Customs Can't Claim Priority Over Bank For Recovery Of Dues From Assessee's Property: Madhya Pradesh High Court
Kapil Dhyani
11 Oct 2024 11:28 AM IST
The Madhya Pradesh High Court has dismissed a petition moved by the Customs and Central Excise Department seeking priority over other secured creditors, for recovery of dues from an assessee's property. Justices Vivek Rusia and Binod Kumar Dwivedi relied on Punjab National Bank V/s Union of India and others (2022) where the Top Court had held that SARFAESI Act will have an...
The Madhya Pradesh High Court has dismissed a petition moved by the Customs and Central Excise Department seeking priority over other secured creditors, for recovery of dues from an assessee's property.
Justices Vivek Rusia and Binod Kumar Dwivedi relied on Punjab National Bank V/s Union of India and others (2022) where the Top Court had held that SARFAESI Act will have an overriding effect on the provisions of the Central Excise Act and therefore, dues of the secured creditor will have priority over the dues of the Customs and Excise Department.
The division bench agreed that there is no provision under Section 11-E of the Central Excise Act, 1944 providing for first charge of Customs on the property of the assessee or any person.
In the case at hand, the Customs sought recovery of excise duty and interest from export oriented business entities engaged in manufacturing yarns. As per the Department, the latter imported manufacturing machines without payment of central excise duties of Rs.10,14,099/- and custom duties of Rs.51,00,988/-.
Meanwhile, the Madhya Pradesh State Industrial Development Corporation (MPSIDC) also initiated recovery proceedings and took over possession of assessee' property which was mortgaged to it.
The Dena Bank (now merged into the Bank of Baroda) had also entered into an agreement with the assessee under which “Mortgaged Property” was hypothecated.
Thus, three charges were created on the property. Customs asserted rights on the confiscated machinery which formed part of “Mortgaged Property”.
The Department was aggrieved by the Recovery proceedings initiated by Dena Bank (in consortium with MPSIDC) which issued an e-auction notice. Its apprehension is that DRT may auction the “Mortgaged Property” at a much lower price than the actual price hence it would be difficult to recover the Government revenue.
Advocate Prasanna Prasad appearing for the Department relied on State Tax Officer V/s Rainbow Papers Limited (2022) in which the Apex Court has held that financial creditors cannot secure their dues at the cost of statutory dues owed to any Government
Disagreeing, the High Court pointed that Rainbow Papers (supra) relates to the recovery of Sales Tax and VAT vis-a-vis insolvency proceedings under IBC. “Therefore, this judgment will not help the Union of India,” it held.
The Court agreed with MPSIDC's reliance on Industrial Development Bank of India v. Superintendent of Central Excise and Customs and others, (2023) in which also the Apex Court held that the Customs Act does not override payments due to overriding preferential creditors covered under Section 529-A of the Companies Act 1956.
Accordingly, the High Court dismissed Centre's plea and held that DRT has rightly initiated proceedings for recovery of the bank's debt.
Case title: Commissioner v. Debts Recovery Tribunal And Others
Case no.: WRIT PETITION No. 2241 of 2014 and connected matters
