Provisions of the SARFAESI act have an overriding effect on the provisions of the Central Excise Act of 1944. The dues of secured creditors will have top priority over the Central excise department.
Judgment details :
PUNJAB NATIONAL BANK …..APPELLANT
VERSUS
UNION OF INDIA & ORS. …RESPONDENTS CIVIL APPEAL NO.2196 OF 2012
Coram: Justice L. NAGESWARA RAO and Justice VINEET SARAN – Judgment Date: 24.02.2022]
The provisions contained in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002) will have an overriding effect on the provisions of the Central Excise Act of 1944. The dues of the secured creditor, (bank), will have priority over the dues of the Customs and Central Excise Department:
The brief facts of the case:
In 2005, M/s Rathi Ispat Ltd (RIL) availed various credit facilities from the consortium of banks, with the Appellant/Punjab National Bank as the lead bank. The respondent RIL (in short) mortgaged/hypothecated all its movable and immovable properties for securing the loan. RIL also created a charge on both the assets (raw material, stock in progress, finished goods, receivables, etc.) and block (land, building, plant, machinery, and other fixed assets) of the company in favour of the Appellant bank. Since the borrower defaulted in repayment of credit facilities, the Punjab National Bank, as the secured creditor, had issued notice to RIL under section 13(2) of the SARFAESI Act, 2002.
Whereas, the Commissioner Customs and Central Excise ordered the confiscation of all the land, building, plant, machinery, etc., of RIL. to recover excise duty demand of Rs.6,97,62,102/- and a penalty of Rs.7,98,03,000/ of RIL under Rule 173Q(2) of the Central Excise Rules, 1944. Aggrieved from confiscation of all the assets which are already secured by the banks for various credit facilities extended by a consortium led by it, Punjab National Bank filed a writ petition in the Allahabad High Court against the confiscation of assets already secured by it. The Allahabad High Court dismissed the writ petition filed by the bank and hence the Bank appealed to Supreme Court.
In this case, the Apex Court observed that Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173Q(2) of the Central Excise Rules 1944 on 26.03.20007 and 29.03.2007 for confiscation, when on such date, the said Rule 173Q(2) was not in the stature books, having been omitted by notification dated 12.05.2000(Para 47). Secondly, the Apex Court bench noted that prior to insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, there was no provision in the act of 1944 inter alia, providing for First Charge on the property of the Assessee or any person under the Act of 1944. Even the provisions contained in Section 11E of the Central Excise Act, 1944 with effect from 08.04.2011 are subject to the provisions contained in the SARFAESI Act, 2002, the court noted and said the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944.
Accordingly, the Appeal is allowed and the confiscation orders dated 26.03.2007 and 29.03.2007, passed by the Commissioner Customs and Central Excise, Ghaziabad, are quashed.
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