Dues of Secured Creditor under SARFAESI Act has priority over Central Excise Dues, rules Supreme Court [Read Order]

The Supreme Court two-member bench comprising Justices L. Nageswara Rao and Vineet Saran observed that the SARFAESI Act will have an overriding effect on the provisions of the Central Excise Act and therefore, the dues of the secured creditor will have priority over the dues of the Central Excise Department.

The Commissioner Customs and Central Excise 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. Simultaneously, the Punjab National Bank, as the secured creditor, had issued notice to RIL under section 13(2) of the SARFAESI Act, 2002. The Allahabad High Court dismissed the writ petition filed by the bank.

In appeal, the Apex Court bench noted that prior to insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, there was no provision in the Act of 1944 inter alia, providing for First Charge on the property of the Assessee or any person under the Act of 1944. Even the provisions contained in Section 11E of the Central Excise Act, 1944 are subject to the provisions contained in the SARFAESI Act, 2002, the court noted.

“Thus, as has been authoritatively established by the aforementioned cases in general, and Union of India vs SICOM Ltd. (supra) in particular, 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 bench said.

While disposing of the appeal, the Apex Court observed that “To conclude, 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 Appellant bank, 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”

PUNJAB NATIONAL BANK vs UNION OF INDIA & ORS

CITATION: 2022 TAXSCAN (SC) 112

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