PUNJAB NATIONAL BANK versus UNION OF INDIA & ORS. on 24 February 2022

PUNJAB NATIONAL BANK

v.

UNION OF INDIA & ORS.

(Civil Appeal No. 2196 of 2012)

FEBRUARY 24, 2022

[L. NAGESWARA RAO AND VINEET SARAN, JJ.]

Central Excise Rules, 1944: r.173(Q)(2) – Confiscation andpenalty – On facts, issuance of notice to RIL company for evasionof excise duty and violation of Central Excise Act – Demand ofexcise duty confirmed and imposition of penalty u/r. 173(Q)(1) andorder of confiscation of land, building plant and machinery u/r.173(Q)(2) passed –Subsequently, confiscation order set aside bythe tribunal and the matter remanded back to de novo proceedingssince r.173(Q)(2) had been omitted by notification dated 12.05.2000– Thereafter, RIL availed credit facilities from the appellant Bank,mortgaged all its movable and immovable properties, and alsocreated a charge on the assets and block of the company –Subsequently, the Commissioner again confirmed the demand ofexcise duty, imposed penalty and also ordered for confiscation ofall land, building, plant, machinery of RIL – Besides this, RIL wasalso issued notice u/s. 13(2) and also s.13(4) of the SARFAESI Actsince RIL failed to clear loan amount of the appellant Bank – Writpetition by the appellant Bank challenging the orders of confiscation– Dismissed by the High Court – On appeal, held: Commissioner ofCustoms and Central Excise could not have invoked the powers u/r. 173Q(2) on 26.03.2007 and 29.03.2007 for confiscation of land,buildings etc., when on such date, the said r. 173Q(2) was not inthe Statute books, having been omitted by a notification dated12.05.2000 – Dues of the secured creditor, the appellant- bank,would have priority over the dues of the Excise Department, aseven after insertion of s. 11E in the 1944 Act w.e.f. 08.04.2011, andthe provisions contained in the SARFAESI Act, 2002 would have anoverriding effect on the provisions of the 1944 Act – Thus, theconfiscation orders quashed – Securitisation and Reconstructionof Financial Assets and Enforcement of Security Interest Act, 2002– Central Excise Act, 1944 – ss. 11E, 38A – General Clauses Act,1897 – s. 6.

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662SUPREME COURT REPORTS

AAllowing the appeal, the Court

HELD:1. The Commissioner of Customs and CentralExcise could not have invoked the powers under Rule 173Q(2)of the Central Excise Rules, 1944 on 26.03.2007 and 29.03.2007for confiscation of land, buildings etc., when on such date, theBsaid Rule 173Q(2) was not in the Statute books, having beenomitted by a notification dated 12.05.2000. Secondly, the dues ofthe secured creditor, i.e. the Appellant- bank, would have priorityover the dues of the Central Excise Department, as even afterinsertion of Section 11E in the Central Excise Act, 1944 w.e.f.08.04.2011, and the provisions contained in the SARFAESI Act,C2002 would have an overriding effect on the provisions of theCentral Excise Act of 1944.The confiscation orders dated26.03.2007 and 29.03.2007, passed by the Commissioner Customsand Central Excise are quashed. [Para 47, 48][694-F-H]

2.1 There is no find merit in the submission of theDrespondent that notwithstanding the omission of Section 173Q(2)from the Central Excise Rules, 1944 vide notification dated12.05.2000, the respondent No. 3 was entitled to continue theproceedings on account of Section 38A(c) and Section 38A(e) ofthe Central Excise Act, 1944, read along with Section 6 of theEGeneral Clauses Act, 1897. [Para 33][686-A-B]

2.2 In the instant case, the proceedings initiated under theerstwhile Rule 173Q(2) would come to an end on the repeal ofthe said Rule 173Q(2) of the Central Excise Rules, 1944.Respondent counsel’s submission that the proceedings wouldFbe saved on account of Section 38A(c) and 38A(e) of the CentralExcise Act, 1944 and Section 6 of the General Clauses Act, 1897,is misplaced and lacks statutory backing. Section 6 of the GeneralClauses Act, 1897 is applicable where any Central Act orRegulation made after commencement of the General ClausesAct repeals any enactment. It is not applicable in the case ofGomission of a “Rule”. Hence, the question of applicability ofSection 6 is decided in the negative. Secondly, on the issue ofapplicability of Section 38A(c) and 38A(e) of the Central ExciseAct, 1944, it is held that the respondent would not be able to H

enjoy its protection because Section 38A(c) and 38A(e) areattracted only when “unless a different intention appears”. Inthe instant case, the legislature has clarified its intent to notrestore/revive the power of confiscation of any land, building,plant machinery etc., after omission of the provisions containedin Rule 173Q(2) w.e.f 12.05.2000. This intention of the legislaturecan be drawn out from the fact that power to confiscate any land,building, plant, machinery etc. after omission w.e.f. 12.05.2000has 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 211of the Central Excise Rules, 1944, inter alia, provided that“anything” confiscated under the Rules shall thereupon vest inCentral Government, whereas Rule 28 of the Central ExciseRules of 2001, 2002 and 2017, which are pari materia to the earlierRule 211 of the 1944 Rules, instead of the word “anything”,provided for vesting of confiscated “Goods” in the CentralGovernment. Lastly, after omission of Rule 173Q(2) of 1944 Rulesw.e.f. 12.05.2000 and after supersession of Rule 211 of 1944 Rulesin 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 CentralGovernment, as Rule 28 only provided for vesting in the CentralGovernment of the “Goods” confiscated by the Central ExciseAuthorities under the Excise Act, 1944. This derivation of thelegislature’s intent, in conjunction with the ratio laid in the caseof Kotak Mahindra Bank’s case which makes it apparent that theconfiscation proceedings were not saved by these mentionedprovisions and that the final confiscation order dated 26.03.2007and 29.03.2007 were passed without jurisdiction bythe Commissioner of Central Excise and Customs. [Para 36][688-E-H; 689-A-F]

Kolhapur Canesugar Works Ltd. Vs Union of India &Ors. (2000) 2 SCC 536 : [2000] (1) SCR 518 – followed.

Kotak Mahindra Bank Ltd. Vs. District Magistrate 2010SCC online Gujarat 10656 – approved.

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A2.3 As regards, the priority of secured creditor’s debt overthat of the Excise Department, the High Court in the impugnedjudgment held that “in view of the matter, the question of firstcharge or second charge over the properties would not arise.”The High Court misinterpreted the issue to state that the questionof first charge or second charge over the properties, would notBarise. The submissions of the counsel for the appellant hold merit.Evidently, prior to insertion of Section 11E in the Central ExciseAct, 1944 w.e.f. 08.04.2011, there was no provision in the Act of1944 inter alia, providing for First Charge on the property of theAssessee or any person under the Act of 1944. Therefore, in theCevent like in the instant case, where the land, building, plantmachinery, etc. have been mortgaged/hypothecated to a securedcreditor, having regard to the provisions contained in section2(zc) to (zf) of SARFAESI Act, 2002, read with provisionscontained in Section 13 of the SARFAESI Act, 2002, the SecuredCreditor would have a First Charge on the Secured Assets.DMoreover, section 35 of the SARFAESI Act, 2002 inter alia,provides that the provisions of the SARFAESI Act, would haveoverriding effect on all other laws. Even the provisions containedin Section 11E of the Central Excise Act, 1944 are subject to theprovisions contained in the SARFAESI Act, 2002.The provisionsEcontained in the SARFAESI Act, 2002, even after insertion ofSection 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011,would have an overriding effect on the provisions of the Act of1944. [Paras 37, 43, 44][689-F-G; 693-E-G; 694-A-B]

Union of India vs SICOM Ltd. & Anr. (2009) 2 SCCF121 : [2008] (17) SCR 120 – relied on.

UTI Bank Ltd. vs. Dy. Commissioner Central Excise 2006SCC Online Madras 1182; Krishna LifestyleTechnologies Ltd. vs. Union of India & Ors. 2008 SCCOnline Bombay 137 – approved.

GDena Bank vs Bhikhabhai Prabhu Dass Parikh & Anr.(2000) 5 SCC 694 : [2000] (3) SCR 509; Central Bankof India vs. Siriguppa Sugurs & Chemicals Ltd. & Ors.(2007) 8 SCC 353 : [2007] (8) SCR 898 – referred to.

2.4 Moreover, the submission that the validity of theconfiscation order cannot be called into question merely onaccount of the appellant being a secured creditor is misplacedand irrelevant to the issue at hand. The submission that aconfiscation order cannot be quashed merely because a securityinterest is created in respect of the very same property is notworthy of acceptance. However, what is required to be appreciatedis that, in the instant case, the confiscation order is not beingquashed merely because a security interest is created in respectof the very same property. On the contrary, the confiscationorders, in the instant case, deserve to be quashed because theconfiscation orders themselves lack any statutory backing, asthey were rooted in a provision that stood omitted on the day ofthe passing of the orders. Hence, it is this inherent defect in theconfiscation orders that paves way for its quashing and not merelythe fact that a security interest is created in respect of the verysame property that the confiscation orders dealt with.[Para 45][694-B-E]

2.5 The submission that the confiscation proceedings wereinitiated almost 8-9 years prior to the charge being created inrespect of the very same properties in favour of the bank is alsoinconsequential. The fact that the charge has been created aftersome time period has lapsed post the initiation of the confiscationproceedings, would not provide legitimacy to a confiscation orderthat is not rooted in any valid and existing statutory provision.[Para 46][694-E-F]

Bank of Bihar vs State of Bihar (1972) 3 SCC 196 :[1971] (0) Suppl. SCR 299; Rana Girders Ltd. vs Unionof India & Ors. (2012) 10 SCC 746; Sitani Textilesand Fabrics (Pvt.) Ltd. vs. Assistant Collector of Customs& Central Excise 1998 SCC Online Andhra Pradesh416; Nagarjuna Construction Company Ltd. vs.Government of Andhra Pradesh (2008) 16 SCC 276 :[2008] (14) SCR 859; Canara Bank vs Debasis Das(2003) 4 SCC 557 : [2003] (2) SCR 968; Gammon Indiavs Special Chief Secretary (2006) 3 SCC 354 : [2006](2) SCR 304; Ambalal Sarabhai Enterprises Ltd. vsAmritlal (2001) 8 SCC 397 : [2001] (2) Suppl. SCR

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A195; Brihan Maharashtra Sugar Syndicate Ltd. vsJanarand Ramachandra Kulkarni [1960] 3 SCR 85– referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2196Of 2012.E

From the Judgment and Order dated 05.08.2008 of the High Courtof Judicature at Allahabad in Civil Misc. Writ Petition No.1464 of 2008.

Dhruv Mehta, Sr. Adv., Rajesh Kumar-I, Anant Gautam, NipunSharma, M/s Mitter & Mitter Co., Advs. for the Appellant.

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K. M. Nataraj, ASG, Ms. Rashmi Malhotra, Mukul Singh, ShaileshMadiyal, Indira Bhakar, M. K. Maroria, B. Krishna Prasad, PradeepJain, Ms. Manjula Gupta, Buddy A Ranganadhan, A. V. Rangam, Advs.for the Respondents.

The Judgment of the Court was delivered byGVINEET SARAN, J.

1. The present Civil Appeal arises out of the judgment and orderdated 05.08.2008 passed by the Allahabad High Court, wherein the writpetition filed by the Appellant was dismissed in limine.

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2. The brief facts of the case, relevant for the purpose of thepresent appeal, are that the Commissioner, Customs and Central Excise,Ghaziabad (Respondent No. 2) issued a show cause notice dated31.12.1996 to M/s Rathi Ispat Ltd./Respondent No. 4 (for 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 exciseduty demand of Rs.6,97,62,102/- against RIL and imposed a penalty ofRs.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 ExciseRules, 1944 (for short “1944 Rules”). Sub-rule 2 of Rule 173Q of theCentral Excise Rules, 1944, came to be omitted by a notification dated12.05.2000 issued by the Government of India. Subsequently, the orderdated 25.11.1997 was set aside by the Customs, Excise & Gold (Control)Appellate Tribunal (CEGAT), now known as the Customs Excise andService Tax Appellate Tribunal (CESTAT), on the ground of violation ofprinciples of natural justice, and the matter was remanded back for denovo proceedings.

3. In 2005, RIL availed credit facilities under various schemesfrom the consortium of banks, with the Appellant/Punjab National Bankas the lead bank, and mortgaged/hypothecated all its movable andimmovable properties for securing the loan. RIL created a charge onboth the assets (raw material, stock in progress, finished goods, receivablesetc.) 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 exciseduty of Rs.7,98,02,226/- and a penalty of Rs.7,98,03,000/- on RIL. TheCommissioner also ordered, under rule 173Q(2) of the 1944 Rules, forthe confiscation of all the land, building, plant, machinery and materialsused in connection with manufacture and storage.

5. The Central Excise Commissioner, vide another order dated29.03.2007, confirmed a demand of central excise duty amounting toRs.2,67,00,348 and Rs.74,24,332 from RIL. The Commissioner alsoimposed a penalty of Rs.3,41,24,680/- and further, under rule 173Q(2) ofthe 1944 Rules, ordered confiscation of land, building, plant, machinery,material, conveyance etc. of RIL that were used in connection withmanufacture, production, storage or disposal of goods.

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6. However, in light of the fact that RIL had defaulted in clearingthe loan amount and had failed to liquidate outstanding dues, the Appellantbank, on 02.08.2007, issued notice to RIL under section 13(2) of theSARFAESI Act, 2002, further, notice was issued to RIL under section13(4) of SARFAESI Act, 2002.

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B7. In light of the section 13(4) notice, the Office of the AssistantCommissioner, Customs and Central Excise Division informed the bank,vide a letter dated 27.11.2007, that the property was already confiscatedby virtue of Rule 173Q(2) of 1944 Rules and that an appeal is pendingagainst the orders and the matter is sub-judice. Appellant bank replied toCthe above letter on 22.12.2007, whereby it informed the department thatthe properties in question had been mortgaged with the bank and RILwas required to satisfy the debts. In furtherance of this, the Appellantbank took symbolic possession of the properties on 28.12.2007.Subsequently, the Appellant bank was informed by the AssistantCommissioner, Customs and Central Excise, vide a letter dated 15.01.2008,Dthat the properties of RIL should not be dealt with without their writtenconsent.

8. In essence, it has been the contention of the Customs & ExciseDepartment that in view of the fact that that all the movable and immovableproperties of RIL stand confiscated by the orders passed by theECommissioner, Customs & Central Excise, Ghaziabad, the possessionof the property in question cannot be taken by the Appellant bank.

9. Aggrieved by the orders of confiscation (dated 26.03.2007 and29.03.2007) and the further communications/letters by the department(dated 27.11.2007 and 15.01.2008), the Appellant bank filed a Writ PetitionFbefore the Allahabad High Court, which was dismissed with theobservations that:

“We find that in the present case, taxes are not sought to berecovered from M/s Rathi Ispat Ltd., respondent No. 4, byway of attachment or otherwise from the movable orGimmovable assets of the respondent no.4, but the stand of theCentral Excise Authorities is that the properties standconfiscated and vests in the Central Government as a resultof the order of confiscation”

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The High Court further held that:

“From the meaning of the word confiscate/confiscation”, wefind that if any property has been confiscated it vests in thestate and no person can claim any right, title, or interest overit.”

While dismissing the Writ Petition of the Appellant bank, theAllahabad High Court, eventually held that:

“In view of the matter, the question of first charge or secondcharge over the properties would not arise. The debt doesnot get extinguished but it cannot be recovered from theconfiscated property that being the position, we do not findany merit in the Writ Petition. So far as the challenge to theorder of confiscation is concerned, we may mention that thepetitioner has no locus standi to challenge the order ofconfiscation as the Respondent no. 4 has already preferredan appeal against it. However, if in appeal preferred byRespondent no. 4, the order of confiscation is set aside thenthe bank can proceed against the properties in question inaccordance with law”

10. Aggrieved by the abovementioned High Court Order, this appealhas been filed by way of Special Leave Petition.

11. Mr. Dhruv Mehta, learned Senior Counsel for the AppellantBank has raised before us the following two issues which arise for ourconsideration:

Issue No.1: Whether the Ld. Commissioner Custom andCentral Excise could have invoked the powers under Rule173(Q)(2) of Central Excise Rules, 1944 on 26.03.2007 and29.03.2007 for confiscation of land, buildings etc., when onsuch date, the rule 173Q(2) was not on the Statue Book havingbeen omitted w.e.f. 17.05.2000?

Issue No.2:Whether in the absence of any provisions providingfor First Charge in relation to Central Excise dues in theCentral Excise Act, 1944, the dues of the Excise departmentwould have priority over the dues of the Secured Creditorsor not?

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A12. With respect to the first issue, it has been argued by thelearned Counsel for the Appellant bank that the Commissioner could nothave passed the orders dated 26.03.2007 and 29.03.2007 by invokingthe powers under Rule 173Q(2), which was not in existence in the StatuteBooks as on the said date, having been omitted by a notification dated12.05.2000.B

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13. It has been contended that reliance upon the provisionscontained in Section 38A of the Central Excise Act, 1944 and Section 6of the General Clauses Act, 1897 to support the orders of theCommissioner is liable to be rejected for the reason that a ConstitutionBench of this Court, in the matter of Kolhapur Canesugar Works Ltd.CVs Union of India & Ors. [(2000) 2 SCC 536] has held that theprovisions contained in section 6 of the General Clauses Act, 1897 arenot applicable to the Central Excise Rules. It has further been contendedthat no reliance can be placed on section 38A for the reason that theprovision contained in the said section 38A are attracted “unless aDdifferent intention appears”. In the present case, the contra-intention ofthe legislature that the legislature did not intent to revive/restore thepower of confiscation of any land, building, plant machinery etc., afteromission of the provisions contained in Rule 173Q(2) w.e.f 12.05.2000is evident from the following:

EI.The provisions contained in Rule 173Q(2) i.e. power toconfiscate any land, building, plant, machinery etc. afteromission w.e.f. 12.05.2000 has not been introduced in thesubsequent Central Excise Rules, 2001, Central ExciseRules, 2002 and Central Excise Rules, 2017.

FII.Further, Rule 211 of the Central Excise Rules, 1944, interalia, provided that “anything” confiscated under the Rulesshall thereupon vest in Central Government, whereas Rule28 of the Central Excise Rules of 2001, 2002 and 2017,which are pari materia to the earlier Rule 211 of the 1944Rules, instead of the word “anything”, provided for vestingGof 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 Rulesin the year 2001, the newly enacted Rule 28 of the Rules of2001, Rule 28 of the Rules of 2002 and Rule 28 of theHRules of 2017, did not provide for confiscation of any land, building, plant, machinery etc. and their consequent vestingin the Central Government, as Rule 28 only provided forvesting in the Central Government the “Goods” confiscatedby the Central Excise Authorities under the Excise Act,1944.

In support of the abovementioned submissions, Mr. Dhruv Mehtarelies upon a judgment of the Gujarat High Court, in the matter of KotakMahindra Bank Ltd. Vs. District Magistrate [2010 SCC onlineGujarat 10656].

14. With respect to the first issue, the Senior Counsel for theAppellant concluded his submission by stating that the Commissionerhad no power, authority or jurisdiction to invoke the provisions containedin Rule 173Q(2) of the Central Excise Rules, which stood omitted fromthe Statue book w.e.f. 12.05.2000, much prior to the passing of the ordersdated 26.03.2007 and 29.03.2007.

15. The second issue raised by the learned Senior Counsel forthe Appellant is “Whether in the absence of any provisions providingfor First Charge in relation to Central Excise dues in the CentralExcise Act, 1944, the dues of the Excise department would havepriority over the dues of the Secured Creditors or not?” It has beencontended that prior to insertion of Section 11E in the Central ExciseAct, 1944 w.e.f. 08.04.2011, there was no provision in the Act of 1944inter alia, providing for First Charge on the property of the Assessee orany person under the Act of 1944. Therefore, in the event like the presentcase, where the land, building, plant machinery, etc. had been mortgaged/hypothecated in favour of the secured creditor, having regard to theprovisions 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 section35 of the SARFAESI Act, 2002 inter alia, provides that the provisions ofthe said Act, notwithstanding anything inconsistent therewith containedin any other law for the time being in force or any instrument havingeffect by virtue of any such law, the provisions of the SARFAESI Act,2002 shall have overriding effect on all other laws. It was furthercontended that even the provisions contained in section 11E of the CentralExcise Act, 1944, which has been inserted w.e.f. 08.04.2011, providesfor First Charge on the property of the Assessee and is a non-obstante A

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AClause. However, the provisions contained in Section 11E are subject tothe provisions contained in the SARFAESI Act, 2002. Thus, the provisionsof SARFAESI Act, 2002, even after insertion of Section 11E in the CentralExcise Act, 1944 w.e.f. 08.04.2011, has overriding effect on the provisionsof the Act of 1944.B17. In addition to the abovementioned submissions, the learnedSenior Counsel for the Appellant has argued that it is well settled lawlaid down by this Court that the Crown debts (Unsecured) have no priorityover the Secured dues of the Secured Creditors/ Pawnee/ Bailee. Insupport of the above submission, reliance has been placed upon thefollowing judgements:C

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 &DChemicals Ltd. & Ors. [(2007) 8 SCC 353]

iv.Union of India vs SICOM Ltd. & Anr. [(2009) 2 SCC121]

v.Rana Girders Ltd. Vs Union of India & Ors. [(2012) 10SCC 746]E

vi.Sitani Textiles and Fabrics (Pvt.) Ltd. Vs. AssistantCollector of Customs & Central Excise [1998 SCCOnline Andhra Pradesh 416]

vii.UTI Bank Ltd. Vs. Dy. Commissioner Central ExciseF[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 abovesubmissions and decided cases, the Appellant bank, being a securedGcreditor under the provisions of SARFAESI Act, 2002, had First Chargeon the secured Assets and is entitled to recover its secured dues, prior tothe dues of the Excise Department. It has also been submitted that theintention of the Legislature, apart from the provisions contained in Section11E in the Central Excise Act, 1944 [inserted w.e.f. 08.04.2011], is alsoHevident from the subsequent provisions inserted in RDBA Act, 1993, by

way of Section 31B [notified w.e.f. 01.09.2016] and insertion of Section26E in the SARFAESI Act [w.e.f. 24.01.2020], that the Legislature hasalways intended that the Banks and Financial Institutions will have priorityto recover its secured dues from the Secured Assets prior to payment/recovery of the dues of Revenue/Taxes, Government dues.

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19. Per contra, Mr. K.M. Nataraj, learned Additional SolicitorGeneral appearing for the respondent has contended that the appealraises the following two questions of law:

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(A)Issue No. 1: Whether a confiscation order passed byRespondent No. 2 in respect of the land, building, plantand machinery of the Respondent No. 4 (RIL) can beCdefeated by a security interest created by the saidRespondent No. 4 (RIL) in favour of the Appellants andother banks, almost 8 years after the confiscationproceedings (under Rule 173Q(2) of the Central ExciseRules, 1944) had been initiated by the respondent No.D2 against RIL?(B)Issue No. 2: Whether the Proceedings initiated by the: Whether the Proceedings initiated by the Whether the Proceedings initiated by theRespondent no.2, Commissioner Custom & CentralExcise under rule 173Q(2) of the Central Excise Rules,1944, prior to the omission of the said Rule from theE

(B)Issue No. 2: Whether the Proceedings initiated by the: Whether the Proceedings initiated by the Whether the Proceedings initiated by theRespondent no.2, Commissioner Custom & CentralExcise under rule 173Q(2) of the Central Excise Rules,1944, prior to the omission of the said Rule from theStatute Book are not saved on account of Section 38A(c)and 38A(e) of the Central Excise Act, 1944 andconsequently, Whether the Commissioner was notjustified in passing orders of confiscation dated26.03.2007 and 29.03.2007, although on such date,the said Rule 173Q(2) was omitted and the 1944 ruleswere replaced with the Central Excise Rules 2001subsequently.

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20. The learned Additional Solicitor General submitted that thefirst issue raised by the Appellant was never raised by the Appellanteither before the Tribunal or in the Appeal before this Court and hasbeen raised for the first time in this Appeal.

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21. With respect to the second issue raised by the Appellant, ithas been argued by the Learned ASG that this question, as framed andanswered by the Appellant, is entirely alien to the dispute at hand. Thepresent dispute is not at all one of priority of charges or debts. On the H

Aother hand, what was challenged before the High Court was the orderof confiscation, and the relevant question for consideration of this Courtis whether a confiscation order passed by the Central Excise Authoritiesin respect of the land, building, plant and machinery of RIL can be defeatedby a security interest created by RIL in favour of the Appellant andother banks, almost 8 years after the confiscation proceedings (underBRule 173Q(2) of the Central Excise Rules, 1944) had been initiated bythe respondent No. 2 against RIL?

22. Mr. K.M. Nataraj, ASG, has contended that the proceedingsunder Rule 173Q(2) of the 1944 Rules commenced by show cause noticedated 31.12.1996. Notwithstanding the omission of Section 173Q(2) fromCthe 1944 Rules vide notification dated 12.05.2000, the respondent No. 3was entitled to continue proceedings on account of Section 38A(c) andSection 38A(e) of the Central Excise Act, 1944. The respondent No. 2was therefore entitled to pass orders dated 26.03.2007 and 29.03.2007in exercise of his powers under the repealed Rule 173Q(2) of the 1944DRules, even though as on the date of the said orders, the 1944 Rules hadbeen replaced. In support of the same he submitted that it is not in disputethat the confiscation proceedings against RIL were initiated in 1996 i.e.much before the repeal of the 1944 Rules and although the order initiallypassed in those proceedings was set aside by the CEGAT on account ofthe violation of the principles of natural justice, it is evident from theEremand order itself that the proceedings (post remand) were acontinuation of what had been initiated vide show cause notice dated31.12.1996. To buttress this submission, reliance has been placed uponthe decision rendered in the case of Nagarjuna Construction CompanyLtd. Vs. Government of Andhra Pradesh (2008) 16 SCC 276, whereinFit is held that when an order is stuck down as invalid, being in violation ofprinciples of natural justice, all that is done is vacation of the order assailedby 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 confiscationGproceedings under Rule 173Q started much prior to the omission of thesaid Rule from the Statute, the question for consideration would bewhether the proceedings against RIL could be continued under a provisionwhich no longer existed on the Statute. Mr. K.M. Nataraj, ASG hassubmitted in this context that section 38A of the Central Excise Act,H1944, provides, inter alia, that even when a Rule is repealed, amended or superseded, unless a different intention appears, such repeal would notaffect 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 ClausesAct, 1897, learned ASG relied upon decisions of this Court in the casesof 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 JanarandRamachandra Kulkarni (1960 3 SCR 85) and contended that althoughRule 173Q(2) was initially omitted from the 1944 Rules and subsequentlythe 1944 Rules were repealed and were substituted by the 2001 Rules,there was nothing expressly stated in the new Rules which manifestedany intention to destroy the liabilities which came into existence on accountof the 1944 Rules or which manifested any intention to nullify anyinvestigation that was pending in respect of such accrued liability. LearnedASG thus submitted, that Section 38A(c) and 38A(e) of the CentralExcise Act would apply with full force to save the proceedings whichhad already been initiated under Rule 173Q(2) of the 1944 Rules, asSection 38A(c) of the Act saves the rights and liabilities which were notonly acquired but also accrued as on the date of the amendment orrepeal of a provision, and Section 38A(e) of the Act saves investigationsthat had commenced into such rights and liabilities.

25. Mr. Natraj, learned ASG has further submitted that thesecondissue raised by the Appellant (regarding the priority of the dues of thesecured creditor over that of crown debts or government debts) doesnot arise at all in the facts of the present case, since the confiscationorder by the Respondent No. 2 is not merely an order for recovery ofdues but instead is in the nature of a penal order to punish the wrongdoeri.e. RIL. This, is evident from the fact that even under the 1944 Rules,confiscation is provided for under Rule 173Q whereas mere recovery ofdues 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 presentcase, the confiscation proceedings were initiated almost 9 years prior tothe charge being created in respect of the very same properties. At thetime of creation of security interest, it was for the Appellant bank to beaware of the existence of the confiscation proceedings. It is furthersubmitted that a charge or security interest created on a property cannotdefeat or affect confiscation proceedings initiated by a statutory body inany manner.

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27. Mr. Natraj, learned ASG also contended that the decisionsrelied upon by the Appellant are distinguishable on facts, since thosecases deal with the question of priority of a secured creditor over theCrown’s debts and does not even touch on the issue of confiscationproceedings with respect to the interest of a secured creditor.

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B28. It has been submitted that a similar question did arise in thecase of Bank of Bihar vs State of Bihar [(1972) 3 SCC 196], wherea question was as to whether a valid seizure can defeat the right of asecured creditor. In that case, this Court did not interfere with the seizurebut only held that after the goods had been seized by the government,the secured creditors may still retain his right to satisfy his debt. ThisCprinciple finds reflection in Section 13(4)(d) of the SARFAESI Act. Ithas, thus, been submitted that, at best, the Appellant may resort to themechanism prescribed under section 13(4)(d) of the SARFAESI Act torecover the amounts due to it, if and when the properties are sold by therespondent authorities. Therefore, assuming the existence of any rightDof recovery from Respondents, the Appellant may, at best, be entitled toissue a notice as envisaged in Section 13(4)(d) of the SARFAESI Actand then take the further steps mentioned therein.

29. Lastly, Mr. K.M. Nataraj, ASG has submitted that the validityof the confiscation order cannot be called into question merely on accountEof the Appellant being a secured creditor. The question as to whetherthe amounts due to the Customs Department would have priority overthe debts due to the secured creditor does not arise in this case, sincewhat is challenged is the confiscation order and nothing else. Aconfiscation order, cannot be quashed merely because a security interestis created in respect of the very same property.F

30. For ready reference, the relevant provisions of the concernedAct and Rules are extracted below:- (Central Excise Act, 1944)

“Section 11.Recovery of sums due to Government.- In respectGof duty and any other sums of any kind payable to the CentralGovernment under any of the provisions of this Act or of therules made thereunder including the amount required to bepaid to the credit of the Central Government under Section11D, the officer empowered by the Central Board of Exciseand Customs constituted under the Central Boards of Revenue H

Act, 1963 (54 of 1963) to levy such duty or require the paymentof such sums [may deduct or require any other Central Exciseofficer or a proper officer referred to in section 142 of thecustoms act, 1962 (52 of 1962) to deduct the amount sopayable from any money owing to the person from whom suchsums may be recoverable or due which may be in his handsor under his disposal or control or may be in the hands orunder disposal or control of such other officer, or may recoverthe amount] by attachment and sale of excisable goodsbelonging to such person; and if the amount payable is notso recovered, he may prepare a certificate signed by himspecifying the amount due from the person liable to pay thesame and send it to the Collector of the district in which suchperson resides or conducts his business and the said Collector,on receipt of such certificate, shall proceed to recover fromthe said person the amount specified therein as if it were anarrear of land revenue.

Provided that where the person (hereinafter referred to aspredecessor) from whom the duty or any other sums of anykind, as specified in this section, is recoverable or due,transfers or otherwise disposes of his business or trade inwhole or in part, or effects any change in the ownershipthereof, in consequence of which he is succeeded in suchbusiness or trade by any other person, all excisable goods,materials, preparations, plants, machineries, vessels, utensils,implements and articles in the custody or possession of theperson so succeeding may also be attached and sold by suchofficer empowered by the Central Board of Excise andCustoms, after obtaining written approval from the PrincipalCommissioner of Central Excise or Commissioner of CentralExcise, for the purposes of recovering such duty or othersums recoverable or due from such predecessor at the time ofsuch transfer or otherwise disposal or change.”

“Section 38A. Effect of amendments, etc., of rules,notifications or orders.- Where any rule, notification or ordermade or issued under this Act or any notification or orderissued under such rule, is amended, repealed, superseded orrescinded, then, unless a different intention appears, suchamendment, repeal, supersession or rescinding shall not - AB

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a) revive anything not in force or existing at the time at whichthe amendment, repeal, supersession or rescinding takeseffect; or

b) affect the previous operation of any rule, notification ororder so amended, repealed, superseded or rescinded oranything duly done or suffered thereunder; or

c) affect any right, privilege, obligation or liability acquired,accrued or incurred under any rule, notification or order soamended, repealed, superseded or rescinded; or

d) affect any penalty, forfeiture or punishment incurred inrespect of any offence committed under or in violation of anyrule, notification or order so amended, repealed, supersededor rescinded; or e) affect any investigation, legal proceeding or remedy inrespect of any such right, privilege, obligation, liability,penalty, forfeiture or punishment as aforesaid, and any suchinvestigation, legal proceeding or remedy may be instituted,continued or enforced and any such penalty, forfeiture orpunishment 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 anyCentral Act or State Act, any amount of duty, penalty, interest,or any other sum payable by an assessee or any other personunder this Act or the rules made thereunder shall, save asotherwise provided in section 529A of the Companies Act,1956, (1 of 1956) the Recovery of Debts Due to Banks andthe Financial Institutions Act, 1993 (51 of 1993) and theSecuritisation and Reconstruction of Financial Assets andthe Enforcement of Security Interest Act, 2002, (54 of 2002)be the first charge on the property of the assessee or theperson, 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 anymanufacturer, producer or licensee of a warehouse- (a) Removes any excisable goods in contravention of any ofthe 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 anyexcisable goods without having applied for the licenserequired under section 6 of the Act; or (d) Contravenes any of the provisions of these rules with intentto evade payment of duty, Then all such goods shall be liable to confiscation and themanufacturer producer or licensee of the warehouse, as thecase may be shall be liable to a penalty not exceeding threetimes the value of the excisable goods in respect of which anycontravention of the nature referred to in clause (a) or clause(b) or clause (c) or clause (d) has been committed or fivethousand rupees, whichever is greater.

(2) Where-

(a) In case of a contravention of the nature referred to inclause (a) or clause (b) or clause (c) or clause (d) of sub rule(1), the duty leviable on the excisable goods referred to inthat 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) orclause (b) or clause (c) or clause (d) of sub rule (1) and theduty leviable on the excisable goods in respect of thecontravention for the second or any subsequent occasionexceeds ten thousand rupees.

Then, in a case falling under clause (a) of this sub rule or ina case falling under clause (b) thereof (whether the A

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Acontravention under that clause has been committed for thesecond or any subsequent occasion), the officer adjudgingthe case under section 33 of the Act may, in addition to theaward of the confiscation and penalty under the sub rule (1),direct, for reasons to be recorded in writing, the confiscationof any or all of the following belonging to such manufacturer,Bproducer or licensee of a warehouse, namely:- A

(i) any land, building, plant, machinery, materials,conveyance, animal or any other thing used in connectionwith the manufacture, production, storage, removal or disposalof such goods, or C

(ii) any other excisable goods on such land, or in such buildingor produced or manufactured with such plant, machinery,materials or thing]”

(Central Excise Rules, 1944)

D“Rule 211. On confiscation, property to vest in CentralGovernment:-

(1) When anything is confiscated under these rules, such thingsshall thereupon vest in” Central Government.

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(2) The officer adjudging confiscation shall take and holdpossession of the things confiscated, and every Officer ofPolice, on the requisition of such officer, shall assist him intaking and holding such possession.”

Rule 28 of Central Excise Rules, 2001

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“Rule 28.Confiscated property to vest in Central Government:-

When any goods are confiscated under these rules, such thingsshall thereupon vest in the Central Government.

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The Central Excise Officer adjudging confiscation shall takeand hold possession of the things confiscated, and everyofficer of police, on the requisition of such Central ExciseOfficer, shall assist him in taking and holding suchpossession.”

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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 thingsshall thereupon vest in the Central Government.

The Central Excise Officer adjudging confiscation shall takeand hold possession of the things confiscated, and everyofficer of police, on the requisition of such Central ExciseOfficer, shall assist him in taking and holding suchpossession.”

Rule 28 of Central Excise Rules, 2017

[Issued in supersession of Central Excise Rules,2002]

“RULE 28.Confiscation and penalty.— (1) Subject to theprovisions of section 11 AC of the Act, if any producer,manufacturer, registered person of a warehouse, or animporter who issues an invoice on which CENVAT credit canbe taken, or a registered dealer, (a) removes any excisable goods in contravention of any ofthe provisions of these rules or the notifications issued underthese rules; or (b) does not account for any excisable goods produced ormanufactured or stored by him; or

(c) engages in the manufacture, production or storage of anyexcisable goods without having applied for the registrationcertificate required under section 6 of the Act; or (d) contravenes any of the provisions of these rules or thenotifications issued under these rules with intent to evadepayment of duty, then, all such goods shall be liable to confiscation and theproducer or manufacturer or registered person of thewarehouse, or an importer who issues an invoice on whichCENVAT credit can be taken, or a registered dealer, as thecase may be, shall be liable to a penalty not exceeding theduty on the excisable goods in respect of which any A

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contravention of the nature referred to in clause (a) or clause(b) or clause (c) or clause (d) has been committed, or fivethousand rupees, whichever is greater.

(2) An order under sub-rule (1) shall be issued by the CentralExcise Officer, following the principles of natural justice.”

SARFAESI Act, 2002

Section 2(zc) to 2(zf)

“(zc) “secured asset” means the property on which securityinterest is created; (zd) “secured creditor” means—

(i) any bank or financial institution or any consortium orgroup of banks or financial institutions holding any right,title or interest upon any tangible asset or intangible asset asspecified in clause (l);

(ii) debenture trustee appointed by any bank or financialinstitution; or

(iii) an asset reconstruction company whether acting as suchor managing a trust set up by such asset reconstruction company for the securitisation orreconstruction, as the case may be; or

(iv) debenture trustee registered with the Board appointed byany company for secured debt securities; or

(v) any other trustee holding securities on behalf of a bankor financial institution, in whose favour security interest is created by any borrowerfor due repayment of any financial assistance.]

(ze) “secured debt” means a debt which is secured by anysecurity interest;

(zf) “security interest”means right, title or interest of anykind, other than those specified in section 31, upon propertycreated in favour of any secured creditor and includes—

(i) any mortgage, charge, hypothecation, assignment or anyright, title or interest of any kind, on tangible asset, retainedby the secured creditor as an owner of the property, given onhire or financial lease or conditional sale or under any othercontract which secures the obligation to pay any unpaidportion of the purchase price of the asset or an obligationincurred or credit provided to enable the borrower to acquirethe tangible asset; or

(ii) such right, title or interest in any intangible asset orassignment or licence of such intangible asset which securesthe obligation to pay any unpaid portion of the purchase priceof the intangible asset or the obligation incurred or any creditprovided to enable the borrower to acquire the intangibleasset or licence of intangible asset.”

Section 13

“13. Enforcement of security interest.—(1) Notwithstandinganything contained in section 69 or section 69A of the Transferof Property Act, 1882 (4 of 1882), any security interest createdin favour of any secured creditor may be enforced, withoutthe intervention of the court or tribunal, by such creditor inaccordance with the provisions of this Act.

(2) Where any borrower, who is under a liability to a securedcreditor under a security agreement, makes any default inrepayment of secured debt or any instalment thereof, and hisaccount in respect of such debt is classified by the securedcreditor as non-performing asset, then, the secured creditormay require the borrower by notice in writing to discharge infull his liabilities to the secured creditor within sixty days fromthe date of notice failing which the secured creditor shall beentitled to exercise all or any of the rights under sub-section(4).

(3) The notice referred to in sub-section (2) shall give detailsof the amount payable by the borrower and the secured assetsintended to be enforced by the secured creditor in the eventof non-payment of secured debts by the borrower.

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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 theborrower 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 ofthe borrower including the right to transfer by way oflease, 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 thesubstantial part of the business of the borrower is heldas security for the debt:

Provided further that where the management ofwhole of the business or part of the business isseverable, the secured creditor shall take over themanagement of such business of the borrower which isrelatable to the security for the debt;

(c) appoint any person (hereafter referred to asthe manager), to manage the secured assets thepossession of which has been taken over by the securedcreditor;

(d) require at any time by notice in writing, anyperson who has acquired any of the secured assets fromthe borrower and from whom any money is due or maybecome due to the borrower, to pay the secured creditor,so much of the money as is sufficient to pay the secureddebt.

(5) Any payment made by any person referred to in clause (d)of sub-section (4) to the secured creditor shall give such persona valid discharge as if he has made payment to the borrower.

(6) Any transfer of secured asset after taking possessionthereof or take over of management under sub-section (4),by the secured creditor or by the manager on behalf of thesecured creditor shall vest in the transferee all rights in, or inrelation to, the secured asset transferred as if the transferhad 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 andexpenses which, in the opinion of the secured creditor, havebeen properly incurred by him or any expenses incidentalthereto, shall be recoverable from the borrower and the moneywhich is received by the secured creditor shall, in the absenceof any contract to the contrary, be held by him in trust, to beapplied, firstly, in payment of such costs, charges and expensesand secondly, in discharge of the dues of the secured creditorand the residue of the money so received shall be paid to theperson entitled thereto in accordance with his rights andinterests.

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SARFAESI Act, 2002

Section 35

“35. The provisions of this Act to override other laws.—Theprovisions of this Act shall have effect, notwithstandinganything inconsistent therewith contained in any other lawfor the time being in force or any instrument having effect byvirtue of any such law.”

31. We have heard learned counsel for both the parties at lengthand have carefully perused the record.

32. The Commissioner Customs and Central Excise, Ghaziabadvide order dt. 26.03.2007, ordered the confiscation of all the land, building,plant, machinery etc. of RIL. This confiscation order was passed underrule 173Q(2) of the Central Excise Rules, 1944. However, in theimpugned order, the High Court has not considered that on the date ofthe confiscation orders i.e. 26.03.2007 and 29.03.2007, Rule 173Q(2)

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Astood omitted from the statute books vide government notification dated12.05.2000.

33. We do not find merit in the submission of the learned Counselfor the Respondent that notwithstanding the omission of Section 173Q(2)from the 1944 Rules vide notification dated 12.05.2000, the RespondentBNo. 3 was entitled to continue the proceedings on account of Section38A(c) and Section 38A(e) of the Central Excise Act, 1944, read alongwith Section 6 of the General Clauses Act, 1897.

34. Constitution bench of this Court in Kolhapur CanesugarWorks Ltd. Vs Union of India & Ors. [(2000) 2 SCC 536] has heldCthat:

“11. In the factual backdrop of the case discussed earlier thequestion that arises for determination is whether after omissionof the old Rule 10 and 10-A and its substitution by the newRule 10 by the Notification No 267/77 dated 6.8.77 theDproceedings initiated by the notice dated 27.4.77 could becontinued in law. If the question is answered in the affirmativethen the order dated 15/27th October, 1977 of the Asstt.Collector of Central Excise confirming the demand for re-credit of the amount of Rs. 61,41,930 cannot be interferedwith. On the other hand, if the question is answered in theEnegative then the said order is to be taken as non-est.

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34. (...) It is not correct to say that in considering the questionof maintainability of pending proceedings initiated under aparticular provision of the rule after the said provision wasomitted the Court is not to look for a provision in the newlyadded rule for continuing the pending proceedings. It is alsonot correct to say that the test is whether there is any provisionin the rules to the effect that pending proceedings will lapseon omission of the rule under which the notice was issued. Itis our considered view that in such a case the Court is to lookto the provisions in the rule which has been introduced afteromission of the previous rule to determine whether a pending G

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proceeding will continue or lapse. If there is a provision thereinthat pending proceedings shall continue and be disposed ofunder the old rule as if the rule has not been deleted or omittedthen such a proceeding will continue. If the case is coveredby Section 6 of the General Clauses Act or there is a pari-materia provision in the statute under which the rule has beenframed in that case also the pending proceeding will not beaffected by omission of the rule. In the absence of any suchprovision in the statute or in the rule the pending proceedingswould lapse on the rule under which the notice was issued orproceeding was initiated being deleted/omitted. It is relevantto note here that in the present case the question of divestingthe Revenue of a vested right does not arise since no orderdirecting refund of the amount had been passed on the datewhen Rule 10 was omitted.

35. We, therefore, hold that the decisions of the Full Bench ofthe Gujarat High court and the Division Bench of theKarnataka High Court noted above were not correctlydecided. 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. Itmay be a Rule under Section 3(51) of the Act. Section 6 isapplicable where any Central Act or Regulation made aftercommencement of the General Clauses Act repeals anyenactment. It is not applicable in the case of omission of a“”Rule.

37. The position is well known that at common law, the normaleffect of repealing a statute or deleting a provision is toobliterate it from the statute book as completely as if it hadnever been passed, and the statute must be considered as alaw that never existed. To this rule, an exception is engraftedby the provisions Section 6(1). If a provision of a statute isunconditionally omitted without a saving clause in favour ofpending proceedings, all actions must stop where the omissionfinds them, and if final relief has not been granted before theomission goes into effect, it cannot be granted afterwards.Savings of the nature contained in Section 6 or in specialActs may modify the position. Thus, the operation of repeal AB

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Aor deletion as to the future and the past largely depends onthe savings applicable. In a case where a particular provisionin a statute is omitted and in its place another provision dealingwith the same contingency is introduced without a savingclause in favour of pending proceedings then it can bereasonably inferred that the intention of the legislature is thatBthe pending proceeding shall not continue but a freshproceeding for the same purpose may be initiated under thenew provision.”

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(emphasis supplied)

C35. The Gujarat High Court in Kotak Mahindra Bank Ltd. Vs.District Magistrate [2010 SCC online Gujarat 10656] has held thatfrom a perusal of Rule 28, it is clear that the Legislature intended toconfiscate only “goods” which is distinct from immovable property likeland, building, plant, machinery etc. We quote, with approval, the reasonfor which, the High Court held that “The competent authority of ExciseDand Customs Department, including the Commissioner of CentralExcise and Customs, Vadodara-II had no jurisdiction to confiscatethe land under Rule 173Q (2), the said rule having been omittedand substituted by Rule 28, by the time the Order dated 25.02.2006was passed. The order being without jurisdiction is nullity in theEeye of law and thereby the authorities cannot derive advantage ofthe order dated 25.02.2006.”

36. In the case at hand, the proceedings initiated under the erstwhileRule 173Q(2) would come to an end on the repeal of the said Rule173Q(2) of the Central Excise Rules, 1944. Respondent Counsel’sFsubmission that the proceedings would be saved on account of Section38A(c) and 38A(e) of the Central Excise Act, 1944 and Section 6 of theGeneral Clauses Act, 1897, is misplaced and lacks statutory backing.Firstly, as has been held by a Constitution Bench of this Court in KolhapurCanesugar Works Ltd. Vs Union of India & Ors. [(2000) 2 SCC536], Section 6 of the General Clauses Act, 1897 is applicable whereGany Central Act or Regulation made after commencement of the GeneralClauses Act repeals any enactment. It is not applicable in the case ofomission of a “Rule”. Hence, the question of applicability of Section 6 isdecided in the negative. Secondly, on the issue of applicability of Section38A(c) and 38A(e) of the Central Excise Act, 1944, it is held that theHRespondent would not be able to enjoy its protection because Section 38A(c) and 38A(e) are attracted only when “unless a different intentionappears”. In the present case, the legislature has clarified its intent tonot restore/revive the power of confiscation of any land, building, plantmachinery 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 fromthe fact that power to confiscate any land, building, plant, machineryetc. after omission w.e.f. 12.05.2000 has not been introduced in thesubsequent Central Excise Rules, 2001, Central Excise Rules, 2002 andCentral Excise Rules, 2017. Additionally, this intent is also fortified bythe fact that Rule 211 of the Central Excise Rules, 1944, inter alia, providedthat “anything” confiscated under the Rules shall thereupon vest in CentralGovernment, whereas Rule 28 of the Central Excise Rules of 2001,2002 and 2017, which are pari materia to the earlier Rule 211 of the1944 Rules, instead of the word “anything”, provided for vesting ofconfiscated “Goods” in the Central Government. Lastly, after omissionof Rule 173Q(2) of 1944 Rules w.e.f. 12.05.2000 and after supersessionof Rule 211 of 1944 Rules in the year 2001, the newly enacted Rule 28of the Rules of 2001, Rule 28 of the Rules of 2002 and Rule 28 of theRules of 2017, did not provide for confiscation of any land, building,plant, machinery etc. and their consequent vesting in the CentralGovernment, as Rule 28 only provided for vesting in the CentralGovernment of the “Goods” confiscated by the Central Excise Authoritiesunder the Excise Act, 1944. This derivation of the legislature’s intent, inconjunction with the ratio laid in the case of Kotak MahindraBank(supra) makes it apparent that the confiscation proceedings werenot saved by these mentioned provisions and that the final confiscationorder dated 26.03.2007 and 29.03.2007 were passed without jurisdictionby the Commissioner of Central Excise and Customs.

37. Secondly, coming to the issue of priority of secured creditor’sdebt over that of the Excise Department, the High Court in the impugnedjudgment has held that“In view of the matter, the question of first chargeor second charge over the properties would not arise.”In this context,we are of the opinion that the High Court has misinterpreted the issue tostate 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 UTIBank Ltd. Vs. Dy. Commissioner Central Excise [2006 SCC OnlineMadras 1182], while dealing with a similar issue, has held that:

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A“25. In the case on hand, the petitioner Bank which tookpossession of the property under Section 13 of the SARFAESIAct, being a special enactment, undoubtedly is a securedcreditor. We have already referred to the provisions of theCentral Excise Act and the Customs Act. They envisageprocedures to be followed and how the amounts due to theBDepartments are to be recovered. There is no specific provisioneither in the Central Excise Act or the Customs Act, claiming“first charge” as provided in other enactments, which we havepointed out in earlier paragraphs.

26. In the light of the above discussion, we conclude,C

“(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 statuteclaiming “first charge” over the property, the Crown’s debt isDentitled 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 ofthe Central Excise Department cannot have precedence overthe claim of secured creditor, viz., the petitioner Bank.

E(iv) In the absence of such specific provision in the CentralExcise Act as well as in Customs Act, we hold that the claim ofsecured 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 overFthe claim of the Deputy Commissioner of Central Excise, firstrespondent herein.”

This Court, while dismissing the Civil Appeal No.3627 of 2007filed against the judgment of the Full Bench, vide order dated 12.09.2009Gheld as under:

“Having gone through the provisions of the SecuritizationAct, 2002, in light of the judgment of the Division Bench ofthis court in the case of Union of India vs Sicom Ltd. & Anr.,reported in 2009 (1) SCALE 10, we find that under the H

provisions of the said 2002 Act, the appellants did not haveany statutory first charge over the property secured by therespondent bank.In the circumstances, the Civil Appeal isdismissed with no order as to costs”

Hence the reasoning given by the High Court stands strong andhas been affirmed by this Court.

39. This Court, in Dena Bank vs Bhikhabhai Prabhu DassParikh & Anr. [(2000) 5 SCC 694], wherein the question raised waswhether the recovery of sales tax dues (amounting to Crown debt) shallhave precedence over the right of the bank to proceed against the propertyof the borrowers mortgaged in favour of the bank, observed as under:

“10. However, the Crowns preferential right of recovery ofdebts over other creditors is confined to ordinary or unsecuredcreditors.The common law of England or the principles ofequity and good conscience (as applicable to India) do notaccord the Crown a preferential right of recovery of its debtsover a mortgagee or pledgee of goods or a Secured Creditor.”

40. Further, in Central Bank of India Vs. Siriguppa Sugars &Chemicals Ltd. & Ors. [(2007) 8 SCC 353], while adjudicating asimilar 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 hadprecedence over the claims of the Cane Commissioner andthat of the workmen.The High Court was, therefore, in errorin passing an interim order to pay parts of the proceeds tothe Cane Commissioner and to the Labour Commissioner fordisbursal to the cane growers and to the employees. There isno dispute that the sugar was pledged with the appellant bankfor securing a loan of the first respondent and the loan hadnot been repaid. The goods were forcibly taken possession ofat the instance of the revenue recovery authority from thecustody of the pawnee, the appellant-bank. In view of thefact that the goods were validly pawned to the appellant bank, A

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Athe rights of the appellant-bank as pawnee cannot be affectedby the orders of the Cane Commissioner or the demands madeby him or the demands made on behalf of the workmen.Boththe Cane Commissioner and the workmen in the absence of aliquidation, stand only as unsecured creditors and their rightscannot prevail over the rights of the pawnee of the goods.”B

41. The Bombay High Court in Krishna Lifestyle TechnologiesLtd. Vs. Union of India & Ors. [2008 SCC Online Bombay 137],wherein the issue for consideration was “whether tax dues recoverableCunder the provisions of The Central Excise Act, 1944 have priority ofclaim over the claim of secured creditors under the provisions of theSecuritisation and Reconstruction of Financial Assets and Enforcementof Security Interest Act, 2002” held that:

“Considering the language of Section 35 and the decidedDcase law, in our opinion it would be of no effect, as theprovisions of SARFAESI Act override the provisions of theCentral Sales Tax Act and as such the priority given to asecured creditor would override Crown dues or the State dues.

In so far as the SARFAESI Act is concerned a Full Bench ofEthe Madras High Court in UTI Bank Ltd. v. DeputyCommissioner of C. Excise, Chennai-II has examined the issuein depth. The Court was pleased to hold that tax dues underthe Customs Act and Central Excise Act, do not have priorityof claim over the dues of a secured creditor as there is noFspecific provision either in the Central Excise Act or theCustoms Act giving those dues first charge, and that the claimsof the secured creditors will prevail over the claims of theState. Considering the law declared by the Apex Court in thematter of priority of state debts as already discussed and theprovision of Section 35 of SARFAESI Act we are in respectfulGagreement with the view taken by the Madras High Court.”

42. An SLP (No. 12462/2008) against the above judgement of theBombay High Court stands dismissed by this Court on 17.07.2009 byrelying upon the judgement in the matter of Union of India vs SICOMH

Ltd. & Anr. Reported in [(2009) 2 SCC 121], wherein the questioninvolved was “Whether realization of the duty under the Central ExciseAct will have priority over the secured debts in terms of the State FinancialCorporation Act, 1951” and this Court held as under:

“9. Generally, the rights of the crown to recover the debtwould prevail over the right of a subject. Crown debt meansthe debts due to the State or the king; debts which a prerogativeentitles the Crown to claim priority for before all othercreditors. [See Advanced Law Lexicon by P. RamanathaAiyear (3rd Edn.) p. 1147]. Such creditors, however, must beheld to mean unsecured creditors. Principle of Crown debt assuch pertains to the common law principle. A common lawwhich is a law within the meaning of Article 13 of theConstitution is saved in terms of Article 372 thereof. Thoseprinciples of common law, thus, which were existing at thetime of coming into force of the Constitution of India are savedby reason of the aforementioned provision. A debt which issecured or which by reason of the provisions of a statutebecomes the first charge over the property having regard tothe plain meaning of Article 372 of the Constitution of Indiamust be held to prevail over the Crown debt which is anunsecured one.(emphasis supplied)

43. In view of the above, we are of the firm opinion that thearguments of the learned counsel for the Appellant, on the second issue,hold merit. Evidently, prior to insertion of Section 11E in the CentralExcise Act, 1944 w.e.f. 08.04.2011, there was no provision in the Act of1944 inter alia, providing for First Charge on the property of the Assesseeor any person under the Act of 1944. Therefore, in the event like in thepresent case, where the land, building, plant machinery, etc. have beenmortgaged/hypothecated to a secured creditor, having regard to theprovisions 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 SecuredAssets. Moreover, section 35 of the SARFAESI Act, 2002 inter alia,provides that the provisions of the SARFAESI Act, shall have overridingeffect on all other laws. It is further pertinent to note that even theprovisions contained in Section 11E of the Central Excise Act, 1944 aresubject to the provisions contained in the SARFAESI Act, 2002.

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A44. Thus, as has been authoritatively established by theaforementioned 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, 1944w.e.f. 08.04.2011, will have an overriding effect on the provisions of theAct of 1944.B

45. Moreover, the submission that the validity of the confiscationorder cannot be called into question merely on account of the Appellantbeing a secured creditor is misplaced and irrelevant to the issue at hand.The contention that a confiscation order cannot be quashed merelybecause a security interest is created in respect of the very same propertyCis not worthy of acceptance. However, what is required to be appreciatedis that, in the present case, the confiscation order is not being quashedmerely because a security interest is created in respect of the very sameproperty. On the contrary, the confiscation orders, in the present case,deserve to be quashed because the confiscation orders themselves lackDany statutory backing, as they were rooted in a provision that stoodomitted on the day of the passing of the orders. Hence, it is this inherentdefect in the confiscation orders that paves way for its quashing and notmerely the fact that a security interest is created in respect of the verysame property that the confiscation orders dealt with.

E46. Further, the contention that in the present case, the confiscationproceedings were initiated almost 8-9 years prior to the charge beingcreated in respect of the very same properties in favour of the bank isalso inconsequential. The fact that the charge has been created aftersome time period has lapsed post the initiation of the confiscationproceedings, will not provide legitimacy to a confiscation order that isFnot rooted in any valid and existing statutory provision.

47. To conclude, the Commissioner of Customs and Central Excisecould not have invoked the powers under Rule 173Q(2) of the CentralExcise Rules, 1944 on 26.03.2007 and 29.03.2007 for confiscation ofland, buildings etc., when on such date, the said Rule 173Q(2) was not inGthe Statute books, having been omitted by a notification dated 12.05.2000.Secondly, the dues of the secured creditor, i.e. the Appellant-bank, willhave priority over the dues of the Central Excise Department, as evenafter insertion of Section 11E in the Central Excise Act, 1944 w.e.f.08.04.2011, and the provisions contained in the SARFAESI Act, 2002will have an overriding effect on the provisions of the Central ExciseHAct of 1944.

48. Accordingly, the Appeal is Allowed and the confiscation ordersdated 26.03.2007 and 29.03.2007, passed by the Commissioner Customsand Central Excise, Ghaziabad, are quashed.

Nidhi Jain

Appeal allowed.

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