((-1-)) HVN IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION CIVIL APPELLATE JURISDICTION CIVIL APPELLATE JURISDICTION WRIT PETITION NO. 4171 OF 2007 WRIT PETITION NO. 4171 OF 2007 WRIT PETITION NO. 4171 OF 2007 Krishna Lifestyle Technologies Ltd. having its Registered Office at 58/A, Dhanu Udyog Indl. Area, Piperia Silvassa and having its corporate Office at Kamat Industrial Estate, 396 Veer Sarvarkar Marg Prabhadevi, Mumbai 400 025. ... Petitioner Versus 1. Union of India through the Secretary, Ministry of Finance, Department of Revenue, Aykar Bhavan, New Marine Lane, Mumbai 400 020. 2. The Commissioner of Central Excise Thane 400 004, Commissionerate 4th Floor, Navbharat Chamber Ranade Road, Dadar West. 3. The Assistant Commissioner of Central Excise, Division-III, of Kalyan-III, of Thane I, 1st Floor, Dynaneshwar Prasad Bldg., Murbad Road, Kalyan City, Head Office, Dist Thane 421301. 4. Bank of India through the Managing Director, having its head office at Star House, C-5, G-Block, Bandra-Kurla Complex, Bandra(East), Mumbai 400 051. 5. Bank of India, Asset Recovery Management Services Branch, 70/80, M.G.Road, 1st Floor, Fort, Mumbai. ... Respondents Shri Pravin Samdani, Sr. Advocate with Shri Nikhil Pandhye with Shri. Anindita Raj Chaudhary with Shri Paras Kuhad & Associate for the Petitioner. Shri P. S. Jetly with Mrs. S. V. Bharucha with Shri R. C. Master for Respondent No.1. Mr. Ashish Kamat with Nikhil Rajani with Ms. V. Deshpande & Co. for Respondent No.4. CORAM: F.I. CORAM: F.I. CORAM: F.I. REBELLO REBELLO REBELLO & J.P. DEVADHAR, JJ. J.P. DEVADHAR, JJ. J.P. DEVADHAR, JJ. ((-2-)) DATED:FEBRUARY 05, 2008 DATED:FEBRUARY 05, 2008 DATED:FEBRUARY 05, 2008 JUDGMENT (Per F. I. Rebello, J.) JUDGMENT (Per F. I. Rebello, J.) JUDGMENT (Per F. I. Rebello, J.) : . Rule. By consent of the parties heard forthwith. 2. Respondent No.4 is a secured creditor of certain immovable and movable assets of M/s. Rotex Textile Mills Ltd. now in liquidation, having advanced money to M/s. Rotex Textile Mills Ltd. As there was a default in payment of the dues, Respondent No.5 issued a public notice on 8th February, 2007, inviting bids for the immovable and movable assets secured in its favour as set out in the public notice. At the auction held on 10th March, 2007, Petitioner was declared as the highest bidder. Consequent thereto, Petitioner made full and final payment of the said consideration on 22nd March, 2007 and requested Respondent No.4 to release the possession letter for the land and building, plant and machinery and the relevant original documents. Respondent No 5 as the Asset Recovery Management Services of Respondent No. 4 issued sale certificate for the immovable property and also sale certificate for the movables. 3. Respondent No.2 by an Order of 27-11-2001 had made a demand of duty under Central Excise Act, 1944 ((-3-)) and had also imposed penalty against M/s. Rotex Textiles Mills Ltd. There also appear to have been other demands against M/s. Rotex Textiles Mills Ltd. These various demands as on 31-5-2007 were to the tune of Rs.62,69,660-79 with interest at applicable rates. The movables, namely, plant and machinery had been attached by serving an order of attachment dated 23-3-2005. This exercise was done pursuant to the provisions of Section 142(l)(C)(II) of the Customs Act, 1962 read with Customs (Attachment of Property of Defaulters for Recovery of Government Dues), 1995. . The Petitioner on coming to know of the said attachment served a notice on Respondent No.2 on 4th April, 2007 setting out that the attachment of plant and machinery was erroneous as they are the secured creditors and are entitled to have a priority of charge over Respondent No.2. There has been also subsequent correspondence. Respondent No.2 having failed to lift the order of attachment, the Petitioner has approached this Court for the relief of directing Respondent No.2 to lift the attachment on the plant and machinery and other reliefs. 4. On behalf of Respondent Nos.1 to 3 reply has been filed by K. K. Srivastav, Assistant Commissioner of Central Excise. The various orders ((-4-)) in respect of the demand made on M/s. Rotex Textile Mills Ltd. have been set out. It is pointed out that as on 31- 5-2007 the total outstanding demand is of Rs.62,69,660-79 with interest at applicable rates on the outstanding amount. As M/s. Rotex Textile Mills Ltd. had defaulted in payment of the demand, the plant and machinery had been attached for recovery of the dues. Petitioner as successor has to discharge the undisputed liability of M/s. Rotex Textile Mills Ltd. It is only on realization of those dues can the attachment be set aside. The Department had initiated action for recovery of the outstanding dues and the attachment was brought to the notice of Respondent No.4 on 30-3-2007 and the Bank was repeatedly requested not to go ahead with sale of property as it had been attached. The Petitioner, has purchased the property along with the encumbrances in terms of the public notice, which included condition No.2, which stated that the sale of property/assets is on "AS IS WHERE IS AND AS IS WHAT IS BASIS". The transfer of the secured assets of M/s. Rotex Textiles Mills Ltd. assets of M/s. Rotex Textiles Mills Ltd. assets of M/s. Rotex Textiles Mills Ltd. considering the Judgment of Macson Marbles Pvt. considering the Judgment of Macson Marbles Pvt. considering the Judgment of Macson Marbles Pvt. Ltd. V. Union of India(2003(158) E.L.T. Ltd. V. Union of India(2003(158) E.L.T. Ltd. V. Union of India(2003(158) E.L.T. 424(S.C.), it is submitted is voluntary and as a consequence the Petitioner is required to discharge the liability of the outstanding Government dues, for release of the attachment of the immovable ((-5-)) property, plant and machinery. 5. The issues which arise for consideration can be summed as under:- 1. Do tax dues recoverable under the provisions of The Central Excise Act, 1944 have priority of claim over the claim of secured creditors under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2005 (in short "SARFAESI Act")? 2. What is the effect of a prior attachment by revenue of the property of tax defaulter under the provisions of the Central Excise Act before it is sold by a secured creditor under the provisions of the SARFAESI Act. 3. Considering the proviso to Section 11 of The Central Excise Act, 1944, can a transfer be said to be a voluntary transfer by "the person" when the transfer takes place under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. ((-6-)) 4. Does the mere purchase of the immovable/movable assets of a tax defaulter amount to transfer or disposal of business or trade in whole or in part or result in effecting change in ownership thereof in such business or trade by any other person. consequence of which, such person is succeeded in such business or trade by any other person. 6. To answer the issues, it would be necessary to reproduce Section 11 along with the proviso which was inserted by the Finance Act No. 2 of 2004 to the Central Excise Act, 1944 and which reads as under:- 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 Act, 1963(54 of 1963) to levy such duty or require the payment of such sums may deduct the amount ((-7-)) 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 or under his disposal or control, or may or under his disposal or control, or may recover the amount by attachment and sale of recover the amount by attachment and sale of recover the amount by attachment and sale of exciseable goods belonging to such person; exciseable goods belonging to such person; exciseable 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 due, transfers or otherwise disposes of his due, transfers or otherwise disposes of his business or trade in whole or in part, or business or trade in whole or in part, or business or trade in whole or in part, or effects any change in the ownership thereof, effects any change in the ownership thereof, effects any change in the ownership thereof, in consequence of which he is succeeded in in consequence of which he is succeeded in in consequence of which he is succeeded in such business or trade by any other person, such business or trade by any other person, such business or trade by any other person, all excisable goods, materials, preparations, plants, machineries, vessels, ((-8-)) 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 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(emphasis supplied). 7. In the course of our discussion, we would be concerned both with the section and the proviso for its true impart. The limited extent to which the main section will be considered is the power of attachment and sale. The section before the insertion of the proviso by the Finance Act, 2004, only permitted an Officer empowered, to recover any sums payable by attachment and sale of excisable goods belonging to such person and if the amount payable could not be recovered then to issue a certificate signed by him and forward it to the Collector of the District, who then could proceed to recover the amounts specified as if it were arrears of land revenue. The expression "excisable goods" is no longer res integra. We may only refer to what the Supreme Court said in Triveni Engineering & ((-9-)) Industries Ltd. and another v. Commissioner of Central Excise and another((2000) 7 SCC 29). The Court observed that if an article is a immovable property, it cannot be termed as "excisable goods" for purposes of the Act, as in an immovable property there is neither mobility nor marketability which are the twin tests as to whether the goods are marketable as understood in the excise law. Whether an article is permanently fastened to anything attached to the earth requires determination of both the intention as well as the factum of fastening to anything attached to the earth and this has to be ascertained from the facts and circumstances of each case. . Yet another aspect which we have to consider is the effect of Section 35 of the SARFAESI Act which reads as under:- "The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any of the law for the time being in force or any instrument having effect by virtue of any such law". . There is no such corresponding provision either under the Central Excise Act, 1944 or for that ((-10-)) matter the Indian Customs Act, 1862. The effect of Section 35 would be that in respect of secured assets, the disposal of the secured asset would be in terms of the provisions of the SARFAESI Act. Though the sale would be under the provisions of SARFAESI Act, the proceeds thereof however will have to be distributed in the order of priority of the creditors. 8. We shall now consider the first contention. Under Section 11, do the excise dues, have a priority over the claims of a secured creditor like Respondent No.4. The Section as it originally stood permitted, recovery from amounts in the hands of revenue or by attachment and sale of excisable goods belonging to such person. If this could not be done, then as arrears of land revenue pursuant to a certificate issued by the Collector. By virtue of the proviso introduced by the Finance Act, 2004, power was conferred on the Revenue Authorities to recover the dues by sale of the exciseable goods, material, preparations, plant, machineries, vessels, utensils, implants and articles in custody of the person to whom the transfer as contemplated by the proviso is effected. Under the main section, the power is by sale of excisable goods and if the dues are not satisfied by issuing a recovery certificate for realisation through Collector as if it were ((-11-)) arrears of land revenue. Would this power of sale, pursuant to the power conferred by the Section make the dues of the State the dues of a creditor who has priority of claim over secured creditors? We are not merely concerned with the issuance of a certificate subsequent to which the amounts can be recovered from the person in default as if it were an arrear of land revenue, but from the facts of the present case what really is under consideration are also the sale of movables including plant and machinery in the hands of the Petitioner which were under attachment pursuant to a sale conducted by a secured creditor. Ordinarily once a property is attached pursuant to a power conferred by legislation, the person owning the property cannot alienate such property and any alienation would be void against the person in whose favour the order of attachment was made considering the relevant provisions of a Statute. In the instant case, the sale is by the secured creditor exercising their rights under the SARFAESI Act. The law on the subject of priority of dues can be answered by referring to the Judgment of the Supreme Court in of the Supreme Court in of the Supreme Court in Dena Bank v. Bhikhabhai Prabhudas Parekh and Co. Dena Bank v. Bhikhabhai Prabhudas Parekh and Co. Dena Bank v. Bhikhabhai Prabhudas Parekh and Co. and others(AIR 2000 SC and others(AIR 2000 SC and others(AIR 2000 SC 3654). The Judgment reiterates the law as already declared in a long line of judgments by the Supreme Court. The issue there, arose out of recovery of Sale Tax under the ((-12-)) provisions of the Karnataka Land Revenue Act. Dealing with the issue of priority of debt, the Court observed that the principle of priority of Government debts is founded on the rule of necessity and of public policy. This principle flowed from the common law doctrine of priority of State debts. This common law doctrine the Court observed, has been recognized by the High Courts of India as applicable in British India before 1950 and hence the doctrine has been treated as "law in force" within the meaning of Article 372(1) of the Constitution. The basic justification for the claim for priority of State debts rests on the well recognized principle that the State is to raise money by taxation because unless the revenue is received by the State, it would not be able to function as a sovereign government at all. The law on the subject may be summed up as under:- 1. There is a consensus of judicial opinion that the arrears of the State can claim priority over private debts; 2. The common law doctrine about the priority of crown debts which was recognized by the Indian High Courts constitutes "law in force" within the meaning of Article 372(1) and continues to be in force. ((-13-)) 3.The basic justification for the claim for priority of State debts is the rule of necessity and the wisdom of conceding to the State the right to claim priority in respect of the tax dues. 4. The doctrine may not apply in respect of debts due to the State if they are contracted by citizens in relation to commercial activities which may be undertaken by the State for achieving socio -economic good. In other words, where welfare State enters into commercial fields which cannot be regarded as an essential and integral part of the basic government functions of the State and seeks to recover debts from debtors arising out of such commercial activities the applicability of the doctrine of priority shall be open for consideration. . The Supreme Court then added as under:- 5. The Crowns preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors; ((-14-)) 6. The Common Law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over a mortgage or pledgee of goods of secured creditors. It is only in cases where the Crown’s right and that of the subject meet at one and the same time that the Crown is in general preferred. Where the right of the subject is complete and perfect before that of the King commences, the rule does not apply, for there is no point of time at which the two rights are at conflict, nor can there be a question which of the two ought to prevail in a case where one, that of the subject has prevailed already. . Considering the provisions of Section 158 and Section 190(c) of the Karnataka Land Revenue Act, the Court held that the terminology of Section 158 and Section 190 results in giving primacy to monies recoverable under those provisions. In other words, the State’s claim to recovery were held paramount even over secured creditors. ((-15-)) . The law otherwise, as was declared in Collector of Aurangabad v. Bank of India(AIR 1967 SC 1831), of Aurangabad v. Bank of India(AIR 1967 SC 1831), of Aurangabad v. Bank of India(AIR 1967 SC 1831), is that merely because tax arrears are to be recovered as arrears of land revenue does not make the dues, in that case sales tax dues, have priority over dues of secured creditors. The effect of the discussion would be that as between the debts of a secured creditor and even if the debts of revenue are recoverable as arrears of land revenue under the Land Revenue Act that does not give them priority over the debts of a secured creditor. . Even in respect of pawned goods, in The Bank of . Even in respect of pawned goods, in The Bank of . Even in respect of pawned goods, in The Bank of Bihar v. The State of Bihar and others(AIR 1971 SC Bihar v. The State of Bihar and others(AIR 1971 SC Bihar v. The State of Bihar and others(AIR 1971 SC 1210) 1210) 1210) the Supreme Court held that under Section 176 of the Contract Act, the pawnee has special property and lien on the goods and so long as his claim is not satisfied, no other creditor or pawnor has the right to take away the goods or its price. Even if there is seizure by the Government, the Government is bound to pay the due to the pawnee and the balance alone is available to other creditors. If the Government deprives the pawnee of the goods, Government is bound to reimburse such amount which he in the ordinary course would realize by sale of the goods on the pawnee making default in payment of debt. In that case the pawned goods were seized and removed and sold by the Government and it was in ((-16-)) that context the issue was answered. 9. Applying these tests and considering the language of Section 9 of C.S.T. Act and its proviso, merely because the exciseable goods and other properties can be attached and sold and further recovery can be effected based on the certificate as arrears of Land Revenue, will that result in these dues having priority of claim over that of a secured creditor. In this case, we are not concerned with the issue of power of recovery of monies in the hands of empowered officer or by sale and attachment of excisable goods. We are concerned with the exercise of power of attachment and sale and the power under the proviso. Would the exercise of that power make Governmental dues have priority over that of a secured creditor. . From the judgment in Dena Bank (supra) it would follow that though the State’s dues have preference only over the dues of an ordinary creditor, not a secured creditor, considering Article 372, by subsequent legislation, it is open to the State to provide that its dues have priority of claims over the dues of even a secured creditors. See State of M.P. Vs. State Bank of Indore, 2002 (10) SCC 441 and State Bank of Bikaner, Jaipur Vs. National Iron and Steel Rolling Corporation. ((-17-)) . Thus the exciseable goods as set out in the main body of the Section and the other goods as set out in the proviso would have priority of claim, if there be a specific provisions giving priority to the state dues as in the case of M.P. Rajasthan or Karnataka laws. However, if the dues are to be recovered merely as arrears of land revenue based on a certificate issued, as held in Bank of India (supra), then those debts cannot have priority of claim over the dues of a secured creditor. 10. Having so held what is the effect of the provisions of the SARFAESI Act. . Considering the language of Section 35 and the decided case law, in our opinion it would be of no effect, as the provisions of SARFAESI Act override the provisions of the Central Sales Tax Act and as such the priority given to a secured creditor would override Crown dues or the State dues. . In so far as the SARFAESI Act is concerned a Full Bench of the Madras High Court in UTI Bank Ltd. v. Bench of the Madras High Court in UTI Bank Ltd. v. Bench of the Madras High Court in UTI Bank Ltd. v. Deputy Commissioner of C. Excise, Chennai-II Deputy Commissioner of C. Excise, Chennai-II Deputy Commissioner of C. Excise, Chennai-II has examined the issue in depth. The he he Court was pleased to hold that tax dues under the Customs Act and Central Excise Act, do not have priority of claim ((-18-)) over the dues of a secured creditor as there is no specific provision either in the Central Excise Act or the Customs Act giving those dues first charge, and that the claims of the secured creditors will prevail over the claims of the State. Considering the law declared by the Apex Court in the matter of priority of state debts as already discussed and the provision of Section 35 of SARFAESI Act we are in respectful agreement with the view taken by the Madras High Court. 11. That brings us to the second question as to what is the effect of an order of attachment. Admittedly, the Revenue had attached the property before it was put to sale. Under section 11 attachment could only be of excisable goods. The secured creditor admittedly had a charge in their favour before the property was attached. In