collect are not synonymous. While levy would mean the assessment or charging or imposing tax, collect in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... require the payment of such sums may deduct the amount so payable from any money owing to the person from whom such sums may be recoverable or due which may be in his hands or under his disposal or control, or may recover the amount by attachment and sale of excisable goods belonging to such person; and if the amount payable is not so recovered, he may prepare a certificate signed by him specifying the amount due from the person liable to pay the same and send it to the Collector of the district in which such person resides or conducts his business and the said Collector, on receipt of such certificate, shall proceed to recover from the said person the amount specified therein as if it were an arrear of land revenue. (emphasis supplied) (Proviso not extracted as not relevant) SECTION 12. Application of the Provisions of Act No. 8 of 1878 to Central Excise Duties. - The Central Government may, by notification in the Official Gazette, declare that any of the provisions of the Customs Act, 1962 (52 of 1962), relating to the levy of and exemption from customs duties, drawback of duty, warehousing, offences and penalties, confiscation, and procedure relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in SICOM, even while proceeding under Section 11 of the Central Excise Act, the Department can only initiate the recovery of the dues as land revenue only when the proceeds from the sale of excisable goods do not liquidate central excise arrears. 27. As noticed earlier, the Dept., relies on the Notification No. 68/63 dated 4-5-1963 amended from time to time by GOI in exercise of powers under Section 12 of the Central Excise Act. The notification to the extent relevant reads as follows : Notification under Section 12 (1) Notification extending the provisions of Customs Act, 1962 to the Central Excise. - In supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) Central Excise No. 69/59 (G.S.R. No. 822 of 1959), dated 18th July, 1959, the Central Government hereby declares that the provisions of sub-section (1) of Section 105, Section 110, Section 115 [excluding clauses (a) and (e) of sub-section (1)] clause (a) of Section 118, Sections 119, 120, 121 and 124, clause (b) and sub-clause (ii) of clause (c) of sub-section (1) of Section 142 and 150 of the Customs Act, 1962, (52 of 1962), relating to matters specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Customs Act, we doubt the vires of Notification No. 68/63 in so far as it makes applicable recovery procedure under Section 142(1)(b)(c)(ii) of the Customs Act to Central Excise Act. 30. The Senior Central Government Counsel relied on the decision of Bombay High Court in Krishnakant Sakharam Ghag v. Union of India - 2006 (206) E.L.T. 1117 (Bom.) which distinguished the decision of the Supreme Court in New Central Jute Mills Company Limited. v. Assistant Commissioner of Central Excise - 1978 (2) E.L.T. 393 (S.C.) = AIR 1971 SC 454. The latter laid down that the levy of tax/duty is altogether different from the recovery of the tax/duty. Bombay Bench held that the levy of customs duty under Chapter V of the Customs Act also includes the recovery. As we are bound by New Central Jute Mills; S.K. Pattanaik and Somaiya Organics; we are not able to bring ourselves up to accept the Bombay view. We however hasten to add that as the vires of Notification No. 68/63 is not specifically challenged, we are not inclined to decide it in these cases. In all these cases we shall proceed on the assumption that Section 11 of the Central Excise Act r/w Notification No. 68/63 issued under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unless it is specifically provided by any other statute. 34. In Allahabad Bank, the issue related to the impact of DRT Act on the provisions of the Companies Act. Inter alia a question arose as to whether the provisions in Section 19(2) and 19(19) of DRT Act enable the Bank to appropriate the entire sale proceeds realized by it, except to the limited extent restricted by Section 529A of the Companies Act. This was answered by the Supreme Court holding that a rival claimant cannot invoke the principles underlying Section 73 of the Code of Civil Procedure, 1908 (rateable distribution of assets among decree holders) and that in any company winding proceedings, a co-creditor, who chooses to stand outside the winding up, cannot enforce his debt denying the right of a Bank, which obtained the recovery certificate from the DRT. It was also held that at the stage of adjudication under Section 17 and execution of certificate under Section 25 of the Act; the DRT and Recovery Officer shall have exclusive jurisdiction in respect of debts payable to Bank and that the company Court cannot interfere under Section 442 r/w Section 537 or 446 of the Companies Act. 35. In Rajasthan State Financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings initiated by banks and financial institutions for recovery of their dues. 37. Central Bank of India (2) also considered Section 11 of the Central Excise Act in the light of ratio in SICOM and held as under : Section 11 of the Central Excise Act, which was considered by the two-Judge Bench in Union of India v. SICOM Ltd., (209) 2 SCC 121, does not contain a provision similar to those in Central legislations like Section 14-A of the Workmen s Compensation Act, 1923, Section 11 of the EPF Act, Section 74(1) of the Estate Duty Act, 1953, Section 25(2) of the Mines and Minerals (Regulation and Development) Act, 1957, Section 30 of the Gift Tax Act, 1958 and Section 529-A of the Companies Act, 1956, under which statutory first charge has been created in respect of the dues of workmen or gift tax, etc. On the basis of the above discussion, we hold that the DRT Act and the Securitisation Act do not create first charge in favour of banks, financial institutions and other secured creditors and the provisions contained in Section 38-C of the Bombay Act and Section 26-B of the Kerala Act are not inconsistent with the provisions of the DRT Act and the Securitisation Act so as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any instrument having effect by virtue of any such law. 41. Section 11 of the Central Excise Act or Section 142(1)(c)(ii) of the Customs Act has no overriding effect over the SARFAESI Act, or for that matter DRT Act. In so far as the priority and precedence of government debt is concerned as held by the Courts such common law principle is always subject to statutory provisions and if the latter does not recognize the principle of priority of recovery of government debts, the department of Central Excise cannot claim any such right. In the absence of any provision in the Central Excise Act and Customs Act similar to some of the sales tax legislations of various States, the principle of statutory first charge created under the DRT Act and the SARFAESI Act would favour the Banks and Financial Institutions in the matter of recovery of dues from the defaulting borrowers. This Court, therefore, is compelled to hold that the Dept., cannot claim any priority in the recovery of government dues over the claim of the Bank, an order under DRT Act or an order or proceedings taken out under the SARFAESI Act. 42. As held by the Supreme Court in Transcore v. Union of India - (2008) 1 SCC 125 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial statute contain non-obstantive clause giving overriding the provisions therein. In such a case, it has to be decided which one is general statute and which one is special statute. After so doing the general principle that a special statute would prevail, has to be given full effect in the event of conflict ignoring anything contra in the general statute [D.V. Shah v. LIC of India - AIR 1966 SC 135]. 44. We have Central Excise Act, Customs Act, DRT Act and the SARFAESI Act. Looking at the subject and object of the legislation in so far as the recovery of loans by the Banks and Financial Institutions is concerned, the DRT Act is a special enactment and Central Excise and Customs Acts are general Acts. Though, they deal with levy and collection of excise and customs, they are general Acts and the DRT and the SARFAESI Act, are special enactments with overriding effect over all other laws. Yet again as between the DRT Act and the SARFAESI Act, the latter is special one [Bank of India v. Ketan Parekh - (2008) 8 SCC 148 : AIR 2008 2361]. In Transcore, the Supreme Court held that even where a Bank invoked remedy in terms of DRT Act, they can still invoke the SARFAESI Act without wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts Due to Banks and the Financial Institutions Act, 1993 (51 of 1993), and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 (54 of 2002) be the first charge on the property of the assessee or the person, as the case may be. 48. A plain reading of the above two provisions would show that for the first time the Parliament created first charge on the property of the assessee in relation to duty, penalty and interest payable under the Central Excise Act or Customs Act as the case may be. But these provisions themselves exclude from their operational field, the recovery or withholding of monies under Section 529 A of the Companies Act, DRT Act and the SARFAESI Act. Thus these two provisions would also do not support the Dept. 49. Unless otherwise specifically provided the Finance Act will come into force from 1st of April of the financial year commencing of that day (Commissioner of Income Tax, Visakhapatnam v. M/s. Vijayawada Bottling Co. Ltd. - R.C. No. 85 of 1997, dated 6-1-2012). We have no doubt that though Section 11E of the Central Excise Act and Section 142A of the Customs Act, seemingly are enforceable from 1-4-201 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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