Excise dues - whether will have priority over dues of Secured Creditor - liablity of subsequent buyer of property having Excise Authorities charge

PJ/Case Laws/2011-12/1551

Case: MANIBHADRA FINE TRADE SERVICES Vs CHIEF COMMISSIONER OF CENTRAL EXCISE &2

Citation: 2012-TIOL-66-HC-AHM-CX

Issue:- Whether Central Excise Authorities can enter its charge in the village land records for recovery of dues from the mortgagee by claiming that they have first charges?

Whether dues of Excise Department have priority over dues of Secured Creditor?

Brief Facts:- Respondent No. 3-Dena Bank had given public advertisement in leading newspapers inviting offers from interested parties for purchase of immovable property of one M/s. Shree Sanand Textile Industries Pvt Ltd., which was in the nature of land measuring 6 acres and 4 gunthas with constructed building thereupon. The land was situated in village Sanand and was categorized as survey No.109/3 paike.

Petitioner participated in the auction proceedings held by the office of the respondent No.3 Bank and purchased the said property. As per the terms of auction, upon full payment of the purchase price, sale certificate was issued in favour of the petitioner by respondent No.3 Bank on 15.2.07. The petitioner was given possession of the land in question.

Upon approaching the Revenue authorities, however, the petitioner learnt that in village form No. 7/12, the Central Excise Department had entered its charge. It was recorded that the Central Excise Department had to recover certain dues from the erstwhile owner M/s. Shree Sanand Textile Industries Pvt. Ltd. Petitioner has produced a copy of village form which records that Superintendent, Central Excise Range, Sanand-I, as per its letter dated 29.11.05 dues of Central Excise duty is Rs.11,57,000/-.

Upon learning about the said charge of the Central Excise Department, the petitioner issued notice to Respondent No. 1 and 2 on 16.6.07 pointing out that the land in question was mortgaged to Dena Bank. Since the mortgagee did not repay the Bank's dues, under the provisions of the SARFAESI Act, the land was sold by Dena Bank in public auction. The petitioner is not required to satisfy the dues of the Central Excise Department. Despite such notices and efforts made by the petitioner, since the Central Excise Department did not relinquish its charge, the petitioner filed petition before the High Court and prayed for deletion of the said entry from the revenue record of the land in question.

Petitioner’s Contention:- Petitioner submitted that the dues of the Excise Department cannot have priority over the dues of the secured creditor. The land was mortgaged by the Bank and thereafter sold for realization of its dues in exercise of powers under the SARFAESI Act. He submitted that the issue is squarely covered by series of decisions of this Court as well as the Apex Court. Petitioner relied on following case laws: -

- Tax Recovery Officer v Industrial Finance Corporation of India, dated 22nd June 2011
- Kotak Mahindra Bank v.Dist.Magistrate [2011 (1) GLR 18]
- Union of India vs. Sicom Limited [2008-TIOL-225-SC-CX]

Respondent’s Contention:- Revenue mainly relied on the proviso to Section 11 of the Central Excise Act to contend that even after transfer of property, the excise dues can be recovered from the land itself.

Reasoning of Judgment:- The High Court held that issue is no longer debatable. In the case of Sicom Limited, the Apex Court held that the debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property must be held to prevail over the Crown debt which is an unsecured one. In the said case, the Apex Court was also concerned with the Central Excise Department over the debt of the State Financial Corporation under the State Financial Corporations Act.

In the case of Kotak Mahindra Bank, where Kotak Mahendra Bank, the financial institution, had sought to recover the secured debts in exercise of powers under the SARFAESI Act. It was in this background, Division Bench held that the unsecured Crown debt has no priority over secured debt of a secured creditor.

It was noted that in the case of Industrial Finance Corporation of India, also one of the cases pertained to the priority of dues of the Excise and Customs Department over the secured debt of the financial institution and similar view was expressed by the Division Bench in the said decision.

The High Court held that the charge of the Central Excise Department cannot survive and must be ordered to be deleted. It was noted that proviso to Section 11 permits the Department to recover its dues in a case where the person whose liability to pay the dues transfers or otherwise disposes of his business or trade in whole or any part or effects any change in the ownership thereof, and in consequence thereof, same person succeeds in such business or trade. In the present case, such a situation has not arisen. Proviso to Section 11 therefore would not attract. It is not a case of transfer of business or trade, but transfer of property under compulsory sale of the property through auction by the financial institution in exercise of powers under the SARFAESI Act.

In the result, Revenue Authorities directed to delete the entry pertaining to the charge of the Central Excise Department from the records in question. It is, however, clarified that nothing stated in this order will prevent the Department from recovering its dues from the defaulter or from its other properties if so permitted in accordance with law.

Decision:- Petition allowed.

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PJ/Case Laws/2011-12/1551

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