The Assistant Commissioner, Customs, Central Excise and v. Chief Manager and Authorised Officer, Andhra Bank

Telangana HC4 Apr 2012WP/10516/2011

Case brief

AI extract

What is this about?

The High Court held that the Central Excise and Customs Department cannot claim priority over bank recovery proceedings under the DRT Act or SARFAESI Act. While acknowledging the common law principle of government debt priority, the Court ruled it yields to specific statutory schemes protecting bank interests. Section 12 of the Central Excise Act was deemed insufficient to authorize attachment of

What did the court decide?

Wrapped up: Writ Petition No. 17742 of 2005 and W.P. No. 27102 of 2008 allowed; W.P. Nos. 10515, 10516 of 2011 and 5993 of 2012 dismissed.

The Assistant Commissioner, Customs… — Public Procurement and Tenders | Telangana HC (2012)

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IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction)

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WEDNESDAY, THE FOURTH DAY OF APRIL TWO THOUSAND AND TWELVE PRESENT

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THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE G.KRISHNA MOHAN REDDY

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WRIT PETITION Nos.17742 of 2005, 27102 of 2008, W.P. Nos.10515 and 10516 of 2011, and 5993 of 2012

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BETWEEN

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Industrial Development Bank of India Ltd. and others.

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... PETITIONERS

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AND

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The Deputy Commissioner (Arrears Recovery Cell), Central Excise and Customs, O/o. Chief Commissioner of Customs & Central Excise, Basheerbagh, Hyderabad and others.

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...RESPONDENTS

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Counsel for the Petitioners: MR. ASHOK ANAND KUMAR MR. AMBADIPUDI SATYANARAYANA

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MR. JALAKAM

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Counsel for the Respondents: MR. V. GOPALAKRISHNA

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MR. B. CHANDRA SEN

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REDDY

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MR. JALAKAM SATHYARAM MR. V. RAGHU

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MR. DEEPAK

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BHATTACHARJEE

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The Court made the following:

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THE HON’BLE SRI JUSTICE V.V.S.RAO AND

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THE HON’BLE SRI JUSTICE G.KRISHNA MOHAN REDDY

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WRIT PETITION Nos.17742 of 2005, 27102 of 2008, W.P. Nos.10515 and 10516 of 2011, and 5993 of 2012

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COMMON ORDER: (Per Hon’ble Sri Justice V.V.S. Rao)

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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, for brevity) have priority and precedence over the claims made by public sector Banks, either under the decree/recovery certificate granted by the Debts Recovery Tribunal (DRT) under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for brevity ‘the DRT Act’) or while enforcing the security interest under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for brevity the SARFAESI Act). Other common incidental issues would also arise and therefore, it is expedient to dispose of these by a common order.

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Back ground facts

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For better appreciation, we may sum up the pleadings in W.P.No.17742 of 2005 before noticing the short facts in each of the cases. Writ Petition No.17742 of 2005 is filed by Hyderabad branch of the Industrial Development Bank of India Limited (IDBI) and its subsidiary, namely, Stressed Assets Stabilization Fund. A wholly owned GoI Company IDBI is a public financial institution within the meaning of Section 4A of the Companies Act, 1956 (for

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brevity ‘the Companies Act’)^[1] . In 1996, IDBI sanctioned the term loan of Rs.3.25 Crores to the third respondent, an incorporated company. Besides giving irrevocable guarantee, its directors (respondents 4 to 7), offered land in an extent of Acs.4.00 in S.No.261/3 of Annaram Village of Narsapur Mandal in Medak District as collateral security.

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In 1999, IDBI instituted O.A.No.497 of 2000 before the DRT, Hyderabad, under Section 19(1) of the DRT Act. It was decreed on 12.4.2005 for Rs.3.86 Crores with interest. Pursuant to the consequential recovery certificate issued under Section 19(22) the Recovery Officer (RO) served demand notice dated 26.4.2005 to the borrower and others for recovery of Rs.15,72,42,842/-. In the meanwhile the first respondent, namely, the Deputy Commissioner (Arrears Recovery Cell), in the Dept., issued auction notice on 04.8.2005 for recovery of excise dues to sell two items of immovable properties including land mortgaged to IDBI, under Section 142(1)(c)(ii) of the Customs Act, 1962 (for brevity ‘the Customs Act’), as made applicable for recovering central excise arrears due from the third respondent. The auction was scheduled on 10.8.2005. Assailing the same, IDBI filed instant writ petition seeking invalidation of the auction notice.

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This Court as interim measure, on 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

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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.

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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 claim or to bring to the notice of the department about the amounts due and the proceedings before the DRT, they did not do so. The Department is not aware of the dues of IDBI and the auction was conducted in accordance with the Central Excise Act.

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The counter affidavit of the first respondent is silent on material facts. The Central Government Standing Counsel however narrated the following factual back ground leading to the auction of the immovable property to recover excise dues. The third respondent fell in arrears to a tune of Rs.80,00,000/- towards central excise amount; first respondent initiated action for recovery under Section 11 of the Central Excise Act read with notification No.68/63-C.E., dated 04.5.1963 as amended from time to time which empowers the jurisdictional Commissioner to attach and sell the movable and immovable properties of the assessee. By order dated 10.12.2004, property was attached giving one month notice to pay the dues before 09.1.2005. Assessee did not pay. The land vested in the Dept. The Dept., then obtained valuation report and issued auction notice. The counsel would emphasize that the property was attached on 10.12.2004, whereas the DRT passed the decree on 12.4.2005 in favour of IDBI. He

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would, therefore, urge that the Dept., has priority right in recovering the central excise dues.

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WRIT PETITION No.27102 of 2008

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This writ petition is filed by Indian Bank, ARM branch, Coimbatore, challenging the proceedings dated 06.11.2008 of the Superintendent, Customs and Central Excise Department, Puttur Range, Chittoor District (the third respondent), whereby and whereunder the Chief Manager and Authorized Officer of Indian Bank was informed that as per Section 11 of the Central Excise Act, all excisable goods, plant and machinery shall be attached and sold for recovery of the arrears of excise duty amounting to Rs.81,17,054/-.

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The Indian Bank advanced credit facility to M/s.Parkins Textiles Private Limited (fourth respondent in the writ petition). As on 21.6.2000 an amount of Rs.2,13,50,680.93 ps was due. The Bank moved the DRT, Coimbatore for recovery of the said amount by sale of hypothecated movable and mortgaged immovable property. The DRT granted recovery certificate for sale of these properties. The Bank also issued a notice of demand under Section 13(2) of the SARFAESI Act. Later after issuing possession notice under Section 13(4) on 09.08.2007, 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.

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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

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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.

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WRIT PETITION Nos.10515 and 10516 OF 2011

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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 Cellulose Private Limited and M/s.Vaani Carboxy Private Limited. They are 100% Export Oriented Units (EOU) and are engaged in the manufacture of sodium carboxy methyl cellulose. Having obtained Letter of Permission as EOUs from the Commissioner, Visakhapatnam SEZ in 2001, these units can import customs duty free goods and export finished products. They are required to pay the duty if the goods are cleared for sale in domestic market.

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The two EOU units availed credit facilities from Andhra Bank. They defaulted in repayment. Treating the loans as nonperforming assets (NPA) the Bank issued demand notice under Section 13(2) of the SARFAESI Act. This was followed by possession notice under Section 13(4). Thereafter on 19.03.2011, the authorized officer of the Bank issued public notice inviting sealed tenders-cum-auction. The Assistant Commissioner therefore filed writ petitions seeking a direction to the Bank to safe guard the revenue of the Central Government department and the raw materials, finished goods and capital goods of the assessee.

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WRIT PETITION No.5993 of 2012

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The Assistant Commissioner, Chittoor, filed this petition seeking a direction to the authorised officer of SBI, Settipalli branch, Tirupati to safeguard the revenue of the Central Excise department on the finished goods and semi-finished goods of M/s. Pioneer Alloy Castings Limited (Second respondent in the writ petition) and for permission to sell the attached goods in terms of Section 11 of the Central Excise Act. The petitioner’s case is as follows. The second respondent failed to pay the arrears of Central Excise duty to a tune of Rs.22,45,722/- and therefore, as per the directions of the Assistant Commissioner, the Superintendent of Central Excise, attached the finished and semifinished excisable goods valued at Rs.35,37,375/-. SBI initiated action under SARFAESI Act by issuing a demand notice under Section 13(2) and possession notice under Section 13(4) of the SARFAESI Act. The Assistant Commissioner addressed a letter dated 14.11.2011 to the Authorized Officer of SBI informing about excise arrears and that the department is already in possession of the excisable goods since 09.6.2011. The Bank issued a reply through their lawyer advising to raise the attachment and hand over the goods to the Bank claiming exclusive right to take possession of the goods.

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SBI has not filed counter affidavit, but the Standing Counsel obtained instructions and made submissions opposing the writ petition, which are referred to at appropriate place.

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Submissions

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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

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Commissioner, Tirupati, seeking directions referred to supra. 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 [2] following decisions. Builders Supply Corpn. v Union of Indi a , [3] Delta Paper Mills Ltd v Collector of Central Excise, Guntur , Sitani Textiles & Fabrics (P) Ltd v Asst. Commissioner of Cus. & C.E., [4] [5] Hyderaba d , S.K. Pattanaik v State of Oriss a , Allahabad Bank v Canara Ban k^[6] , Dena Bank v Bhikhabhai Prabhudas Parekh & Co .^[7] , Somaiya Organics (India) Ltd v State of Uttar Prades h^[8] Rajasthan [9] State Financial Corporation v Official Liquidator , ICICI Bank Ltd. v [10] SIDCO Leathers Ltd . , Central Bank of India v Siriguppa Sugars & Chemicals Lt d^[11] , UTI Bank Ltd v Deputy Commissioner of Central Excise, Chenna i^[12] , Union of India v SICOM Ltd .^[13] , Central Bank of India (2) v State of Keral a^[14] , AI Champdany Industries v Official [15] Liquidator and Maharashtra State Co-operative Bank Ltd v [16] Provident Fund Commissioner .

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Principle of priority of Government debts

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In their pleadings the Dept., has not specifically claimed priority or precedence of government debt over the DRT certified amount and/or the amount sought to be recovered under the SARFAESI Act. Submissions are made with considerable vehemence that the Central Excise department has such priority in recovering the dues under the Central Excise Act and the Customs Act. We may advert to this point a little later in juxtaposition with the provisions in the DRT Act and the SARFAESI Act. In this part of the order, the scope of the

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principle, as also its limitations need to be visited quickly to know its effect on the law made by the Parliament relating to recovery of excise/custom dues and the law relating to recovery of loans by Banks and Financial Institutions.

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The principle is based on public policy. In Builders Supply Corpn., the Constitution Bench of the Supreme Court was concerned with the question of Government’s priority and precedence over the Court decreed amount. On reviewing the essential common law features of the principle, the unanimous Constitution Bench held that by reason of Article 372 (1) of the Constitution of India, doctrine of government’s priority to recover its debts need to be sustained. The apex Court also visualized the difficult problems which may arise in commercial fields of a welfare State which cannot be regarded as essential integral part of basic Governmental functions of the state.

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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.

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1. There is a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts.

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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.

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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.

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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 debtors arising out of such commercial activities the applicability of the doctrine of priority shall be open for consideration.

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(emphasis supplied)

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In Dena Bank, it was also held that, “Where the right of the subject is complete and perfect before that of the King commences, the rule does not apply, for there is no point of time at which the two rights

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are at conflict, nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already”.

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I n AI Champdany Industries, the principle of priority of government debt was reiterated. In SICOM, it was clarified that “a debt which is secured or which by reason of the provisions of a statue becomes the first charge over the property having regard to the plain meaning of Article 372 of the Constitution of India must be held to prevail over the crown debt which is an unsecured one”. It was further observed that the common law principle which was existing on the date of coming into force of the Constitution of India must yield to a statutory provision and “to achieve the same, the Parliament as well as the State Legislatures may insert provisions in various statues providing that statutory dues shall be the first charge over the properties of the tax payer”. It is thus well settled that though the common law principle of priority of government debt is applicable, in the event of the rights of a subject and sovereign are at conflict, it must yield to statutory provisions. Secondly, the principle of priority right has no effect over the secured debt contracted by the parties in relation to commercial activities. Lastly – we may add, if different statutes apparently and ostensibly have any conflict and those statutes happened to be from the same legislative source, they need to be harmoniously construed to avoid conflict. In these cases undisputedly, the Central Excise Act, Customs Act, DRT Act and the SARFAESI Act, all contain provisions for recovery of the debt owed by a borrower or the assessee as the case may be. All the public authorities including authorized officers of the Public Sector Banks/ Financial Institutions need to act within the scope of the relevant statute. None of them acting under one enactment, can act in such a manner that other statutory recovery mechanisms,

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are made totally ineffective.

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Applying these principles and giving effect to 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.

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Recovery mechanisms under Revenue Laws

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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 Article 265 would mean the physical realisation of the tax whichis levied or imposed”. It was also held that the collection of tax is normally a stage subsequent to the levy of the same. The enforcement of the levy would only mean realization of the tax imposed or demanded. Therefore, any revenue authority cannot take action for recovery of tax or duty of arrears dehors the provisions of the enabling Act.

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I n Delta Paper Mills, a Division Bench of this Court considered the question as to whether the Central Excise Act as it

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stood at the relevant time empowers the levy of interest on delayed payment of excise duty. The question was answered in favour of the assessee holding that though the expression ‘levy’ includes the levy as well as assessment, it does not extend to ‘collection’. It was also held that Article 265 contemplates two stages; one is levy of tax and the other is collection of tax; and that the quantification of the liability follows the collection of tax which should be only by an authority of law and not by an executive.

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We referred to the distinction between ‘levy’ and ‘collection’ and the constitutional necessity for ‘authority’ of law for both stages having regard to the submission made by the counsel for the department of Central Excise. It is submitted that in addition to method of recovery of excise duty under Section 11 of the Central Excise Act, by reason of Notification No.68/63 issued by GoI under Section 12 of the Central Excise Act making Section 142(1)(c)(ii) of the Customs Act, applicable to Central Excise Act, the Dept., can even attach and sell the immovable property of the assessee for recovery of the central excise dues. On this there is a strong disagreement by the Banks. To appreciate the issue, we may refer to Section 11 and 12 of the Central Excise Act as well as Section 142(1)(c )(ii) of the Customs Act to the extent relevant.

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Central Excise Act

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SECTION 11. Recovery of sums due to Government. —

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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 made thereunder including the amount required to be paid to the credit of the Central Government under Section 11D, the officer empowered by the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963)] to levy such duty or 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

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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.

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(emphasis supplied)

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(Proviso not extracted as not relevant)

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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 relating to offences and appeals shall, with such modifications and alterations as it may consider necessary or desirable to adapt them to the circumstances, be applicable in regard to like matters in respect of the duties imposed by section 3 and Section 3A.

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(emphasis supplied)

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Customs Act

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142. Recovery of sums due to Government.—(1) Where any sum payable by any person under this Act including the amount required to be paid to the credit of the Central Government under Section 28-B is not paid,—

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(c) if the amount cannot be recovered from such person in the manner provided in clause (a) or clause (b)— (ii) the proper officer may, on an authorisation by a Commissioner of Customs and in accordance with the rules made in this behalf, distrain any movable or immovable property belonging to or under the control of such person, and detain the same until the amount payable is paid; and in case, any part of the said amount payable or of the cost of the distress or keeping of the property, remains unpaid for a period of thirty days next after any such distress, may cause the said property to be sold and with the proceeds of such sale, may satisfy the amount payable and the costs including cost of sale remaining unpaid and shall render the surplus, if any, to such person:

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(emphasis supplied)

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(Clauses (a), (b) and (c)(i) of sub-section (1) are omitted as not relevant.)

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Indisputably Section 11 of the Central Excise Act provides for three methods of recovery of excise dues which are i) by deducting the amount payable by the department to the assessee; ii) by attachment/sale of assessee’s excisable goods; and iii) by certifying the amount due to the department to the District Collector for recovery as arrears of land revenue. Under Section 142(1) of the Customs Act, in addition to these three methods, law also provides additional method under Section 142(1)(c)(ii) namely by distraining movable or immovable property belonging to the person liable to pay the customs duty and by selling the said property so as to satisfying the amount payable to the department. The method of recovery of customs arrears by attachment and sale of immovable property or movable property of the assessee under Section 142(1)(c)(ii) of the Customs Act is conspicuously absent under the Central Excise Act. As held by the Supreme 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.

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As noticed earlier, the Dept., relies on the notification No.68/63 dated 04.5.1963 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.

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Notification under Section 12

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(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 the 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 therein, shall be applicable in regard to like

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matters in respect of the duties imposed by Section 3 of the first mentioned Act, subject to the following modifications and alterations which the Central Government considers necessary and desirable to adapt those provisions to the circumstances, namely :-

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(the modification i.e., (1) to (6) below notification are not extracted as not necessary)

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(Notification No.68/63-C.E., dated 04.5.1963 as amended by Notifications No.9/65-C.E., dated 06.2.1965; No.46/68-C.E., dated 23.3.1968; No.13/88-C.E. (N.T.), dated 29.4.1988; No.26/95-C.E. (N.T.), dated 06.6.1995; No.48/97-C.E. (N.T.), dated 02.9.1997 and No.33/97-C.E. (N.T.), dated 11.5.1999)

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There cannot be any doubt that Section 12 of the Act empowers the Central Government to make applicable the provisions of Customs Act relating to i) levy of and exemption from Customs duty; ii) draw back of duty; iii) warehousing; iv) offences and penalties; v) confiscation; vi) procedure relating to offences and appeals. These are dealt with in Chapters V, X, IX XVI, XIV and XV of the Customs Act, respectively. Chapter XVII of the Customs Act deals with miscellaneous aspects including Section 142 i.e., recovery of sums due to Government.

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The notification issued by the GoI making Section 142(1)(b) & (c)(ii) of the Customs Act applicable to Central Excise Act is sought to be assailed by the Banks as ultra vires. IDBI filed an additional affidavit to raise such a ground, admittedly not taken earlier. As there is no specific challenge to notification No.68/63, at this point of time, it is not proper to permit to raise such a ground. Nevertheless, as rightly contended by IDBI, a taxing statute is to be strictly construed. Introducing or omitting any words from a tax law provision in a statute is not permissible. When the language of the statute is plain and clear, any exercise to know the intention of the legislature is not called for nor the taxing officer travel beyond the power to levy and collect tax (State of West Bengal v Kesoram Industries Lt d^[17] ) . Thus when Section

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12 of the Central Excise Act enables GoI to make applicable the provisions of the Customs Act relating to various aspects of levy and collection of Customs duty as enumerated supra and when Section 12 is silent as to the procedure of recovery of sum due to government under the Customs Act, we doubt the vires of notification No.68/63 in so far as it makes applicable recovery procedure under Sec.142 (1)(b) (c) (ii) of the Customs Act to Central Excise Act.

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The Senior Central Government Counsel relied on the decision of Bombay High Court in Krishnakant Sakharam Ghag v Union of Indi a^[18] which distinguished the decision of the Supreme Court in New Central Jute Mills Company Limited v Assistant Commissioner of Central Excis e^[19] . 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 Section 12 of the Central Excise Act enables the empowered officer to recover the excise dues also by attachment and sale of movable or immovable property belonging to the person liable to pay excise dues.

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Recovery of Bank Loans

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(a) Recovery of debts due to Banks under DRT Act.

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A ‘banking company’, means any company which transacts business of banking in India [(Section 2(c) Banking (Regulation) Act, 1949] and ‘banking’ is defined as to mean the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise. Section 6 of the said Act enumerates the forms of business in which Banking companies may engage. Section 6(1)(a) is so elaborate that receiving deposits, giving loans and recovery of loans form part of banking business.

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The Banks, especially Public Sector Banks, expressed difficulties in recovering the loans and in enforcement of securities’ charge. The common law procedure for recovery of the loans and procedure for executing the decree obtained in a suit became cumbersome and huge funds of the Banks were involved in Court litigations. Parliament stepped in and to remedy the malady, enacted DRT Act providing for establishment of DRTs/DRATs to decide the claims of the Banks for recovery of the loans advanced by them (Union of India v Delhi High Court Bar Associatio n^[20] ) . This Act while barring the jurisdiction of Civil Courts to entertain cases involving a sum more than Rs.10,00,000/- provided some what speedy remedy to the Banks to get a certificate of recovery and for execution of it by a Recovery Officer attached to DRT following the procedure contemplated in Schedule II of the Income Tax Act, 1961.

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The Chapter IV of DRT Act (Sections 19 to 24) contain the procedure for making applications for adjudication by the DRT, grant of recovery certificate and the procedure to be followed by the Recovery Officer for recovering the amount certified by DRT. The decree or order passed by DRT is given finality under Section

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30 of the DRT Act. Besides, under Section 34 of the Act, the provisions of the Act are given over riding effect, and DRT Act shall have effect notwithstanding any thing contained in any other law in force. We have no manner of doubt that any order passed by the DRT does not yield to any other order, unless it is specifically provided by any other statute.

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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.

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In Rajasthan State Financial Corporation, the principle in Allahabad Bank was reiterated observing that DRT would be entitled to order the sale of properties of the company in liquidation after informing official liquidator. In view of these precedents and also the over riding effect of the DRT Act, we hold that the Officer empowered under Section 11 of the Central Exercise Act or the proper officer authorized by the Commissioner of Customs under

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Section 142 (1)(c )(ii) of the Customs Act cannot proceed against the movable and/or immovable property of an assessee claiming priority and precedence over the bank/secured creditor, because a debt which is secured by reason of the provisions of the statute becomes the first charge over the property, which is sought to be distrained or sold by the Central Excise/Customs officials.

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At this stage, it is appropriate to refer to a three Bench decision of the Supreme Court in Central Bank of India (2), which considered the validity of Section 38C of the Bombay Sales Tax Act, 1959 and Section 26B of the Kerala General Sales Tax Act, 1963. These provisions and other similar provisions in other State enactments created first charge on the property of a dealer, who is liable to pay sales tax. The question was whether these provisions create priority or inconsistent with the provisions of the DRT Act. Reference was made to large number of precedents including some of the decisions referred to herein supra and the unanimous Division Bench of apex court held as follows.

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In none of the aforementioned judgments this Court held that by virtue of the provisions contained in the DRT Act or the Securitisation Act, first charge has been created in favour of banks, financial institutions, etc. Not only this, the Court was neither called upon nor it decided competing priorities of statutory first charge created under Central legislation(s) on the one hand and State legislation(s) on the other nor it ruled that statutory first charge created under a State legislation is subservient to the dues of banks, financial institutions, etc. even though statutory first charge has not been created in their favour. … … … The ratio of the judgment in Allahabad Bank v Canara Bank, (2000) 4 SCC 406, is that jurisdiction of adjudicatory mechanism established under the DRT Act is exclusive and no other court or authority created under any other law can interfere with the proceedings initiated by banks and financial institutions for recovery of their dues.

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Central Bank of India (2) also considered Section 11 of the

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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

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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 to attract non obstante clauses contained in Section 34(1) of the DRT Act or Section 35 of the Securitisation Act.

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Thus unless and until a special enactment creates first charge in the matter of recovery of money due to the creditor (including the government) it is not safe to decide about the prior or first charge. When the Central Excise Act or Customs Act, do not specifically and explicitly create first charge in the matter of recovery of excise and customs duty dues, we are afraid the department of Central Excise cannot succeed in their plea.

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(b) Recovery of Bank debts under the SARFAESI Act

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DRT Act came into force on 24.06.1993. Even after working of the said Act and a decade thereafter, the Parliament enacted the SARFAESI Act. After providing for special machinery for speedy recovery of the dues of the Bank under the DRT Act, money Banks and Financial Institutions faced liquidity crunch due to increasing number of non performing assets and prolonged procedures for enforcing security interest in respect of the charge created to secure the loans. Expert Committees suggested a legal frame work enabling the Banks and Financial Institutions to enforce the securities by following a special procedure without intervention of the Court or any Tribunal.

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These Committees’ recommendations culminated in the Parliament making SARFAESI Act. When a Financial Asset (Bank loan) becomes NPA, the Bank is empowered to issue a notice of demand, take possession and sell the property (secured asset) on which security interest is created. In Mardia Chemicals v Union of Indi a^[21] , a three Judge Bench upheld the SARFAESI Act except to the extent of 17(2), which was declared ultra vires the Article 14 of the Constitution of India. As of now, by reason of an amendment inserting sub-section (3A) of Section 13 giving an opportunity to the borrower (secured creditor) to file objections to the notice of demand issued under Section 13(2) of the SARFAESI Act and providing for remedies under Section 17(1) and 18(1) to approach DRT and thereafter DRAT, the SARFAESI Act confers absolute, and exclusive powers on the Banks/Financial Institutions to recover the loans advanced by them. Section 35 of the Act gives over-riding effect to the provisions of the SARFAESI Act not withstanding anything contained therein or any other law for the time being in force or any instrument having effect by virtue of any such law.

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Section 11 of the Central Excise Act or Section 142 (1)(c)(ii) of the Customs Act has no over riding 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

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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.

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As held by the Supreme Court in Transcore v Union of Indi a^[22] , the non-adjudicatory process for enforcement of security interest by the banks or financial institutions is without fetters and even in a situation of competing creditors’ rights being a secured creditor statutorily recognised, the recovery procedure under SARFAESI Act takes priority and precedence. In Transcore, while referring SARFAESI Act as NPA Act, it was observed as follows.

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We have already analysed the scheme of both the Acts. Basically, the NPA Act is enacted to enforce the interest in the financial assets which belongs to the bank/FI by virtue of the contract between the parties or by operation of common law principles or by law. The very object of Section 13 of the NPA Act is recovery by non-adjudicatory process. A secured asset under the NPA Act is an asset in which interest is created by the borrower in favour of the bank/FI and on that basis alone the NPA Act seeks to enforce the security interest by nonadjudicatory process. Essentially, the NPA Act deals with the rights of the secured creditor. The NPA Act proceeds on the basis that the debtor has failed not only to repay the debt, but he has also failed to maintain the level of margin and to maintain value of the security at a level is the other obligation of the debtor. It is this other obligation which invites applicability of the NPA Act. It is for this reason, that Sections 13(1) and 13(2) of the NPA Act proceed on the basis that security interest in the bank/FI needs to be enforced expeditiously without the intervention of the court/tribunal; that liability of the borrower has accrued and on account of default in repayment, the account of the borrower in the books of the bank has become non-performing. For the above reasons, the NPA Act states that the enforcement could take place by nonadjudicatory process and that the said Act removes all fetters under the above circumstances on the rights of the secured creditor.

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Conflict of Laws

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In the event of conflict between general law and special law, it is trite, the special law would prevail (Union of India v India Fisheries Pvt. Lt d^[23] ) . There could be a conflict between two special statues and a general statute and a similar enactment. A general statute in one situation may be a special statute in another situation and vice versa. There may be a situation where both the general statute and a special 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 [24] Indi a ) .

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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, [25] the latter is special one (Bank of India Vs. Ketan Parek h ) . 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 withdrawing the recovery proceeds from DRT.

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The Counsel for the Central Excise Department invites the attention of this Court to the provisions of Section 62 and 68 of the Customs Act and the Customs (Attachment of Property of Defaults

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for Recovery of Government Dues) Rules 1995, in support of their submission that from the date of attachment by the empowered Officer, the first charge is created in favour of the Dept., for recovery of excise/customs arrears. In view of the ratio in Central Bank of India (2) that unless such a statutory charge is created, it cannot be implied ignorance of the subsequent overriding special enactments, which facilitate special speedy recovery bank loans. The legislature is always presumed to be aware of existing law – both statutory and precedential; before enacting to any new law which might be in direct conflict with the earlier law. When Parliament knowingly made DRT Act or the SARFAESI Act, and gave overriding effect to the provisions therein, we are afraid the Dept., must fail in attempts to claim priority or first charge.

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Impact of new provisions

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By Section 66 of the Finance Act, 2011, a new provision i.e., Section 11E is inserted in the Central Excise Act. For ready

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reference we may quote it.

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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 529-A 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 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.]

¶123

By Section 51 of the Finance Act, 2011 Section 142A was

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inserted in the Customs which reads as under:

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142-A. 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

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or any other sum payable by an assessee or any other person under this Act, shall, save as otherwise provided in Section 529-A 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 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.

¶127

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.

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Unless otherwise specifically provided the Finance Act will come into force from 1^st of April of the financial year commencing of that day (Commissioner of Income Tax, Visakhapatnam v [26] M/s.Vijayawada Bottling Co. Ltd . ) . We have no doubt that though Section 11E of the Central Excise Act and Section 142A of the Customs Act, seemingly are enforceable from 01.04.2011, they would also exempt all the measures taken under DRT Act or the SARFAESI Act, which have not attained finality. As long as the property is not sold by the RO or authorised officer under the SARFAESI Act, and possession not handed over to highest auction bidder, all the transactions are saved by Section 11E of the Central Excise Act and Section 142 A of the Customs Act.

¶129

In W.P.Nos.27102 of 2008, W.P.Nos.10515 and 10516 of 2011 and W.P.No.5993 of 2012, the respective Banks initiated action under the SARFAESI Act. When they were about to

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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.

¶131

In so far as W.P.No.17742 of 2005 is concerned, when the DRT passed the decree and issued recovery certificate, pursuant to which RO issued demand notice, there was no provision creating first charge in favour of the Dept., which was statutorily created only from 01.4.2011. Auction conducted by the Deputy Commissioner (Arrears Recovery Cell), Hyderabad therefore must be held illegal. If any amount is recovered from the auction purchaser, the same shall be returned by the Dept., with interest thereon as per the rules and/or the conditions of auctions.

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In the result, for the above reasons, W.P.Nos.17742 of 2005 and 27102 of 2008 are allowed and W.P.Nos.10515 and 10516 of 2011 and W.P.No.5993 of 2012 are dismissed. We leave the parties to bear their costs. The miscellaneous petitions shall stand disposed of accordingly.

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______________ (V.V.S.RAO, J)

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________________________________ (G.KRISHNA MOHAN REDDY, J)

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April 04, 2012

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NOTE: L.R. Copy be marked. (By order) KVS

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[1] Initially IDBI was established under the IDBI Act, 1964 which stands repealed by Industrial Development Bank (Transfer of Undertaking of

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