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Issues Involved:
1. Priority of claims between the Karnataka State Industrial Investment & Development Corporation Limited (KSIIDC) and the Customs Department. 2. Applicability of the State Financial Corporations Act, 1951 (the Act) over the Customs Act, 1962. Detailed Analysis: Issue 1: Priority of Claims The primary contention revolves around whether KSIIDC, as a secured creditor, has precedence over the Customs Department in recovering dues from the sale of assets taken over under Section 29 of the Act. Petitioner's Argument: - KSIIDC, being a secured creditor, claims priority over the Customs Department for the recovery of dues from defaulting borrowers. - The Petitioner argued that the dues owed to them are public dues or crown debts, as KSIIDC is a wholly-owned undertaking of the State of Karnataka. - Citing the judgment in *Bank of Bihar v. State of Bihar* (AIR 1971 SC 1210), the Petitioner emphasized that the pawnee has a special property and lien over the goods, which cannot be overridden by other creditors, including the Government. - The Petitioner also referenced sections 172 and 173 of the Contract Act, and various judgments to support their claim that secured creditors have precedence over government dues. Respondent's Argument: - The Customs Department argued that the imported goods, which were exempt from customs duty on the condition of fulfilling export obligations, become liable for customs duty upon failure to meet these obligations. - The Department cited the amendment to Section 142 of the Customs Act, which allows the recovery of dues from assets owned by the predecessor, even if transferred to a successor. - The Department further referenced the Supreme Court's decision in *Macson Marbles (P.) Ltd. v. Union of India* (2003 (158) ELT 424), which held that the sale under Section 29 of the Act is deemed to be a sale by the owner, thus making the successor liable for customs dues. Court's Analysis: - The Court acknowledged that under general law, secured creditors have precedence over unsecured creditors, including government dues, as established in the *Bank of Bihar* case. - However, the Court noted that the specific capital goods imported under customs duty exemption, subject to export obligations, become liable for customs duty upon failure to meet these obligations. - Applying the principle laid down in *Macson Marbles*, the Court concluded that KSIIDC, as the successor, is liable for customs dues on the imported goods. Conclusion on Issue 1: The Court held that the Customs Department could claim priority for recovery of dues only in respect of the imported goods that were exempted from customs duty, and not in respect of other goods over which KSIIDC claims as a secured creditor. Issue 2: Applicability of the Act Over the Customs Act The second issue concerns whether the provisions of the State Financial Corporations Act, 1951, prevail over the Customs Act, 1962, in terms of Section 46-B of the Act. Petitioner's Argument: - The Petitioner argued that the Act is a special enactment and should prevail over the Customs Act, 1962, as per Section 46-B of the Act. Respondent's Argument: - The Customs Department contended that both the Act and the Customs Act are special enactments, and unless there is a conflict in their enforcement, the question of one prevailing over the other does not arise. Court's Analysis: - The Court observed that both the Act and the Customs Act are special enactments with their specific objectives and schemes. - In the absence of a conflict in their enforcement, the Court found no basis to consider one Act prevailing over the other. Conclusion on Issue 2: The Court concluded that the proposition that the Act prevails over the Customs Act is not acceptable, as both are special enactments, and the question of precedence does not arise without a conflict. Final Judgment: The petitions were partly allowed, with the Court holding that the Customs Department has priority in recovering customs dues only in respect of the specific imported goods, while KSIIDC retains precedence as a secured creditor for other assets. Each party was ordered to bear its own costs.
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