2011 (12) TMI 203 - HC - Central Excise

Petition for setting aside the mutation entry recording charge of the Central Excise Department in the revenue records - petitioner purchased through public auction held by Dena Bank seeking to recover its due through the provisions of the SARFAESI Act 2005 Held that - The issue is no longer debatable. In the case of UOI vs Sicom Limited (2008 - TMI - 32301 - Supreme Court) it is held that the debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property must be held to prevail over the Crown debt which is an unsecured one. It is not a case of transfer of business or trade but transfer of property under compulsory sale of the property through auction by the financial institution in exercise of powers under the SARFAESI Act therefore Proviso to section 11 would not attract. Hence charge of the Central Excise Department cannot survive and must be ordered to be deleted.

Summary

Issues involved:
Challenge to mutation entry in revenue records due to Central Excise Department's charge on purchased land; Priority of Central Excise Department's dues over secured creditor's dues under SARFAESI Act.

Analysis:
The petitioner sought to quash a mutation entry in revenue records related to a land purchase through a public auction by a bank to recover its dues under the SARFAESI Act. The land was initially owned by a textile company, and the petitioner acquired it through auction. However, the Central Excise Department had recorded a charge on the land for dues owed by the previous owner. The petitioner argued that as a secured creditor, the Excise Department's dues should not take priority over the bank's dues. The petitioner relied on various court decisions to support this stance.

The Revenue authorities contended that the Excise Department could recover its dues from the land even after a transfer of ownership, citing a provision in the Central Excise Act. However, the court referenced a Supreme Court case involving a similar issue and held that secured debts should take precedence over unsecured Crown debts like those of the Excise Department.

The court referred to previous Division Bench decisions that supported the priority of secured creditor's debts over unsecured Crown debts. It clarified that in this case, where the land was sold through a bank auction under the SARFAESI Act, the Excise Department's charge could not be sustained. The court emphasized that the Excise Department could still pursue its dues from the defaulter or other properties as permitted by law, but the charge on the purchased land was to be deleted from the records.

In conclusion, the court allowed the petition, directing the Revenue Authorities to remove the Central Excise Department's charge entry from the records. The judgment highlighted that the Excise Department's recovery rights were not affected, but in this specific case, the charge on the auctioned land was not valid.