Munmun Kaur
Published On: – February 25, 2022 at 12:34 IST
In a celebratory moment for the lenders, the Supreme Court on February 24, held that dues to secured creditors i.e., banks will have priority over the Central or State dues like excise and tax dues.
The observation was made by a Bench of Justices L Nageshwara Rao and Vineet Saran. The Bench further observed that the SARFAESI Act, 2002, will have an overriding effect on the provisions of the Central Excise Act.
The facts of the case were that the Commissioner, Customs and Central Excise, Ghaziabad, had confirmed an excise duty demand of around Rs 15 crore, including interest and penalty, against Rathi Ispat and with regards to that had also confiscated its land, building, plant and machinery for evasion of excise duty.
Owing to the default by Rathi Ispat in clearing its 2002 loan dues, the Punjab National Bank issued a notice to the Rathi Ispat under section 13(2) of the SARFAESI Act, 2002.
The main issue, in this case, was whether the dues of the Excise department would have priority over the dues of the secured creditors?
The Allahabad High Court dismissed the Writ Petition filed by the bank. Hence an appeal was filed in the Supreme Court.
The Apex Court said, “Before the insertion of Section 11E in the 1944 Act, there was no provision providing for the first charge on the property of the assessee or any person under the Act of 1944. And even after the insertion of Section 11E in the Central Excise Act, the provisions contained in the SARFAESI Act will have an overriding effect on the provisions of the excise Law.”
Thus, the dues of the secured creditor, i.e., the banks, will have priority over the dues of the Central Excise department.
As a result, the Supreme Court set aside the Order of the Allahabad High Court, and the Appeal was allowed.