# PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS

- **Citation:** [2022] 1 S.C.R. 661
- **Court:** Supreme Court of India
- **Decided:** 2022-02-24
- **Case number:** Civil Appeal No. 2196 of 2012
- **Bench:** L. Nageswara Rao, Vineet Saran
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/punjab-national-bank-v-union-of-india-ors-35885
- **Pages:** 35

## Headnote

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.
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SUPREME COURT REPORTS
[2022] 1 S.C.R.
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

## Text

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[2022] 1 S.C.R. 661
661
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 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.
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SUPREME COURT REPORTS
[2022] 1 S.C.R.
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
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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.
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
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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.
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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
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
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195; Brihan Maharashtra Sugar Syndicate Ltd. vs
Janarand Ramachandra Kulkarni [1960] 3 SCR 85
- referred to.
Case Law Reference
[1971] 0 Suppl. SCR 299
referred to
Para 17
(2012) 10 SCC 746
referred to
Para 17
[2008] 14 SCR 859
referred to
Para 22
[2003] 2 SCR 968
referred to
Para 22
[2006] 2 SCR 304
referred to
Para 22
[2001] 2 Suppl. SCR 195
referred to
Para 24
[1960] 3 SCR 85
referred to
Para 24
[2000] 1 SCR 518
followed
Para 36
[2000] 3 SCR 509
referred to
Para 39
[2007] 8 SCR 898
referred to
Para 40
[2008] 17 SCR 120
relied on
Para 44
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2196
Of 2012.
From the Judgment and Order dated 05.08.2008 of the High Court
of Judicature at Allahabad in Civil Misc. Writ Petition No.1464 of 2008.
Dhruv Mehta, Sr. Adv., Rajesh Kumar-I, Anant Gautam, Nipun
Sharma, M/s Mitter & Mitter Co., Advs. for the Appellant.
K. M. Nataraj, ASG, Ms. Rashmi Malhotra, Mukul Singh, Shailesh
Madiyal, Indira Bhakar, M. K. Maroria, B. Krishna Prasad, Pradeep
Jain, Ms. Manjula Gupta, Buddy A Ranganadhan, A. V. Rangam, Advs.
for the Respondents.
The Judgment of the Court was delivered by
VINEET SARAN, J.
1. The present Civil Appeal arises out of the judgment and order
dated 05.08.2008 passed by the Allahabad High Court, wherein the writ
petition filed by the Appellant was dismissed in limine.
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2. The brief facts of the case, relevant for the purpose of the
present appeal, are that the Commissioner, Customs and Central Excise,
Ghaziabad (Respondent No. 2) issued a show cause notice dated
31.12.1996 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 excise
duty demand of Rs.6,97,62,102/- against RIL and imposed a penalty of
Rs.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 Excise
Rules, 1944 (for short "1944 Rules"). Sub-rule 2 of Rule 173Q of the
Central Excise Rules, 1944, came to be omitted by a notification dated
12.05.2000 issued by the Government of India. Subsequently, the order
dated 25.11.1997 was set aside by the Customs, Excise & Gold (Control)
Appellate Tribunal (CEGAT), now known as the Customs Excise and
Service Tax Appellate Tribunal (CESTAT), on the ground of violation of
principles of natural justice, and the matter was remanded back for de
novo proceedings.
3. In 2005, RIL availed credit facilities under various schemes
from the consortium of banks, with the Appellant/Punjab National Bank
as the lead bank, and mortgaged/hypothecated all its movable and
immovable properties for securing the loan. RIL created a charge on
both the assets (raw material, stock in progress, finished goods, receivables
etc.) 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 excise
duty of Rs.7,98,02,226/- and a penalty of Rs.7,98,03,000/- on RIL. The
Commissioner also ordered, under rule 173Q(2) of the 1944 Rules, for
the confiscation of all the land, building, plant, machinery and materials
used in connection with manufacture and storage.
5. The Central Excise Commissioner, vide another order dated
29.03.2007, confirmed a demand of central excise duty amounting to
Rs.2,67,00,348 and Rs.74,24,332 from RIL. The Commissioner also
imposed a penalty of Rs.3,41,24,680/- and further, under rule 173Q(2) of
the 1944 Rules, ordered confiscation of land, building, plant, machinery,
material, conveyance etc. of RIL that were used in connection with
manufacture, production, storage or disposal of goods.
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
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6. However, in light of the fact that RIL had defaulted in clearing
the loan amount and had failed to liquidate outstanding dues, the Appellant
bank, on 02.08.2007, issued notice to RIL under section 13(2) of the
SARFAESI Act, 2002, further, notice was issued to RIL under section
13(4) of SARFAESI Act, 2002.
7. In light of the section 13(4) notice, the Office of the Assistant
Commissioner, Customs and Central Excise Division informed the bank,
vide a letter dated 27.11.2007, that the property was already confiscated
by virtue of Rule 173Q(2) of 1944 Rules and that an appeal is pending
against the orders and the matter is sub-judice. Appellant bank replied to
the above letter on 22.12.2007, whereby it informed the department that
the properties in question had been mortgaged with the bank and RIL
was required to satisfy the debts. In furtherance of this, the Appellant
bank took symbolic possession of the properties on 28.12.2007.
Subsequently, the Appellant bank was informed by the Assistant
Commissioner, Customs and Central Excise, vide a letter dated 15.01.2008,
that the properties of RIL should not be dealt with without their written
consent.
8. In essence, it has been the contention of the Customs & Excise
Department that in view of the fact that that all the movable and immovable
properties of RIL stand confiscated by the orders passed by the
Commissioner, Customs & Central Excise, Ghaziabad, the possession
of the property in question cannot be taken by the Appellant bank.
9. Aggrieved by the orders of confiscation (dated 26.03.2007 and
29.03.2007) and the further communications/letters by the department
(dated 27.11.2007 and 15.01.2008), the Appellant bank filed a Writ Petition
before the Allahabad High Court, which was dismissed with the
observations that:
"We find that in the present case, taxes are not sought to be
recovered from M/s Rathi Ispat Ltd., respondent No. 4, by
way of attachment or otherwise from the movable or
immovable assets of the respondent no.4, but the stand of the
Central Excise Authorities is that the properties stand
confiscated and vests in the Central Government as a result
of the order of confiscation"
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The High Court further held that:
"From the meaning of the word confiscate/confiscation", we
find that if any property has been confiscated it vests in the
state and no person can claim any right, title, or interest over
it."
While dismissing the Writ Petition of the Appellant bank, the
Allahabad High Court, eventually held that:
"In view of the matter, the question of first charge or second
charge over the properties would not arise. The debt does
not get extinguished but it cannot be recovered from the
confiscated property that being the position, we do not find
any merit in the Writ Petition. So far as the challenge to the
order of confiscation is concerned, we may mention that the
petitioner has no locus standi to challenge the order of
confiscation as the Respondent no. 4 has already preferred
an appeal against it. However, if in appeal preferred by
Respondent no. 4, the order of confiscation is set aside then
the bank can proceed against the properties in question in
accordance with law"
10. Aggrieved by the abovementioned High Court Order, this appeal
has been filed by way of Special Leave Petition.
11. Mr. Dhruv Mehta, learned Senior Counsel for the Appellant
Bank has raised before us the following two issues which arise for our
consideration:
Issue No.1: Whether the Ld. 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?
Issue No.2: Whether in the absence of any provisions providing
for First Charge in relation to Central Excise dues in the
Central Excise Act, 1944, the dues of the Excise department
would have priority over the dues of the Secured Creditors
or not?
PUNJAB NATIONAL BANK v. UNION OF INDIA & ORS.
[VINEET SARAN, J.]
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12. With respect to the first issue, it has been argued by the
learned Counsel for the Appellant bank that the Commissioner could not
have passed the orders dated 26.03.2007 and 29.03.2007 by invoking
the powers under Rule 173Q(2), which was not in existence in the Statute
Books as on the said date, having been omitted by a notification dated
12.05.2000.
13. It has been contended that reliance upon the provisions
contained in Section 38A of the Central Excise Act, 1944 and Section 6
of the General Clauses Act, 1897 to support the orders of the
Commissioner is liable to be rejected for the reason that a Constitution
Bench of this Court, in the matter of Kolhapur Canesugar Works Ltd.
Vs Union of India & Ors. [(2000) 2 SCC 536] has held that the
provisions contained in section 6 of the General Clauses Act, 1897 are
not applicable to the Central Excise Rules. It has further been contended
that no reliance can be placed on section 38A for the reason that the
provision contained in the said section 38A are attracted "unless a
different intention appears". In the present case, the contra-intention of
the legislature that the legislature did not intent to revive/restore 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
is evident from the following:
I.
The provisions contained in Rule 173Q(2) i.e. 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.
II.
Further, 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.
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 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,
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building, plant, machinery etc. and their consequent vesting
in the Central Government, as Rule 28 only provided for
vesting in the Central Government the "Goods" confiscated
by the Central Excise Authorities under the Excise Act,
1944.
In support of the abovementioned submissions, Mr. Dhruv Mehta
relies upon a judgment of the Gujarat High Court, in the matter of Kotak
Mahindra Bank Ltd. Vs. District Magistrate [2010 SCC online
Gujarat 10656].
14. With respect to the first issue, the Senior Counsel for the
Appellant concluded his submission by stating that the Commissioner
had no power, authority or jurisdiction to invoke the provisions contained
in Rule 173Q(2) of the Central Excise Rules, which stood omitted from
the Statue book w.e.f. 12.05.2000, much prior to the passing of the orders
dated 26.03.2007 and 29.03.2007.
15. The second issue raised by the learned Senior Counsel for
the Appellant is "Whether in the absence of any provisions providing
for First Charge in relation to Central Excise dues in the Central
Excise Act, 1944, the dues of the Excise department would have
priority over the dues of the Secured Creditors or not?" It has been
contended 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. Therefore, in the event like the present
case, where the land, building, plant machinery, etc. had been mortgaged/
hypothecated in favour of the 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 will have a First Charge on the Secured Assets.
16. The learned Senior Counsel has further submitted that section
35 of the SARFAESI Act, 2002 inter alia, provides that the provisions of
the said Act, notwithstanding anything inconsistent therewith contained
in any other law for the time being in force or any instrument having
effect by virtue of any such law, the provisions of the SARFAESI Act,
2002 shall have overriding effect on all other laws. It was further
contended that even the provisions contained in section 11E of the Central
Excise Act, 1944, which has been inserted w.e.f. 08.04.2011, provides
for First Charge on the property of the Assessee and is a non-obstante
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Clause. However, the provisions contained in Section 11E are subject to
the provisions contained in the SARFAESI Act, 2002. Thus, the provisions
of SARFAESI Act, 2002, even after insertion of Section 11E in the Central
Excise Act, 1944 w.e.f. 08.04.2011, has overriding effect on the provisions
of the Act of 1944.
17. In addition to the abovementioned submissions, the learned
Senior Counsel for the Appellant has argued that it is well settled law
laid down by this Court that the Crown debts (Unsecured) have no priority
over the Secured dues of the Secured Creditors/ Pawnee/ Bailee. In
support of the above submission, reliance has been placed upon the
following judgements:
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 &
Chemicals Ltd. & Ors. [(2007) 8 SCC 353]
iv.
Union of India vs SICOM Ltd. & Anr. [(2009) 2 SCC
121]
v.
Rana Girders Ltd. Vs Union of India & Ors. [(2012) 10
SCC 746]
vi.
Sitani Textiles and Fabrics (Pvt.) Ltd. Vs. Assistant
Collector of Customs & Central Excise [1998 SCC
Online Andhra Pradesh 416]
vii.
UTI Bank Ltd. Vs. Dy. Commissioner Central Excise
[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 above
submissions and decided cases, the Appellant bank, being a secured
creditor under the provisions of SARFAESI Act, 2002, had First Charge
on the secured Assets and is entitled to recover its secured dues, prior to
the dues of the Excise Department. It has also been submitted that the
intention of the Legislature, apart from the provisions contained in Section
11E in the Central Excise Act, 1944 [inserted w.e.f. 08.04.2011], is also
evident from the subsequent provisions inserted in RDBA Act, 1993, by
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way of Section 31B [notified w.e.f. 01.09.2016] and insertion of Section
26E in the SARFAESI Act [w.e.f. 24.01.2020], that the Legislature has
always intended that the Banks and Financial Institutions will have priority
to recover its secured dues from the Secured Assets prior to payment/
recovery of the dues of Revenue/Taxes, Government dues.
19. Per contra, Mr. K.M. Nataraj, learned Additional Solicitor
General appearing for the respondent has contended that the appeal
raises the following two questions of law:
(A)
Issue No. 1: Whether a confiscation order passed by
Respondent No. 2 in respect of the land, building, plant
and machinery of the Respondent No. 4 (RIL) can be
defeated by a security interest created by the said
Respondent No. 4 (RIL) in favour of the Appellants and
other banks, almost 8 years after the confiscation
proceedings (under Rule 173Q(2) of the Central Excise
Rules, 1944) had been initiated by the respondent No.
2 against RIL?
(B)
Issue No. 2: Whether the Proceedings initiated by the
Respondent no.2, Commissioner Custom & Central
Excise under rule 173Q(2) of the Central Excise Rules,
1944, prior to the omission of the said Rule from the
Statute Book are not saved on account of Section 38A(c)
and 38A(e) of the Central Excise Act, 1944 and
consequently, Whether the Commissioner was not
justified in passing orders of confiscation dated
26.03.2007 and 29.03.2007, although on such date,
the said Rule 173Q(2) was omitted and the 1944 rules
were replaced with the Central Excise Rules 2001
subsequently.
20. The learned Additional Solicitor General submitted that the
first issue raised by the Appellant was never raised by the Appellant
either before the Tribunal or in the Appeal before this Court and has
been raised for the first time in this Appeal.
21. With respect to the second issue raised by the Appellant, it
has been argued by the Learned ASG that this question, as framed and
answered by the Appellant, is entirely alien to the dispute at hand. The
present dispute is not at all one of priority of charges or debts. On the
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other hand, what was challenged before the High Court was the order
of confiscation, and the relevant question for consideration of this Court
is whether a confiscation order passed by the Central Excise Authorities
in respect of the land, building, plant and machinery of RIL can be defeated
by a security interest created by RIL in favour of the Appellant and
other banks, almost 8 years after the confiscation proceedings (under
Rule 173Q(2) of the Central Excise Rules, 1944) had been initiated by
the respondent No. 2 against RIL?
22. Mr. K.M. Nataraj, ASG, has contended that the proceedings
under Rule 173Q(2) of the 1944 Rules commenced by show cause notice
dated 31.12.1996. Notwithstanding the omission of Section 173Q(2) from
the 1944 Rules vide notification dated 12.05.2000, the respondent No. 3
was entitled to continue proceedings on account of Section 38A(c) and
Section 38A(e) of the Central Excise Act, 1944. The respondent No. 2
was therefore entitled to pass orders dated 26.03.2007 and 29.03.2007
in exercise of his powers under the repealed Rule 173Q(2) of the 1944
Rules, even though as on the date of the said orders, the 1944 Rules had
been replaced. In support of the same he submitted that it is not in dispute
that the confiscation proceedings against RIL were initiated in 1996 i.e.
much before the repeal of the 1944 Rules and although the order initially
passed in those proceedings was set aside by the CEGAT on account of
the violation of the principles of natural justice, it is evident from the
remand order itself that the proceedings (post remand) were a
continuation of what had been initiated vide show cause notice dated
31.12.1996. To buttress this submission, reliance has been placed upon
the decision rendered in the case of Nagarjuna Construction Company
Ltd. Vs. Government of Andhra Pradesh (2008) 16 SCC 276, wherein
it is held that when an order is stuck down as invalid, being in violation of
principles of natural justice, all that is done is vacation of the order assailed
by 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 confiscation
proceedings under Rule 173Q started much prior to the omission of the
said Rule from the Statute, the question for consideration would be
whether the proceedings against RIL could be continued under a provision
which no longer existed on the Statute. Mr. K.M. Nataraj, ASG has
submitted in this context that section 38A of the Central Excise Act,
1944, provides, inter alia, that even when a Rule is repealed, amended or
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superseded, unless a different intention appears, such repeal would not
affect 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 Clauses
Act, 1897, learned ASG relied upon decisions of this Court in the cases
of 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 Janarand
Ramachandra Kulkarni (1960 3 SCR 85) and contended that although
Rule 173Q(2) was initially omitted from the 1944 Rules and subsequently
the 1944 Rules were repealed and were substituted by the 2001 Rules,
there was nothing expressly stated in the new Rules which manifested
any intention to destroy the liabilities which came into existence on account
of the 1944 Rules or which manifested any intention to nullify any
investigation that was pending in respect of such accrued liability. Learned
ASG thus submitted, that Section 38A(c) and 38A(e) of the Central
Excise Act would apply with full force to save the proceedings which
had already been initiated under Rule 173Q(2) of the 1944 Rules, as
Section 38A(c) of the Act saves the rights and liabilities which were not
only acquired but also accrued as on the date of the amendment or
repeal of a provision, and Section 38A(e) of the Act saves investigations
that had commenced into such rights and liabilities.
25. Mr. Natraj, learned ASG has further submitted that the second
issue raised by the Appellant (regarding the priority of the dues of the
secured creditor over that of crown debts or government debts) does
not arise at all in the facts of the present case, since the confiscation
order by the Respondent No. 2 is not merely an order for recovery of
dues but instead is in the nature of a penal order to punish the wrongdoer
i.e. RIL. This, is evident from the fact that even under the 1944 Rules,
confiscation is provided for under Rule 173Q whereas mere recovery of
dues 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 present
case, the confiscation proceedings were initiated almost 9 years prior to
the charge being created in respect of the very same properties. At the
time of creation of security interest, it was for the Appellant bank to be
aware of the existence of the confiscation proceedings. It is further
submitted that a charge or security interest created on a property cannot
defeat or affect confiscation proceedings initiated by a statutory body in
any manner.
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27. Mr. Natraj, learned ASG also contended that the decisions
relied upon by the Appellant are distinguishable on facts, since those
cases deal with the question of priority of a secured creditor over the
Crown's debts and does not even touch on the issue of confiscation
proceedings with respect to the interest of a secured creditor.
28. It has been submitted that a similar question did arise in the
case of Bank of Bihar vs State of Bihar [(1972) 3 SCC 196], where
a question was as to whether a valid seizure can defeat the right of a
secured creditor. In that case, this Court did not interfere with the seizure
but only held that after the goods had been seized by the government,
the secured creditors may still retain his right to satisfy his debt. This
principle finds reflection in Section 13(4)(d) of the SARFAESI Act. It
has, thus, been submitted that, at best, the Appellant may resort to the
mechanism prescribed under section 13(4)(d) of the SARFAESI Act to
recover the amounts due to it, if and when the properties are sold by the
respondent authorities. Therefore, assuming the existence of any right
of recovery from Respondents, the Appellant may, at best, be entitled to
issue a notice as envisaged in Section 13(4)(d) of the SARFAESI Act
and then take the further steps mentioned therein.
29. Lastly, Mr. K.M. Nataraj, ASG has submitted that the validity
of the confiscation order cannot be called into question merely on account
of the Appellant being a secured creditor. The question as to whether
the amounts due to the Customs Department would have priority over
the debts due to the secured creditor does not arise in this case, since
what is challenged is the confiscation order and nothing else. A
confiscation order, cannot be quashed merely because a security interest
is created in respect of the very same property.
30. For ready reference, the relevant provisions of the concerned
Act and Rules are extracted below:-
(Central Excise Act, 1944)
"Section 11. Recovery of sums due to Government. - In respect
of duty and any other sums of any kind payable to the Central
Government under any of the provisions of this Act or of the
rules made thereunder including the amount required to be
paid to the credit of the Central Government under Section
11D, the officer empowered by the Central Board of Excise
and Customs constituted under the Central Boards of Revenue
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Act, 1963 (54 of 1963) to levy such duty or require the payment
of such sums [may deduct or require any other Central Excise
officer or a proper officer referred to in section 142 of the
customs act, 1962 (52 of 1962) to deduct the amount so
payable from any money owing to the person from whom such
sums may be recoverable or due which may be in his hands
or under his disposal or control or may be in the hands or
under disposal or control of such other officer, or may recover
the amount] by attachment and sale of excisable goods
belonging to such person; and if the amount payable is not
so recovered, he may prepare a certificate signed by him
specifying the amount due from the person liable to pay the
same and send it to the Collector of the district in which such
person resides or conducts his business and the said Collector,
on receipt of such certificate, shall proceed to recover from
the said person the amount specified therein as if it were an
arrear of land revenue.
Provided that where the person (hereinafter referred to as
predecessor) from whom the duty or any other sums of any
kind, as specified in this section, is recoverable or due,
transfers or otherwise disposes of his business or trade in
whole or in part, or effects any change in the ownership
thereof, in consequence of which he is succeeded in such
business or trade by any other person, all excisable goods,
materials, preparations, plants, machineries, vessels, utensils,
implements and articles in the custody or possession of the
person so succeeding may also be attached and sold by such
officer empowered by the Central Board of Excise and
Customs, after obtaining written approval from the Principal
Commissioner of Central Excise or Commissioner of Central
Excise, for the purposes of recovering such duty or other
sums recoverable or due from such predecessor at the time of
such transfer or otherwise disposal or change."
"Section 38A. Effect of amendments, etc., of rules,
notifications or orders. - Where any rule, notification or order
made or issued under this Act or any notification or order
issued under such rule, is amended, repealed, superseded or
rescinded, then, unless a different intention appears, such
amendment, repeal, supersession or rescinding shall not -
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a) revive anything not in force or existing at the time at which
the amendment, repeal, supersession or rescinding takes
effect; or
b) affect the previous operation of any rule, notification or
order so amended, repealed, superseded or rescinded or
anything duly done or suffered thereunder; or
c) affect any right, privilege, obligation or liability acquired,
accrued or incurred under any rule, notification or order so
amended, repealed, superseded or rescinded; or
d) affect any penalty, forfeiture or punishment incurred in
respect of any offence committed under or in violation of any
rule, notification or order so amended, repealed, superseded
or rescinded; or
e) affect any investigation, legal proceeding or remedy in
respect of any such right, privilege, obligation, liability,
penalty, forfeiture or punishment as aforesaid, and any such
investigation, legal proceeding or remedy may be instituted,
continued or enforced and any such penalty, forfeiture or
punishment 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.