1998 (8) TMI 94 - HC - Central Excise

Summary

Issues Involved:
1. Legality of the demand notice and detention order issued by the Central Excise authorities.
2. Applicability of Rule 230 of the Central Excise Rules to statutory transfers.
3. Priority of secured creditors over excise dues.
4. Prevalence of the State Financial Corporations Act, 1951 over the Central Excises and Salt Act, 1944.

Summary:

1. Legality of the demand notice and detention order issued by the Central Excise authorities:
The petitioner challenged the demand notice dated 21-2-1994 and the detention order dated 13-6-1994 issued by the Central Excise authorities, which required the petitioner to pay excise dues originally owed by M/s. Dakshin Fabrics Ltd. The court found that the Central Excise authorities had no power to attach the goods of the petitioner company since the unit had been sold to the petitioner and M/s. Dakshin Fabrics Ltd. ceased to be its owner.

2. Applicability of Rule 230 of the Central Excise Rules to statutory transfers:
The court held that Rule 230 of the Central Excise Rules, which empowers the attachment of excisable goods in possession of a person succeeding the original owner, exceeds the scope of Section 11 of the Central Excise Act. Section 11 contemplates attachment and sale of excisable goods only, whereas Rule 230 empowers the authorities to sell the plant, machinery, and other assets of the company. Therefore, Rule 230 is ultra vires of Section 11 and cannot be relied upon.

3. Priority of secured creditors over excise dues:
The court emphasized that the Industrial Development Corporation, being a secured creditor, has a preferential claim over the excise dues of the Government. The mortgage in favor of the Industrial Development Bank was prior to the date on which the excise dues were determined. The court cited several judgments, including The Bank of Bihar v. State of Bihar and Andhra Bank Ltd. v. State of Andhra Pradesh, to support the principle that secured creditors have priority over unsecured creditors, including the Government's demand for excise dues.

4. Prevalence of the State Financial Corporations Act, 1951 over the Central Excises and Salt Act, 1944:
The court held that the provisions of the State Financial Corporations Act, 1951, which is a special enactment, prevail over the Central Excises and Salt Act, 1944, a general enactment. Section 46B of the State Financial Corporations Act ensures that its provisions have effect notwithstanding anything inconsistent in any other law. The court referred to the Supreme Court judgment in Maharashtra Tubes Ltd. v. State of Industrial & Investment Corporation of Maharashtra, which established that in the case of industrial undertakings, the provisions of the State Financial Corporations Act would ordinarily prevail.

Conclusion:
The court concluded that the demand notice dated 21-2-1994 and the detention order dated 13-6-1994 issued by the Central Excise authorities could not be sustained. The writ petition was allowed, and the 1st respondent was directed to return the security furnished by the petitioner.