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TMI Blog2022 (2) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... short "RIL") for evasion of excise duty and violation of the Central Excise Act, 1944. By an order dated 25.11.1997, Respondent No. 2 confirmed an excise duty demand of Rs. 6,97,62,102/against RIL and imposed a penalty of Rs. 7,98,03,000/under Rule 173Q(1) and confiscated the land, building, plant and machinery of RIL under Rule 173Q(2) of the Central Excise Rules, 1944 (for short "1944 Rules"). Subrule 2 of Rule 173Q of the Central Excise Rules, 1944, came to be omitted by a notification dated 12.05.2000 issued by the Government of India. Subsequently, the order dated 25.11.1997 was set aside by the Customs, Excise & Gold (Control) Appellate Tribunal (CEGAT), now known as the Customs Excise and Service Tax Appellate Tribunal (CESTAT), on the ground of violation of principles of natural justice, and the matter was remanded back for de novo proceedings. 3. In 2005, RIL availed credit facilities under various schemes from the consortium of banks, with the Appellant/Punjab National Bank as the lead bank, and mortgaged/hypothecated all its movable and immovable properties for securing the loan. RIL created a charge on both the assets (raw material, stock in progress, finished goods, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ghaziabad, the possession of the property in question cannot be taken by the Appellant bank. 9. Aggrieved by the orders of confiscation (dated 26.03.2007 and 29.03.2007) and the further communications/letters by the department (dated 27.11.2007 and 15.01.2008), the Appellant bank filed a Writ Petition before the Allahabad High Court, which was dismissed with the observations that: "We find that in the present case, taxes are not sought to be recovered from M/s Rathi Ispat Ltd., respondent No. 4, by way of attachment or otherwise from the movable or immovable assets of the respondent no.4, but the stand of the Central Excise Authorities is that the properties stand confiscated and vests in the Central Government as a result of the order of confiscation" The High Court further held that: "From the meaning of the word confiscate/confiscation", we find that if any property has been confiscated it vests in the state and no person can claim any right, title, or interest over it." While dismissing the Writ Petition of the Appellant bank, the Allahabad High Court, eventually held that: "In view of the matter, the question of first charge or second charge over the properties wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision contained in the said section 38A are attracted "unless a different intention appears". In the present case, the contraintention of the legislature that the legislature did not intent to revive/restore 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 is evident from the following: I. The provisions contained in Rule 173Q(2) i.e. 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. II. Further, Rule 211 of the Central Excise Rules, 1944, inter alia, provided that "anything" confiscated under the Rules shall thereupon vest in Central Government, whereas Rule 28 of the Central Excise Rules of 2001, 2002 and 2017, which are pari materia to the earlier Rule 211 of the 1944 Rules, instead of the word "anything", provided for vesting of confiscated "Goods" in the Central Government. III. Thus, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that even the provisions contained in section 11E of the Central Excise Act, 1944, which has been inserted w.e.f. 08.04.2011, provides for First Charge on the property of the Assessee and is a nonobstante Clause. However, the provisions contained in Section 11E are subject to the provisions contained in the SARFAESI Act, 2002. Thus, the provisions of SARFAESI Act, 2002, even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, has overriding effect on the provisions of the Act of 1944. 17. In addition to the abovementioned submissions, the learned Senior Counsel for the Appellant has argued that it is well settled law laid down by this Court that the Crown debts (Unsecured) have no priority over the Secured dues of the Secured Creditors/ Pawnee/ Bailee. In support of the above submission, reliance has been placed upon the following judgements: i. Bank of Bihar vs State of Bihar [(1972) 3 SCC 196] ii. Dena Bank vs Bhikhabhai Prabhu Dass Parikh & Anr. [(2000) 5 SCC 694] iii. Central Bank of India Vs. Siriguppa Sugurs & Chemicals Ltd. & Ors. [(2007) 8 SCC 353] iv. Union of India vs SICOM Ltd. & Anr. [(2009) 2 SCC 121] v. Rana Girders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 173Q(2) was omitted and the 1944 rules were replaced with the Central Excise Rules 2001 subsequently. 20. The learned Additional Solicitor General submitted that the first issue raised by the Appellant was never raised by the Appellant either before the Tribunal or in the Appeal before this Court and has been raised for the first time in this Appeal. 21. With respect to the second issue raised by the Appellant, it has been argued by the Learned ASG that this question, as framed and answered by the Appellant, is entirely alien to the dispute at hand. The present dispute is not at all one of priority of charges or debts. On the other hand, what was challenged before the High Court was the order of confiscation, and the relevant question for consideration of this Court is whether a confiscation order passed by the Central Excise Authorities in respect of the land, building, plant and machinery of RIL can be defeated by a security interest created by RIL in favour of the Appellant and other banks, almost 8 years after the confiscation proceedings (under Rule 173Q(2) of the Central Excise Rules, 1944) had been initiated by the respondent No. 2 against RIL? 22. Mr. K.M. Nataraj, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Clauses Act, 1897, learned ASG relied upon decisions of this Court in the cases of Gammon India vs Special Chief Secretary [(2006) 3 SCC 354]; Ambalal Sarabhai Enterprises Ltd. Vs Amritlal [(2001) 8 SCC 397]; Brihan Maharashtra Sugar Syndicate Ltd. Vs Janarand Ramachandra Kulkarni (1960 3 SCR 85) and contended that although Rule 173Q(2) was initially omitted from the 1944 Rules and subsequently the 1944 Rules were repealed and were substituted by the 2001 Rules, there was nothing expressly stated in the new Rules which manifested any intention to destroy the liabilities which came into existence on account of the 1944 Rules or which manifested any intention to nullify any investigation that was pending in respect of such accrued liability. Learned ASG thus submitted, that Section 38A(c) and 38A(e) of the Central Excise Act would apply with full force to save the proceedings which had already been initiated under Rule 173Q(2) of the 1944 Rules, as Section 38A(c) of the Act saves the rights and liabilities which were not only acquired but also accrued as on the date of the amendment or repeal of a provision, and Section 38A(e) of the Act saves investigations that had commenced in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as envisaged in Section 13(4)(d) of the SARFAESI Act and then take the further steps mentioned therein. 29. Lastly, Mr. K.M. Nataraj, ASG has submitted that the validity of the confiscation order cannot be called into question merely on account of the Appellant being a secured creditor. The question as to whether the amounts due to the Customs Department would have priority over the debts due to the secured creditor does not arise in this case, since what is challenged is the confiscation order and nothing else. A confiscation order, cannot be quashed merely because a security interest is created in respect of the very same property. 30. For ready reference, the relevant provisions of the concerned Act and Rules are extracted below: ( Central Excise Act, 1944) "Section 11. Recovery of sums due to Government. In respect of duty and any other sums of any kind payable to the Central Government under any of the provisions of this Act or of the rules made thereunder including the amount required to be paid to the credit of the Central Government under Section 11D, the officer empowered by the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or b) affect the previous operation of any rule, notification or order so amended, repealed, superseded or rescinded or anything duly done or suffered thereunder; or c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any rule, notification or order so amended, repealed, superseded or rescinded; or d) affect any penalty, forfeiture or punishment incurred in respect of any offence committed under or in violation of any rule, notification or order so amended, repealed, superseded or rescinded; or e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced and any such penalty, forfeiture or punishment may be imposed as if the rule, notification or order, as the case may be, had not been amended, repealed, superseded or rescinded." (Central Excise Act, 1944) w.e.f. 08.04.2011 "Section 11E. Liability under Act to be first charge. Notwithstanding anything to the contrary contained in any Central Act or State Act, any amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cond or any subsequent occasion), the officer adjudging the case under section 33 of the Act may, in addition to the award of the confiscation and penalty under the sub rule (1), direct, for reasons to be recorded in writing, the confiscation of any or all of the following belonging to such manufacturer, producer or licensee of a warehouse, namely: (i) any land, building, plant, machinery, materials, conveyance, animal or any other thing used in connection with the manufacture, production, storage, removal or disposal of such goods, or (ii) any other excisable goods on such land, or in such building or produced or manufactured with such plant, machinery, materials or thing]" (Central Excise Rules, 1944) "Rule 211. On confiscation, property to vest in Central Government: (1) When anything is confiscated under these rules, such things shall thereupon vest in" Central Government. (2) The officer adjudging confiscation shall take and hold possession of the things confiscated, and every Officer of Police, on the requisition of such officer, shall assist him in taking and holding such possession." Rule 28 of Central Excise Rules, 2001 [Issued in supersession of Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder subrule (1) shall be issued by the Central Excise Officer, following the principles of natural justice." SARFAESI Act, 2002 Section 2(zc) to 2(zf) "(zc) "secured asset" means the property on which security interest is created; (zd) "secured creditor" means- (i) any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (l); (ii) debenture trustee appointed by any bank or financial institution; or (iii) an asset reconstruction company whether acting as such or managing a trust set up by such asset reconstruction company for the securitisation or reconstruction, as the case may be; or (iv) debenture trustee registered with the Board appointed by any company for secured debt securities; or (v) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created by any borrower for due repayment of any financial assistance.] (ze) "secured debt" means a debt which is secured by any security interest; (zf) "security interest" means right, title or interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r including the right to transfer by way of lease, assignment or sale for realising the secured asset; [(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt; (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. (5) Any payment made by any person referred to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding 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. 34. Constitution bench of this Court in Kolhapur Canesugar Works Ltd. Vs Union of India & Ors. [(2000) 2 SCC 536] has held that: "11. In the factual backdrop of the case discussed earlier the question that arises for determination is whether after omission of the old Rule 10 and 10A and its substitution by the new Rule 10 by the Notification No 267/77 dated 6.8.77 the proceedings initiated by the notice dated 27.4.77 could be continued in law. If the question is answered in the affirmative then the order dated 15/27th October, 1977 of the Asstt. Collector of Central Excise confirming the demand for recredit of the amount of Rs. 61,41,930 cannot be interfered with. On the other hand, if the question is answered in the negative then the said order is to be taken as nonest. .. 34. (...) It is not correct to say that in considering the question of maintainability of pending proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of a statute is unconditionally omitted without a saving clause in favour of pending proceedings, all actions must stop where the omission finds them, and if final relief has not been granted before the omission goes into effect, it cannot be granted afterwards. Savings of the nature contained in Section 6 or in special Acts may modify the position. Thus, the operation of repeal or deletion as to the future and the past largely depends on the savings applicable. In a case where a particular provision in a statute is omitted and in its place another provision dealing with the same contingency is introduced without a saving clause in favour of pending proceedings then it can be reasonably inferred that the intention of the legislature is that the pending proceeding shall not continue but a fresh proceeding for the same purpose may be initiated under the new provision." (emphasis supplied) 35. The Gujarat High Court in Kotak Mahindra Bank Ltd. Vs. District Magistrate [2010 SCC online Gujarat 10656] has held that from a perusal of Rule 28, it is clear that the Legislature intended to confiscate only "goods" which is distinct from immovable property like land, building, plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government, whereas Rule 28 of the Central Excise Rules of 2001, 2002 and 2017, which are pari materia to the earlier Rule 211 of the 1944 Rules, instead of the word "anything", provided for vesting of confiscated "Goods" in the Central Government. 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 (supra) 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. 37. Secondly, coming to the issue of prio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zation Act, 2002, in light of the judgment of the Division Bench of this court in the case of Union of India vs Sicom Ltd. & Anr., reported in 2009 (1) SCALE 10, we find that under the provisions of the said 2002 Act, the appellants did not have any statutory first charge over the property secured by the respondent bank. In the circumstances, the Civil Appeal is dismissed with no order as to costs" (emphasis supplied) Hence the reasoning given by the High Court stands strong and has been affirmed by this Court. 39. This Court, in Dena Bank vs Bhikhabhai Prabhu Dass Parikh & Anr. [(2000) 5 SCC 694], 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, observed as under: "10. However, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Customs Act and Central Excise Act, do not have priority of claim over the dues of a secured creditor as there is no specific provision either in the Central Excise Act or the Customs Act giving those dues first charge, and that the claims of the secured creditors will prevail over the claims of the State. Considering the law declared by the Apex Court in the matter of priority of state debts as already discussed and the provision of Section 35 of SARFAESI Act we are in respectful agreement with the view taken by the Madras High Court." (emphasis supplied) 42. An SLP (No. 12462/2008) against the above judgement of the Bombay High Court stands dismissed by this Court on 17.07.2009 by relying upon the judgement in the matter of Union of India vs SICOM Ltd. & Anr. Reported in [(2009) 2 SCC 121], wherein the question involved was "Whether realization of the duty under the Central Excise Act will have priority over the secured debts in terms of the State Financial Corporation Act, 1951" and this Court held as under: "9. Generally, the rights of the crown to recover the debt would prevail over the right of a subject. Crown debt means the debts due to the State or the king; debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the confiscation order cannot be called into question merely on account of the Appellant being a secured creditor is misplaced and irrelevant to the issue at hand. The contention that a confiscation order cannot be quashed merely because a security interest is created in respect of the very same property is not worthy of acceptance. However, what is required to be appreciated is that, in the present case, the confiscation order is not being quashed merely because a security interest is created in respect of the very same property. On the contrary, the confiscation orders, in the present case, deserve to be quashed because the confiscation orders themselves lack any statutory backing, as they were rooted in a provision that stood omitted on the day of the passing of the orders. Hence, it is this inherent defect in the confiscation orders that paves way for its quashing and not merely the fact that a security interest is created in respect of the very same property that the confiscation orders dealt with. 46. Further, the contention that in the present case, the confiscation proceedings were initiated almost 89 years prior to the charge being created in respect of the very same ..... X X X X Extracts X X X X X X X X Extracts X X X X
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