Central Excise Rules, 1944: r.173(Q)(2) – Confiscation and penalty – On facts, issuance of notice to RIL company for evasion of excise duty and violation of Central Excise Act – Demand of excise duty confirmed and imposition of penalty u/r. 173(Q)(1) and order of confiscation of land, building plant and machinery u/r.173(Q)(2) passed –Subsequently, confiscation order set aside by the tribunal and the matter remanded back to de novo proceedings since 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 also created a charge on the assets and block of the company – Subsequently, the Commissioner again confirmed the demand of excise duty, imposed penalty and also ordered for confiscation of all land, building, plant, machinery of RIL – Besides this, RIL was also issued notice u/s. 13(2) and also s.13(4) of the SARFAESI Act since RIL failed to clear loan amount of the appellant Bank – Writ petition by the appellant Bank challenging the orders of confiscation – Dismissed by the High Court – On appeal, held: Commissioner of Customs 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 in the Statute books, having been omitted by a notification dated 12.05.2000 – Dues of the secured creditor, the appellant- bank, would have priority over the dues of the Excise Department, as even after insertion of s. 11E in the 1944 Act w.e.f. 08.04.2011, and the provisions contained in the SARFAESI Act, 2002 would have an overriding effect on the provisions of the 1944 Act – Thus, the confiscation orders quashed – Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Central Excise Act, 1944 – ss. 11E, 38A – General Clauses Act, 1897 – s. 6.
Allowing the appeal, the Court
HELD:1. 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, would 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 would have an overriding effect on the provisions of the Central Excise Act of 1944.The confiscation orders dated 26.03.2007 and 29.03.2007, passed by the Commissioner Customs and Central Excise are quashed. [Para 47, 48][694-F-H]
2.1 There is no find merit in the submission of the respondent that notwithstanding the omission of Section 173Q(2) from the Central Excise Rules, 1944 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. [Para 33][686-A-B]
2.2 In the instant case, 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. 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, 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 instant 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 “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’s case which 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. [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 2010 SCC online Gujarat 10656 – approved.
2.3 As regards, the priority of secured creditor’s debt over that of the Excise Department, the High Court in the impugned judgment held that “in view of the matter, the question of first charge or second charge over the properties would not arise.” The High Court misinterpreted the issue to state that the question of first charge or second charge over the properties, would not arise. The submissions of the counsel for the appellant 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 instant 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 Act, 2002, the Secured Creditor would 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, would have overriding effect on all other laws. 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 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, would have an overriding effect on the provisions of the Act of 1944. [Paras 37, 43, 44][689-F-G; 693-E-G; 694-A-B] Union of India vs SICOM Ltd. & Anr. (2009) 2 SCC
121 : [2008] (17) SCR 120 – relied on.
UTI Bank Ltd. vs. Dy. Commissioner Central Excise 2006 SCC Online Madras 1182; Krishna Lifestyle
Technologies Ltd. vs. Union of India & Ors. 2008 SCC Online Bombay 137 – approved.
Dena Bank vs Bhikhabhai Prabhu Dass Parikh & Anr. (2000) 5 SCC 694 : [2000] (3) SCR 509; Central Bank of 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 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 submission that a confiscation order cannot 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 instant 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 instant 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. [Para 45][694-B-E]
2.5 The submission that the confiscation proceedings were initiated almost 8-9 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 created after some time period has lapsed post the initiation of the confiscation proceedings, would not provide legitimacy to a confiscation order that 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 Union of India & Ors. (2012) 10 SCC 746; Sitani Textiles and Fabrics (Pvt.) Ltd. vs. Assistant Collector of Customs & Central Excise 1998 SCC Online Andhra Pradesh 416; 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 India vs Special Chief Secretary (2006) 3 SCC 354 : [2006]
(2) SCR 304; Ambalal Sarabhai Enterprises Ltd. vs Amritlal (2001) 8 SCC 397 : [2001] (2) Suppl. SCR 195; Brihan Maharashtra Sugar Syndicate Ltd. vs Janarand Ramachandra Kulkarni [1960] 3 SCR 85 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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