2006 (7) TMI 214 - HC - Central Excise

Summary

Issues Involved:
1. Priority of dues between the petitioner (SICOM Ltd.) and the Customs Department.
2. Legality of the Customs Department's action to seize the petitioner's securities.
3. Applicability of Rule 230 of the Central Excise Rules, 1944.
4. Interpretation of relevant case law on secured creditors versus government dues.

Detailed Analysis:

1. Priority of Dues Between the Petitioner and the Customs Department:
The primary issue was whether the dues of the petitioner-Corporation (SICOM Ltd.) would have priority over the central excise dues. The petitioner argued that their charge on the assets, created by a mortgage in 1986, predated the Customs Department's claim. The court cited several precedents, including *Bank of Bihar v. State of Bihar* and *Dena Bank v. Bhikhabhai Prabhudas Parekh & Co.*, which established that secured creditors have priority over government dues. The court concluded that the petitioner's secured creditor status, established before the Customs Department's claim, gave them precedence.

2. Legality of the Customs Department's Action to Seize the Petitioner's Securities:
The petitioners contended that the Customs Department's action to attach and seize the properties was arbitrary and illegal, violating their right to carry on business. The court agreed, noting that the petitioner's securities were mortgaged well before the Customs Department's claim arose. The court found the Customs Department's seizure to be unjustified and ordered the removal of the seal on the properties.

3. Applicability of Rule 230 of the Central Excise Rules, 1944:
The Customs Department relied on Rule 230 of the Central Excise Rules, 1944, to justify their action. However, the court found this rule inapplicable to the case, as it only provides the power to detain goods or property transferred from one person to another. The court noted that the rule did not apply to the petitioner's situation, where the mortgage was established long before the Customs Department's claim.

4. Interpretation of Relevant Case Law on Secured Creditors Versus Government Dues:
The court reviewed various judgments, including *Builders Supply Corporation v. Union of India*, *Bank of Bihar v. State of Bihar*, *Dena Bank v. Bhikhabhai Prabhudas Parekh & Co.*, and *Macson Marbles Pvt. Ltd. v. Union of India*. These cases collectively reinforced the principle that secured creditors have a priority claim over government dues. The court emphasized that the Crown's preferential right to recover debts is confined to ordinary or unsecured creditors and does not extend to secured creditors like the petitioner.

Conclusion:
The court concluded that the petitioner's rights as a secured creditor, established through a mortgage, had precedence over the Customs Department's claims. The impugned seizure by the Customs Department was quashed, and the court ruled in favor of the petitioner, ordering the removal of the seal on the properties. The court made the rule absolute in terms of prayer clause (a) with no order as to costs.