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2022 (2) TMI 1171 - SC - Central ExciseConfiscation of land, buildings etc. - invocation of powers under Rule 173(Q)(2) of Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the rule 173Q(2) was not on the Statue Book having been omitted w.e.f. 17.05.2000 - in absence of provisions providing for First Charge in relation to Central Excise dues in the Central Excise Act, 1944 or not, whether the dues of the Excise department would have priority over the dues of the Secured Creditors or not? - HELD THAT - The Commissioner Customs and Central Excise, Ghaziabad vide order dt. 26.03.2007, ordered the confiscation of all the land, building, plant, machinery etc. of RIL. This confiscation order was passed under rule 173Q(2) of the Central Excise Rules, 1944. However, in the impugned order, the High Court has not considered that on the date of the confiscation orders i.e. 26.03.2007 and 29.03.2007, Rule 173Q(2) stood omitted from the statute books vide government notification dated 12.05.2000 - there are no merit in the submission of the learned Counsel for the Respondent that notwithstanding the omission of Section 173Q(2) from the 1944 Rules vide notification dated 12.05.2000, the Respondent No. 3 was entitled to continue the proceedings on account of Section 38A(c) and Section 38A(e) of the Central Excise Act, 1944, read along with Section 6 of the General Clauses Act, 1897. In the case at hand, the proceedings initiated under the erstwhile Rule 173Q(2) would come to an end on the repeal of the said Rule 173Q(2) of the Central Excise Rules, 1944. Respondent Counsel s submission that the proceedings would be saved on account of Section 38A(c) and 38A(e) of the Central Excise Act, 1944 and Section 6 of the General Clauses Act, 1897, is misplaced and lacks statutory backing. Firstly, as has been held by a Constitution Bench of this Court in Kolhapur Canesugar Works Ltd. Vs Union of India Ors. (2000) 2 SCC 536 , Section 6 of the General Clauses Act, 1897 is applicable where any Central Act or Regulation made after commencement of the General Clauses Act repeals any enactment. It is not applicable in the case of omission of a Rule . Hence, the question of applicability of Section 6 is decided in the negative. Secondly, on the issue of applicability of Section 38A(c) and 38A(e) of the Central Excise Act, 1944, it is held that the Respondent would not be able to enjoy its protection because Section 38A(c) and 38A(e) are attracted only when unless a different intention appears . In the present case, the legislature has clarified its intent to not restore/revive the power of confiscation of any land, building, plant machinery etc., after omission of the provisions contained in Rule 173Q(2) w.e.f 12.05.2000. This intention of the legislature can be drawn out from the fact that power to confiscate any land, building, plant, machinery etc. after omission w.e.f. 12.05.2000 has not been introduced in the subsequent Central Excise Rules, 2001, Central Excise Rules, 2002 and Central Excise Rules, 2017. Lastly, after omission of Rule 173Q(2) of 1944 Rules w.e.f. 12.05.2000 and after supersession of Rule 211 of 1944 Rules in the year 2001, the newly enacted Rule 28 of the Rules of 2001, Rule 28 of the Rules of 2002 and Rule 28 of the Rules of 2017, did not provide for confiscation of any land, building, plant, machinery etc. and their consequent vesting in the Central Government, as Rule 28 only provided for vesting in the Central Government of the Goods confiscated by the Central Excise Authorities under the Excise Act, 1944. This derivation of the legislature s intent, in conjunction with the ratio laid in the case of KOTAK MAHINDRA BANK LTD. VERSUS DISTRICT MAGISTRATE 2010 (9) TMI 758 - GUJARAT HIGH COURT makes it apparent that the confiscation proceedings were not saved by these mentioned provisions and that the final confiscation order dated 26.03.2007 and 29.03.2007 were passed without jurisdiction by the Commissioner of Central Excise and Customs. Priority of secured creditor s debt over that of the Excise Department - HELD THAT - The High Court in the impugned judgment has held that In view of the matter, the question of first charge or second charge over the properties would not arise. In this context, we are of the opinion that the High Court has misinterpreted the issue to state that the question of first charge or second charge over the properties, would not arise. This Court in DENA BANK VERSUS BHIKHABHAI PRABHUDAS PAREKH AND CO. AND OTHERS 2000 (4) TMI 36 - SUPREME COURT , wherein the question raised was whether the recovery of sales tax dues (amounting to Crown debt) shall have precedence over the right of the bank to proceed against the property of the borrowers mortgaged in favour of the bank, where it was held that the Crowns preferential right of recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right of recovery of its debts over a mortgagee or pledgee of goods or a Secured Creditor. Thus, the provisions contained in the SARFAESI Act, 2002, even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, will have an overriding effect on the provisions of the Act of 1944. The Commissioner of Customs and Central Excise could not have invoked the powers under Rule 173Q(2) of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation of land, buildings etc., when on such date, the said Rule 173Q(2) was not in the Statute books, having been omitted by a notification dated 12.05.2000. Secondly, the dues of the secured creditor, i.e. the Appellantbank, will have priority over the dues of the Central Excise Department, as even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, and the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944. The confiscation orders passed by the Commissioner Customs and Central Excise, Ghaziabad, are quashed - Appeal allowed.
Issues Involved:
1. Whether the Commissioner of Customs and Central Excise could invoke Rule 173Q(2) of the Central Excise Rules, 1944, for confiscation of land, buildings, etc., on 26.03.2007 and 29.03.2007, when the rule was omitted from the statute book on 12.05.2000. 2. Whether the dues of the Excise Department have priority over the dues of secured creditors in the absence of any provision providing for First Charge in the Central Excise Act, 1944. Issue-wise Detailed Analysis: Issue No. 1: Invocation of Rule 173Q(2) Post-Omission 1. Contention of the Appellant: The appellant argued that the Commissioner could not have passed the confiscation orders on 26.03.2007 and 29.03.2007 under Rule 173Q(2) as it was omitted from the statute book on 12.05.2000. They relied on the judgment in Kolhapur Canesugar Works Ltd. Vs Union of India & Ors., which held that Section 6 of the General Clauses Act, 1897, is not applicable to the Central Excise Rules. They also argued that Section 38A of the Central Excise Act, 1944, and Section 6 of the General Clauses Act, 1897, do not support the orders of the Commissioner. 2. Contention of the Respondent: The respondent contended that the proceedings initiated under Rule 173Q(2) in 1996 were saved by Section 38A(c) and 38A(e) of the Central Excise Act, 1944, allowing the continuation of proceedings even after the rule's omission. They also argued that the confiscation orders were valid as they were part of ongoing proceedings initiated before the rule's omission. 3. Court's Analysis: - The Supreme Court held that the confiscation orders dated 26.03.2007 and 29.03.2007 were passed without jurisdiction as Rule 173Q(2) was omitted from the statute book on 12.05.2000. - The Court referred to the Kolhapur Canesugar Works Ltd. case, which clarified that Section 6 of the General Clauses Act, 1897, is not applicable to the omission of rules. - The Court found that the legislative intent was clear in not reviving the power of confiscation of land, building, plant, machinery, etc., after the omission of Rule 173Q(2). - The Court concluded that the confiscation orders were null and void as they were based on a non-existent provision. Issue No. 2: Priority of Secured Creditors' Dues 1. Contention of the Appellant: The appellant argued that in the absence of a provision for First Charge in the Central Excise Act, 1944, the secured creditors' dues have priority over the Excise Department's dues. They cited several judgments, including Dena Bank vs Bhikhabhai Prabhu Dass Parikh & Anr., which held that Crown debts do not have priority over secured creditors' dues. 2. Contention of the Respondent: The respondent argued that the issue was not about the priority of charges but about the validity of the confiscation order. They contended that the confiscation proceedings were initiated before the security interest was created and that the secured creditors should have been aware of the ongoing proceedings. 3. Court's Analysis: - The Supreme Court held that the dues of secured creditors have priority over the Excise Department's dues, even after the insertion of Section 11E in the Central Excise Act, 1944, as the provisions of the SARFAESI Act, 2002, have an overriding effect. - The Court referred to the Full Bench decision of the Madras High Court in UTI Bank Ltd. Vs. Dy. Commissioner Central Excise, which held that in the absence of a specific provision for First Charge in the Central Excise Act, the secured creditors' claims prevail. - The Court also cited Union of India vs SICOM Ltd., which established that secured debts have priority over Crown debts. Conclusion: The Supreme Court quashed the confiscation orders dated 26.03.2007 and 29.03.2007, holding that they were passed without jurisdiction as Rule 173Q(2) was omitted from the statute book. The Court also held that the dues of the secured creditor, i.e., the appellant bank, have priority over the dues of the Central Excise Department, as the provisions of the SARFAESI Act, 2002, have an overriding effect.
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