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2005 (6) TMI 40 - HC - Customs

Issues Involved:
1. Whether the Petitioner and its nominees are liable as successors of the person who was liable to pay the customs dues in respect of properties brought to sale by the Petitioner Corporation under Section 29 of the Act.
2. Whether the State Financial Corporations Act, 1951 (the Act) is a special enactment prevailing over the Customs Act, 1962 in terms of Section 46B of the Act.

Detailed Analysis:

Issue 1: Liability as Successors for Customs Dues
Facts and Arguments:
- The Petitioner, Karnataka State Industrial Investment & Development Corporation Limited (KSIIDC), took over assets of defaulting entities under Section 29 of the Act.
- These entities had availed customs duty exemptions for imported machinery under the condition of being 100% Export Oriented Units (EOUs).
- The Customs Department claimed dues from KSIIDC for the defaulting entities' failure to meet export obligations.
- KSIIDC argued that as a secured creditor, it had precedence over the Customs Department for the recovery of dues from the sale proceeds of the hypothecated assets.

Legal Precedents and Provisions:
- KSIIDC cited Bank of Bihar v. State of Bihar (AIR 1971 SC 1210) emphasizing the pawnee's rights over the goods pledged, even against government claims.
- KSIIDC referred to Sections 29(4) and 46B of the Act, asserting that the Act, being a special enactment, should take precedence over general laws like the Customs Act.
- The Customs Department countered with the amended Section 142 of the Customs Act, which allows recovery of dues from successors of defaulters.

Judgment:
- The Court acknowledged that under general law, a secured creditor has priority over unsecured creditors, including government dues, as established in Dena Bank v. Bhikhabhai Prabhudas Parekh (AIR 2000 SC 3654).
- However, for specific imported goods exempted from customs duty under certain conditions, the Customs Department retains the right to recover dues if those conditions are breached.
- The Court concluded that KSIIDC, as a successor, is liable for customs dues on such imported goods but retains priority over other assets not subjected to customs exemptions.

Issue 2: Precedence of the Act over the Customs Act
Arguments:
- KSIIDC argued that the Act should prevail over the Customs Act due to its special nature and the non-obstante clause in Section 46B.
- The Customs Department maintained that both the Act and the Customs Act are special enactments, and their provisions should be harmonized unless a direct conflict arises.

Judgment:
- The Court held that both the Act and the Customs Act are special enactments with specific objectives and schemes.
- In the absence of a direct conflict in their enforcement, the question of one prevailing over the other does not arise.
- Therefore, the proposition that the Act prevails over the Customs Act was not accepted.

Conclusion:
The petitions were partly allowed. KSIIDC is liable for customs dues on imported goods exempted under specific conditions but retains priority over other assets as a secured creditor. The Act does not prevail over the Customs Act in the absence of a direct conflict. Parties were directed to bear their own costs.

 

 

 

 

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