REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.2196 OF 2012

PUNJAB NATIONAL BANK        …..APPELLANT

VERSUS

UNION OF INDIA & ORS.    …RESPONDENTS

J U D G M E N T

Vineet Saran, J.

1. The present Civil Appeal arises out of the judgment

and order dated 05.08.2008 passed by the Allahabad

High   Court,   wherein   the   writ   petition   filed   by   the

Appellant was dismissed in limine.

2. The brief facts of the case, relevant for the purpose of

the   present   appeal,   are   that   the   Commissioner,

Customs and Central Excise, Ghaziabad (Respondent

No. 2) issued a show cause notice dated 31.12.1996 to

M/s Rathi Ispat Ltd./Respondent No. 4 (for short “RIL”)

1

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

2

immovable   properties   for   securing   the   loan.     RIL

created a charge on both the assets (raw material,

stock in progress, finished goods, receivables etc.) and

block (land, building, plant, machinery and other fixed

assets) of the company in favour of the Appellant bank.

4. Subsequently, the Commissioner Customs and Central

Excise,   Ghaziabad   vide   order   dt.   26.03.2007,

confirmed   the   demand   of   excise   duty   of

Rs.7,98,02,226/­ and a penalty of Rs.7,98,03,000/­ on

RIL.   The   Commissioner   also   ordered,   under   rule

173Q(2) of the 1944 Rules, for the confiscation of all

the   land,   building,   plant,   machinery   and   materials

used in connection with manufacture and storage.

5. The Central Excise Commissioner, vide another order

dated   29.03.2007,   confirmed   a   demand   of   central

excise   duty   amounting   to   Rs.2,67,00,348   and

Rs.74,24,332   from   RIL.   The   Commissioner   also

imposed a penalty of Rs.3,41,24,680/­ and further,

under   rule   173Q(2)   of   the   1944   Rules,   ordered

confiscation   of   land,   building,   plant,   machinery,

material, conveyance  etc.  of  RIL  that  were  used  in

3

connection with manufacture, production, storage or

disposal of goods. 

6. However, in light of the fact that RIL had defaulted in

clearing the loan amount and had failed to liquidate

outstanding dues, the Appellant bank, on 02.08.2007,

issued   notice   to   RIL   under   section   13(2)   of   the

SARFAESI Act, 2002, further, notice was issued to RIL

under section 13(4) of SARFAESI Act, 2002.

7. In light of the section 13(4) notice, the Office of the

Assistant Commissioner, Customs and Central Excise

Division   informed   the   bank,   vide   a   letter   dated

27.11.2007, that the property was already confiscated

by virtue of Rule 173Q(2) of 1944 Rules and that an

appeal is pending against the orders and the matter is

sub­judice. Appellant bank replied to the above letter

on 22.12.2007, whereby it informed the department

that the properties in question had been mortgaged

with the bank and RIL was required to satisfy the

debts. In furtherance of this, the Appellant bank took

symbolic possession of the properties on 28.12.2007.

Subsequently, the Appellant bank was informed by the

4

Assistant Commissioner, Customs and Central Excise,

vide a letter dated 15.01.2008, that the properties of

RIL  should   not  be  dealt   with  without   their  written

consent. 

8. In essence, it has been the contention of the Customs

& Excise Department that in view of the fact that that

all the movable and immovable properties of RIL stand

confiscated by the orders passed by the Commissioner,

Customs & Central Excise, 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

5

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

would   not   arise.   The   debt   does   not   get

extinguished   but   it   cannot   be   recovered

from the confiscated property that being the

position, we do not find any merit in the

Writ Petition. So far as the challenge to the

order of confiscation is concerned, we may

mention   that   the   petitioner   has   no   locus

standi to challenge the order of confiscation

as   the   Respondent   no.   4   has   already

preferred an appeal against it. However, if

in appeal preferred by Respondent no. 4,

the order of confiscation is set aside then

the bank can proceed against the properties

in question in accordance with law”

10.Aggrieved by the abovementioned High Court Order,

this appeal has been filed by way of Special Leave

Petition. 

6

11.Mr.   Dhruv   Mehta,   learned   Senior   Counsel   for   the

Appellant Bank has raised before us the following two

issues which arise for our consideration:

Issue No.1: Whether the Ld. Commissioner Custom

and Central Excise could have invoked the 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?

Issue   No.2:  Whether   in   the   absence   of   any

provisions providing for First Charge in relation to

Central Excise dues in the Central Excise Act, 1944,

the   dues   of   the   Excise   department   would   have

priority over the dues of the Secured Creditors or

not?

12.With respect to the first issue, it has been argued by

the learned Counsel for the Appellant bank that the

Commissioner could not have passed the orders dated

26.03.2007 and 29.03.2007 by invoking the powers

under Rule 173Q(2), which was not in existence in the

Statute Books as on the said date, having been omitted

by a notification dated 12.05.2000. 

13. It   has   been   contended   that   reliance   upon   the

provisions   contained   in   Section   38A   of   the   Central

7

Excise Act, 1944 and Section 6 of the General Clauses

Act, 1897 to support the orders of the Commissioner is

liable to be rejected for the reason that a Constitution

Bench   of   this   Court,   in   the   matter   of  Kolhapur

Canesugar Works Ltd. Vs Union of India & Ors.

[(2000)   2   SCC   536]  has   held   that   the   provisions

contained in section 6 of  the General  Clauses Act,

1897 are not applicable to the Central Excise Rules. It

has further been contended that no reliance can be

placed on section 38A for the reason that the provision

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,

8

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

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 the “Goods” confiscated by the

Central Excise Authorities under the Excise

Act, 1944. 

In support of the abovementioned submissions, Mr.

Dhruv Mehta relies upon a judgment of the Gujarat

High Court, in the matter of Kotak Mahindra Bank

Ltd.   Vs.   District   Magistrate   [2010   SCC   online

Gujarat 10656]. 

9

14.With respect to the first issue, the Senior Counsel for

the Appellant concluded his submission by stating that

the   Commissioner   had   no   power,   authority   or

jurisdiction to invoke the provisions contained in Rule

173Q(2)   of   the   Central   Excise   Rules,   which   stood

omitted from the Statue book w.e.f. 12.05.2000, much

prior to the passing of the orders dated 26.03.2007

and 29.03.2007.

15.The second issue raised by the learned Senior Counsel

for the Appellant is  “Whether in the absence of any

provisions   providing   for   First   Charge   in   relation   to

Central Excise dues in the Central Excise Act, 1944, the

dues of the Excise department would have priority over

the dues of the Secured Creditors or not?” It has been

contended 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. Therefore, in the event

like the present case, where the land, building, plant

10

machinery, etc. had been mortgaged/hypothecated in

favour of the secured creditor, having regard to the

provisions   contained   in   section   2(zc)   to   (zf)   of

SARFAESI Act, 2002, read with provisions contained in

Section 13 of the SARFAESI Act, 2002, the secured

creditor will have a First Charge on the Secured Assets.

16.The learned Senior Counsel has further submitted that

section   35   of   the   SARFAESI   Act,   2002   inter   alia,

provides   that   the   provisions   of   the   said   Act,

notwithstanding   anything   inconsistent   therewith

contained in any other law for the time being in force

or any instrument having effect by virtue of any such

law, the provisions of the SARFAESI Act, 2002 shall

have overriding effect on all other laws. It was further

contended   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 non­

obstante Clause. However, the provisions contained in

Section 11E are subject to the provisions contained in

the   SARFAESI   Act,   2002.   Thus,   the   provisions   of

11

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   Ltd.   Vs   Union   of   India   &   Ors.

[(2012) 10 SCC 746]

12

vi.Sitani   Textiles   and   Fabrics   (Pvt.)   Ltd.   Vs.

Assistant Collector of Customs & Central Excise

[1998 SCC Online Andhra Pradesh 416]

vii.UTI   Bank   Ltd.   Vs.   Dy.   Commissioner   Central

Excise   [2006   SCC   Online   Madras   1182   (Full

Bench)] 

viii.Krishna Lifestyle Technologies Ltd. Vs. Union of

India & Ors. [2008 SCC Online Bombay 137]

18.Mr. Mehta has, thus, submitted that in view of the

above submissions and decided cases, the Appellant

bank, being a secured creditor under the provisions of

SARFAESI Act, 2002, had First Charge on the secured

Assets and is entitled to recover its secured dues, prior

to the dues of the Excise Department. It has also been

submitted that the intention of the Legislature, apart

from the provisions contained in Section 11E in the

Central Excise Act, 1944 [inserted w.e.f. 08.04.2011],

is also evident from the subsequent provisions inserted

in RDBA Act, 1993, by way of Section 31B [notified

w.e.f. 01.09.2016] and insertion of Section 26E in the

SARFAESI Act [w.e.f. 24.01.2020], that the Legislature

13

has   always   intended  that   the  Banks   and  Financial

Institutions will have priority to recover its secured

dues   from   the   Secured   Assets   prior   to

payment/recovery   of   the   dues   of   Revenue/Taxes,

Government dues.

19.Per   contra,   Mr.   K.M.   Nataraj,   learned   Additional

Solicitor   General   appearing   for   the   respondent   has

contended   that   the   appeal   raises   the   following   two

questions of law:

(A)Issue   No.   1:   Whether   a   confiscation   order

passed by Respondent No. 2 in respect of the

land,   building,   plant   and   machinery   of   the

Respondent No. 4 (RIL) can be defeated by a

security   interest   created   by   the   said

Respondent   No.   4   (RIL)   in   favour   of   the

Appellants  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?

(B)Issue No. 2: Whether the Proceedings initiated

by the Respondent no.2, Commissioner Custom

&   Central   Excise   under   rule   173Q(2)   of   the

Central   Excise   Rules,   1944,   prior   to   the

omission of the said Rule from the Statute Book

are not saved on account of Section 38A(c) and

38A(e)   of   the   Central   Excise   Act,   1944   and

consequently, Whether the Commissioner was

14

not justified in passing orders of confiscation

dated 26.03.2007 and 29.03.2007, although on

such date, the said Rule 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

15

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,   ASG,   has   contended   that   the

proceedings under Rule 173Q(2) of  the 1944 Rules

commenced by show cause notice dated 31.12.1996.

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 proceedings

on account of Section 38A(c) and Section 38A(e) of the

Central Excise Act, 1944. The respondent No. 2 was

therefore entitled to pass orders dated 26.03.2007 and

29.03.2007   in   exercise   of   his   powers   under   the

repealed Rule 173Q(2) of the 1944 Rules, even though

as on the date of the said orders, the 1944 Rules had

been replaced. In support of the same he submitted

that   it   is   not   in   dispute   that   the   confiscation

proceedings   against   RIL   were   initiated   in   1996   i.e.

much before the repeal of the 1944 Rules and although

the order initially passed in those proceedings was set

16

aside by the CEGAT on account of the violation of the

principles   of   natural   justice,   it   is   evident   from   the

remand order itself that the proceedings (post remand)

were a continuation of what had been initiated vide

show cause notice dated 31.12.1996. To buttress this

submission,   reliance   has   been   placed   upon   the

decision   rendered   in   the   case   of  Nagarjuna

Construction   Company   Ltd.   Vs.   Government   of

Andhra Pradesh (2008) 16 SCC 276,   wherein it is

held that when an order is stuck down as invalid,

being in violation of principles of natural justice, all

that is done is vacation of the order assailed by virtue

of   its   inherent   defect,   but   the   proceedings   are   not

terminated.   While   doing   so,   this   court   relied   upon

Canara Bank vs Debasis Das (2003) 4 SCC 557 ).

23.It was thus urged, that once it is established that the

confiscation   proceedings   under   Rule   173Q   started

much prior to the omission of the said Rule from the

Statute,   the   question   for   consideration   would   be

whether   the   proceedings   against   RIL   could   be

17

continued under a provision which no longer existed

on the Statute. Mr. K.M. Nataraj, ASG has submitted

in this context that section 38A of the Central Excise

Act, 1944, provides, inter alia, that even when a Rule is

repealed, amended or superseded, unless a different

intention appears, such repeal would not affect any

right   or   liability   acquired   or   accrued   or   affect   any

investigation, legal proceeding or remedy in respect of

any such right or liability.

24.In context of the application of section 6 of the General

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,

18

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 into such

rights and liabilities.

25.Mr. Natraj, learned ASG has further submitted that the

second issue  raised by the Appellant (regarding the

priority of the dues of the secured creditor over that of

crown debts or government debts) does not arise at all

in the facts of the present case, since the confiscation

order by the Respondent No. 2 is not merely an order

19

for recovery of dues but instead is in the nature of a

penal order to punish the wrongdoer i.e. RIL. This, is

evident from the fact that even under the 1944 Rules,

confiscation is provided for under Rule 173Q whereas

mere recovery of dues is provided for under section 11

of the Central Excise Act, 1944. 

26.It is contended by Mr. K.M. Nataraj, ASG, that in the

present   case,   the   confiscation   proceedings   were

initiated   almost   9   years   prior   to   the   charge   being

created in respect of the very same properties. At the

time of creation of security interest, it was for the

Appellant bank to be aware of the existence of the

confiscation proceedings. It is further submitted that a

charge   or   security   interest   created   on   a   property

cannot   defeat   or   affect   confiscation   proceedings

initiated by a statutory body in any manner. 

27.Mr.   Natraj,   learned   ASG   also   contended   that   the

decisions   relied   upon   by   the   Appellant   are

distinguishable on facts, since those cases deal with

the question of priority of a secured creditor over the

Crown’s debts and does not even touch on the issue of

20

confiscation proceedings with respect to the interest of

a secured creditor.

28.It has been submitted that a similar question did arise

in  the  case  of  Bank  of  Bihar  vs State of Bihar

[(1972)   3   SCC   196],   where   a   question   was   as   to

whether   a   valid   seizure   can   defeat   the   right   of   a

secured   creditor.   In   that   case,   this   Court   did   not

interfere with the seizure but only held that after the

goods had been seized by the government, the secured

creditors may still retain his right to satisfy his debt.

This principle finds reflection in Section 13(4)(d) of the

SARFAESI Act. It has, thus, been submitted that, at

best,   the   Appellant   may   resort   to   the   mechanism

prescribed under section 13(4)(d) of the SARFAESI Act

to recover the amounts due to it, if and when the

properties   are   sold   by   the   respondent   authorities.

Therefore,   assuming   the   existence   of   any   right   of

recovery from Respondents, the Appellant may, at best,

be entitled to issue a notice as envisaged in Section

13(4)(d) of the SARFAESI Act and then take the further

steps mentioned therein.

21

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, 1963 (54 of 1963) to

levy such duty or require the payment of

such sums [may deduct or require any other

Central   Excise   officer   or   a   proper   officer

22

referred to in section 142 of the customs

act, 1962 (52 of 1962) to deduct the amount

so payable from any money owing to the

person   from   whom   such   sums   may   be

recoverable or due which may be in his

hands or under his disposal or control or

may be in the hands or under disposal or

control of such other officer, or may recover

the   amount]   by   attachment   and   sale   of

excisable goods belonging to such person;

and   if   the   amount   payable   is   not   so

recovered,   he   may   prepare   a   certificate

signed by him specifying the amount due

from the person liable  to pay the same and

send it to the Collector of the district in

which such person resides or conducts his

business and the said Collector, on receipt

of such certificate, shall proceed to recover

from the said person the amount specified

therein   as   if   it   were   an   arrear   of   land

revenue.

Provided that where the person (hereinafter

referred to as predecessor) from whom the

duty or any other sums of any kind, as

specified in this section, is recoverable or

due, transfers or otherwise disposes of his

business or trade in whole or in part, or

effects   any   change   in   the   ownership

thereof,   in   consequence   of   which   he   is

succeeded in such business or trade by any

other person, all excisable goods, materials,

preparations, plants, machineries, vessels,

utensils,   implements   and   articles   in   the

custody   or   possession   of   the   person   so

succeeding may also be attached and sold

by such officer empowered by the Central

Board   of   Excise   and   Customs,   after

obtaining   written   approval   from   the

Principal Commissioner of Central Excise or

23

Commissioner   of   Central   Excise,   for   the

purposes of recovering such duty or other

sums   recoverable   or   due   from   such

predecessor at the time of such transfer or

otherwise disposal or change.”

“Section   38A.  Effect   of   amendments,

etc., of rules, notifications or orders. ­

Where any rule, notification or order made

or issued under this Act or any notification

or   order   issued   under   such   rule,   is

amended,   repealed,   superseded   or

rescinded, then, unless a different intention

appears,   such   amendment,   repeal,

supersession or rescinding shall not ­

a) revive anything not in force or existing at

the time at which the amendment, repeal,

supersession or rescinding takes effect; 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,

24

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 of duty, penalty, interest, or

any other sum payable by an assessee or

any other person under this Act or the rules

made thereunder shall, save as otherwise

provided in section 529A of the Companies

Act, 1956, (1 of 1956) the Recovery of Debts

Due to Banks and the Financial Institutions

Act,   1993   (51   of   1993)   and   the

Securitisation   and   Reconstruction   of

Financial   Assets   and   the   Enforcement   of

Security Interest Act, 2002, (54 of 2002) be

the   first   charge   on   the   property   of   the

assessee or the person, as the case may

be.”

Rule   173   Q   of   Central   Excise   Rules.

1944 Prior to 12.5.2000

“Rule 173 Q. Confiscation and Penalty­

(1)   If   any   manufacturer,   producer   or

licensee of a warehouse­

(a)Removes   any   excisable   goods   in

contravention of any of the provisions of

these rules; or

(b)Does   not   account   for   any   excisable

goods manufactured, produced or stored by

him; or

(c)Engages   in   the   manufacture,

production   or   storage   of   any   excisable

25

goods without having applied for the license

required under section 6 of the Act; or

(d)Contravenes any of the provisions of

these rules with intent to evade payment of

duty,

Then   all   such   goods   shall   be   liable   to

confiscation and the manufacturer producer

or licensee of the warehouse, as the case

may   be   shall   be   liable   to   a   penalty   not

exceeding   three   times   the   value   of   the

excisable   goods   in   respect   of   which   any

contravention of the nature referred to in

clause   (a)   or   clause   (b)   or   clause   (c)   or

clause   (d)   has   been   committed   or   five

thousand rupees, whichever is greater. 

(2) Where­

(a) In case of a contravention of the nature

referred   to  in   clause   (a)  or  clause   (b)   or

clause (c) or clause (d) of sub rule (1), the

duty   leviable   on   the   excisable   goods

referred to in that sub rule exceeds one lakh

rupees, or

(b) Any manufacturer, producer or licensee

of   a   warehouse,   whose   excisable   goods

were  confiscated  under   sub   rule   (1)  and

upon   whom   penalty   was   imposed   under

that sub rule, contravenes against any of

the provisions of clause (a) or clause (b) or

clause (c) or clause (d) of sub rule (1) and

the duty leviable on the excisable goods in

respect of the contravention for the second

or   any   subsequent   occasion   exceeds   ten

thousand rupees.

Then, in a case falling under clause (a) of

this   sub   rule   or   in   a   case   falling   under

clause   (b)   thereof   (whether   the

contravention under that clause has been

26

committed for the second 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   Central

Excise Rules, 1944]

“Rule 28. Confiscated property to vest

in Central Government: ­ 

27

When   any   goods   are   confiscated   under

these   rules,   such   things   shall   thereupon

vest in the Central Government.

The   Central   Excise   Officer   adjudging

confiscation shall take and hold possession

of the things confiscated, and every officer

of police, on the requisition of such Central

Excise Officer, shall assist him in taking

and holding such possession.”

Rule 28 of Central Excise Rules, 2002

[Issued   in   supersession   of   Central

Excise Rules, 2001]

“Rule 28. Confiscated property to vest

in Central Government: ­ 

When   any   goods   are   confiscated   under

these   rules,   such   things   shall   thereupon

vest in the Central Government.

The   Central   Excise   Officer   adjudging

confiscation shall take and hold possession

of the things confiscated, and every officer

of police, on the requisition of such Central

Excise Officer, shall assist him in taking

and holding such possession.”

Rule 28 of Central Excise Rules, 2017

[Issued   in   supersession   of   Central

Excise Rules,2002]

“RULE 28. Confiscation and penalty. —

(1) Subject to the provisions of section 11

AC   of   the   Act,   if   any   producer,

manufacturer,   registered   person   of   a

warehouse, or an importer who issues an

invoice   on   which   CENVAT   credit   can   be

taken, or a registered dealer,

(a)   removes   any   excisable   goods   in

contravention of any of the provisions of

these rules or the notifications issued under

these rules; or

28

(b) does not account for any excisable goods

produced or manufactured or stored by him;

or

(c) engages in the manufacture, production

or storage of any excisable goods without

having applied for the registration certificate

required under section 6 of the Act; or

(d)   contravenes   any   of   the   provisions   of

these rules or the notifications issued under

these rules with intent to evade payment of

duty,

then,   all   such   goods   shall   be   liable   to

confiscation   and   the   producer   or

manufacturer   or   registered   person   of   the

warehouse, or an importer who issues an

invoice   on   which   CENVAT   credit   can   be

taken, or a registered dealer, as the case

may be, shall be liable to a penalty not

exceeding the duty on the excisable goods

in respect of which any contravention of the

nature referred to in clause (a) or clause (b)

or   clause   (c)   or   clause   (d)   has   been

committed,   or   five   thousand   rupees,

whichever is greater.

(2)   An   order   under   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

29

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 of any kind, other than those

specified   in   section   31,   upon   property

created in favour of any secured creditor

and includes—

(i)   any   mortgage,   charge,   hypothecation,

assignment or any right, title or interest of

any kind, on tangible asset, retained by the

secured   creditor   as   an   owner   of   the

property, given on hire or financial lease or

conditional sale or under any other contract

which   secures   the   obligation   to  pay   any

unpaid portion of the purchase price of the

asset   or   an   obligation   incurred   or   credit

provided to enable the borrower to acquire

the tangible asset; or

30

(ii)   such   right,   title   or   interest   in   any

intangible asset or assignment or licence of

such   intangible   asset   which   secures   the

obligation to pay any unpaid portion of the

purchase price of the intangible asset or the

obligation incurred or any credit provided to

enable   the   borrower   to   acquire   the

intangible   asset   or   licence   of   intangible

asset.”

Section 13 

“  13. Enforcement of security interest    .—

(1) Notwithstanding anything contained in

section 69 or section 69A of the Transfer of

Property Act, 1882 (4 of 1882), any security

interest created in favour of any secured

creditor   may   be   enforced,   without   the

intervention of the court or tribunal, by such

creditor in accordance with the provisions of

this Act.

(2) Where any borrower, who is under a

liability   to   a   secured   creditor   under   a

security agreement, makes any default in

repayment   of   secured   debt   or   any

instalment   thereof,   and   his   account   in

respect of such debt is classified by the

secured creditor as non­performing asset,

then, the secured creditor may require the

borrower by notice in writing to discharge in

full   his   liabilities   to   the   secured   creditor

within sixty days from the date of notice

failing which the secured creditor shall be

entitled to exercise all or any of the rights

under sub­section (4).

(3) The notice referred to in sub­section (2)

shall give details of the amount payable by

the   borrower   and   the   secured   assets

intended   to   be   enforced   by   the   secured

31

creditor   in   the   event   of   non­payment   of

secured debts by the borrower.

 (4) In case the borrower fails to discharge

his   liability   in   full   within   the   period

specified   in   sub­section   (2),   the   secured

creditor may take recourse to one or more of

the   following   measures   to   recover   his

secured debt, namely:—

(a) take possession of the secured

assets   of   the   borrower   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

32

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 clause (d) of sub­section (4) to

the secured creditor shall give such person

a   valid   discharge   as   if   he   has   made

payment to the borrower.

(6)   Any   transfer   of   secured   asset   after

taking possession thereof or take over of

management under sub­section (4), by the

secured   creditor   or   by   the   manager   on

behalf of the secured creditor shall vest in

the transferee all rights in, or in relation to,

the   secured   asset   transferred   as   if   the

transfer had been made by the owner of

such secured asset.

(7)   Where   any   action   has   been   taken

against a borrower under the provisions of

sub­section   (4),   all   costs,   charges   and

expenses   which,   in   the   opinion   of   the

secured   creditor,   have   been   properly

incurred by him or any expenses incidental

thereto,   shall   be   recoverable   from   the

borrower and the money which is received

by the secured creditor shall, in the absence

of any contract to the contrary, be held by

him   in   trust,   to   be   applied,   firstly,   in

payment   of   such   costs,   charges   and

expenses and secondly, in discharge of the

dues of the secured creditor and the residue

of the money so received shall be paid to

the person entitled thereto in accordance

with his rights and interests.

8 ……………………..

9 ……………………..

10 ……………………

11 ……………………

12 ……………………

33

13 ……………………

SARFAESI Act, 2002

Section 35 

“  35.   The   provisions   of   this   Act   to

override   other   laws    .—The   provisions   of

this Act shall have effect, notwithstanding

anything inconsistent therewith contained

in any other law for the time being in force

or any instrument having effect by virtue of

any such law.”             (emphasis

supplied)

31.We have heard learned counsel for both the parties at

length and have carefully perused the record.

32.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. 

34

33.We do not find 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.

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.

.

.

35

.

34.   (...)   It   is   not   correct   to   say   that   in

considering the question of maintainability

of   pending   proceedings   initiated   under   a

particular provision of the rule after the said

provision was omitted the Court is not to

look for a provision in the newly added rule

for continuing the pending proceedings. It is

also   not   correct   to   say   that   the   test   is

whether there is any provision in the rules

to the effect that pending proceedings will

lapse on omission of the rule under which

the notice was issued. It is our considered

view that in such a case the Court is to look

to the provisions in the rule which has been

introduced after omission of the previous

rule   to   determine   whether   a   pending

proceeding will continue or lapse. If there is

a   provision   therein   that   pending

proceedings shall continue and be disposed

of under the old rule as if the rule has not

been   deleted   or   omitted   then   such   a

proceeding   will   continue.   If   the   case   is

covered by Section 6 of the General Clauses

Act or there is a pari­materia provision in

the statute under which the rule has been

framed   in   that   case   also   the   pending

proceeding will not be affected by omission

of  the   rule.   In   the   absence   of  any   such

provision in the statute or in the rule the

pending   proceedings   would   lapse   on   the

rule under which the notice was issued or

proceeding   was   initiated   being

deleted/omitted. It is relevant to note here

that   in   the   present   case   the   question   of

divesting the Revenue of a vested right does

not arise since no order directing refund of

the amount had been passed on the date

when Rule 10 was omitted.

36

35. We, therefore, hold that the decisions of

the Full Bench of the Gujarat High court

and the Division Bench of the Karnataka

High Court noted above were not correctly

decided. The said decisions are overruled.

36. In the case in hand, Rule 10 or Rule 10­

A   is   neither   a   "Central   Act"   nor   a

"Regulation" as defined in the Act. It may be

a   Rule   under   Section   3(51)   of   the   Act.

Section 6 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".

37.   The   position   is   well   known   that   at

common law, the normal effect of repealing

a   statute   or   deleting   a   provision   is   to

obliterate   it   from   the   statute   book   as

completely as if it had never been passed,

and the statute must be considered as a

law   that   never   existed.   To   this   rule,   an

exception   is   engrafted   by   the   provisions

Section 6(1). If a provision 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

37

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,

machinery etc. We quote, with approval, the reason for

which,   the   High   Court   held   that  “The   competent

authority of Excise and Customs Department, including

the   Commissioner   of   Central   Excise   and   Customs,

Vadodara­II had no jurisdiction to confiscate the land

under Rule 173Q (2), the said rule having been omitted

and substituted by Rule 28, by the time the Order dated

25.02.2006   was   passed.   The   order   being   without

jurisdiction is nullity in the eye of law and thereby the

38

authorities cannot derive advantage of the order dated

25.02.2006.”

36.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,

39

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. Additionally, this intent is also fortified by

the fact that 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

40

“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.

41

37.Secondly, coming to the issue of priority of secured

creditor’s debt over that of the Excise Department, 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. 

38.A Full Bench of the Madras High Court in the case of

UTI Bank Ltd. Vs. Dy. Commissioner Central Excise

[2006 SCC Online Madras 1182],  while dealing with

a similar issue, has held that:

“25.   In   the   case   on   hand,   the   petitioner

Bank which took possession of the property

under   Section   13   of   the   SARFAESI   Act,

being a special enactment, undoubtedly is a

secured creditor. We have already referred

to the provisions of the Central Excise Act

and   the   Customs   Act.   They   envisage

procedures   to   be   followed   and   how   the

amounts due to the Departments are to be

recovered.   There   is   no   specific   provision

either   in   the   Central   Excise   Act   or   the

Customs   Act,   claiming   "first   charge"   as

provided   in   other   enactments,   which   we

have pointed out in earlier paragraphs.

42

26. In the light of the above discussion, we

conclude, 

“(i) Generally, the dues to Government, i.e.,

tax, duties, etc. (Crown's debts) get priority

over ordinary debts.

(ii) Only when there is a specific provision in

the statute claiming "first charge" over the

property,   the   Crown's   debt   is   entitled   to

have priority over the claim of others.

(iii)   Since   there   is   no   specific   provision

claiming "first charge" in the Central Excise

Act and the Customs Act, the claim of the

Central   Excise   Department   cannot   have

precedence   over   the   claim   of   secured

creditor, viz., the petitioner Bank.

(iv) In the absence of such specific provision

in   the   Central   Excise   Act   as   well   as   in

Customs   Act,   we   hold   that   the   claim   of

secured creditor will prevail over Crown's

debts."

In   view   of   our   above   conclusion,  the

petitioner   UTI   Bank,   being   a   secured

creditor is entitled to have preference over

the claim of the Deputy Commissioner of

Central Excise, first respondent herein.” 

(emphasis supplied)

This Court, while dismissing the Civil Appeal No.3627

of 2007 filed against the judgment of the Full Bench,

vide order dated 12.09.2009 held as under: 

“Having gone through the provisions of the

Securitization   Act,   2002,   in   light   of   the

43

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 or a

Secured Creditor.”             (emphasis

supplied)

44

40.Further, in  Central Bank of India Vs. Siriguppa

Sugars & Chemicals Ltd. & Ors. [(2007) 8 SCC

353],  while adjudicating a similar matter, this Court

has held as under:

“18. Thus, going by the principles governing

the matter, propounded by this Court there

cannot be any doubt that the rights of the

appellant­bank over the pawned sugar had

precedence   over   the   claims   of   the   Cane

Commissioner   and   that   of   the   workmen.

The High Court was, therefore, in error in

passing an interim order to pay parts of the

proceeds to the Cane Commissioner and to

the Labour Commissioner for disbursal to

the   cane   growers   and   to  the   employees.

There   is   no   dispute   that   the   sugar   was

pledged   with   the   appellant   bank   for

securing a loan of the first respondent and

the loan had not been repaid. The goods

were   forcibly   taken   possession   of  at   the

instance of the revenue recovery authority

from   the   custody   of   the   pawnee,   the

appellant­bank. In view of the fact that the

goods were validly pawned to the appellant

bank, the rights of the appellant­bank as

pawnee cannot be affected by the orders of

the   Cane   Commissioner   or   the   demands

made   by   him   or   the   demands   made   on

behalf   of   the   workmen.  Both   the   Cane

Commissioner   and   the   workmen   in   the

absence   of   a   liquidation,   stand   only   as

unsecured creditors and their rights cannot

prevail over the rights of the pawnee of the

goods.”     (emphasis supplied)

45

41.The   Bombay   High   Court   in  Krishna   Lifestyle

Technologies Ltd. Vs. Union of India & Ors. [2008

SCC   Online   Bombay   137],  wherein   the   issue   for

consideration was “whether tax dues recoverable under

the provisions of The Central Excise Act, 1944 have

priority of claim over the claim of secured creditors

under   the   provisions   of   the   Securitisation   and

Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002” held that:

“Considering   the   language   of   Section   35

and the decided case law, in our opinion it

would be of no effect, as the provisions of

SARFAESI Act override the provisions of the

Central   Sales   Tax   Act   and   as   such   the

priority given to a secured creditor would

override Crown dues or the State dues.

In so far as the SARFAESI Act is concerned

a Full Bench of the Madras High Court in

UTI Bank Ltd. v. Deputy Commissioner of C.

Excise, Chennai­II has examined the issue

in depth.  The Court was pleased to hold

that tax dues under the 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

46

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; debts which a

prerogative   entitles   the   Crown   to   claim

priority for before all other creditors. [See

Advanced Law Lexicon by P. Ramanatha

Aiyear (3rd Edn.) p. 1147]. Such creditors,

however, must be held to mean unsecured

creditors. Principle of Crown debt as such

pertains   to   the   common   law   principle.   A

common   law   which   is   a   law   within   the

47

meaning of Article 13 of the Constitution is

saved in terms of Article 372 thereof. Those

principles of common law, thus, which were

existing at the time of coming into force of

the   Constitution   of   India   are   saved   by

reason of the aforementioned provision.  A

debt which is secured or which by reason of

the provisions of a statute becomes the first

charge over the property having regard to

the   plain   meaning   of   Article   372   of   the

Constitution of India must be held to prevail

over the Crown debt which is an unsecured

one.             (emphasis

supplied)

43.In view of the above, we are of the firm opinion that the

arguments of the learned counsel for the Appellant, on

the   second   issue,   hold   merit.   Evidently,   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. Therefore, in the event like in the present case,

where the land, building, plant machinery, etc. have

been mortgaged/hypothecated to a secured creditor,

having regard to the provisions contained in section

2(zc)   to   (zf)   of   SARFAESI   Act,   2002,   read   with

provisions contained in Section 13 of the SARFAESI

48

Act,   2002,   the   Secured   Creditor   will   have   a   First

Charge on the Secured Assets. Moreover, section 35 of

the SARFAESI Act, 2002 inter alia, provides that the

provisions of the SARFAESI Act, shall have overriding

effect on all other laws. It is further pertinent to note

that even the provisions contained in Section 11E of

the   Central   Excise   Act,   1944   are   subject   to   the

provisions contained in the SARFAESI Act, 2002. 

44.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. 

45.Moreover,   the   submission   that   the   validity   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

49

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 properties in favour of the bank is also

inconsequential. The fact that the charge has been

50

created after some time period has lapsed post the

initiation   of   the   confiscation   proceedings,   will   not

provide legitimacy to a confiscation order that is not

rooted in any valid and existing statutory provision.

47.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.

48.Accordingly, the Appeal is Allowed and the confiscation

orders dated 26.03.2007 and 29.03.2007, passed by

51

the   Commissioner   Customs   and   Central   Excise,

Ghaziabad, are quashed.

………………………………..J.

                                             [L. NAGESWARA RAO]

………………………………..J.

                                            [VINEET SARAN]

New Delhi

Dated: February 24, 2022

52