SARFAESI Act Has Overriding Effect On Central Excise Act; Dues Of Secured Creditor Has Priority Over Dues Of Central Excise Dept.: Supreme Court

The Supreme Court observed that the SARFAESI Act will have an overriding effect on the provisions of the Central Excise Act.

The bench comprising Justices L. Nageswara Rao and Vineet Saran observed that the dues of the secured creditor will have priority over the dues of the Central Excise Department.

The Commissioner Customs and Central Excise ordered the confiscation of all the land, building, plant, machinery etc. of RIL. This confiscation order was passed under rule 173Q(2) of the Central Excise Rules, 1944. One of the issues that arose in this case was whether the dues of the Excise department would have priority over the dues of the Secured Creditors ? In this case, the Punjab National Bank, as the secured creditor, had issued issued notice to RIL under section 13(2) of the SARFAESI Act, 2002. The Allahabad High Court dismissed the writ petition filed by the bank.

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

"Thus, as has been authoritatively established by the aforementioned cases in general, and Union of India vs SICOM Ltd. (supra) in particular, the provisions contained in the SARFAESI Act, 2002, even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, will have an overriding effect on the provisions of the Act of 1944.", the bench said.

The other issue raised in this case was whether the 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? Answering it against the Department, the bench allowed the appeal and observed thus:

"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"

Case : Punjab National Bank vs. Union of India | CA 2196 OF 2012 | 24 Feb 2022

Citation: 2022 LiveLaw (SC) 208

Coram: Justices L. Nageswara Rao and Vineet Saran

Counsel: Sr. Adv Dhruv Mehta for appellant, ASG K.M. Nataraj for respondent