2008 (12) TMI 53 - SC - Central Excise

Recovery of sums due to Government - Section 11 of the Central Excise Act, 1944 - Whether realization of the duty under the Central Excise Act will have priority over the secured debts held that secured debts have priority over the excise dues - there is no merit in the appeals by revenue

Summary

Issues Involved:
1. Priority of duty realization under the Central Excise Act versus secured debts under the State Financial Corporation Act, 1951.
2. Applicability of the common law principle of Crown debt priority.
3. Interpretation of statutory provisions regarding the priority of debts.

Issue-Wise Detailed Analysis:

1. Priority of duty realization under the Central Excise Act versus secured debts under the State Financial Corporation Act, 1951:
The core question was whether the realization of duty under the Central Excise Act would have priority over secured debts under the State Financial Corporation Act, 1951. Respondent No. 2 borrowed Rs. 51,00,000 from the first respondent and owed Rs. 19,00,000 in Central Excise duty. The first respondent took possession of the mortgaged assets due to default. Despite the appellant's intention to recover the amount from the properties, the first respondent claimed the first charge over the properties. The High Court ruled that the dues of the appellant, recoverable as land revenue, would not override the first charge of the respondent corporation.

2. Applicability of the common law principle of Crown debt priority:
The appellant argued that Crown debt, particularly tax arrears, should have priority over all other debts, referencing the case of Macson Marbles Pvt. Ltd. v. Union of India. The respondent countered that the Crown debt principle applies only to unsecured debts, and secured debts prevail over Crown debts. The Court noted that common law principles saved by Article 372 of the Constitution must yield to statutory provisions. The Court referenced several judgments, including M/s. Builders Supply Corporation v. Union of India and Bank of Bihar v. State of Bihar, which established that secured debts have precedence over Crown debts.

3. Interpretation of statutory provisions regarding the priority of debts:
The Court reviewed various statutory provisions and case laws, including Dena Bank v. Bhikhabhai Prabhudas Pdrekh & Co. and Bank of India v. Siriguppa Sugars & Chemicals Ltd., which reiterated that secured creditors have priority over unsecured creditors, including the Crown. The Court emphasized that statutory provisions creating a first charge over properties of the debtor prevail over common law principles. Section 11 of the Central Excise Act and Rule 230(2) of the Central Excise Rules were interpreted to mean that the right to recover excise dues starts with the sale of excisable goods, and only if unsatisfied, proceeds as land revenue recovery.

The Court concluded that the statutory right of the State Financial Corporation, supported by the non obstante clause in Section 46B of the 1951 Act, prevails over the Central Excise dues. The appeals were dismissed, and the judgment favored the respondent corporation, affirming the priority of secured debts over Crown debts. The appellant was ordered to pay costs quantified at Rs. 50,000.