/2022 INSC 0178/
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.2196 OF 2012
PUNJAB NATIONAL BANK        …..APPELLANT
VERSUS
UNION OF INDIA & ORS.    …RESPONDENTS
J U D G M E N T
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.
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”)
1

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”).     Sub­rule   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
2

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
3

connection   with   manufacture,   production,   storage   or
disposal of goods. 
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
sub­judice.   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
4

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
5

confiscated   and   vests   in   the   Central
Government   as   a   result   of   the   order   of
confiscation”
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. 
6

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?
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
7

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
contra­intention   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,
8

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, 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]. 
9

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
10

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 Clause. However, the provisions contained in
Section 11E are subject to the provisions contained in
the   SARFAESI   Act,   2002.   Thus,   the   provisions   of
11

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]
12

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   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
13

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
14

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   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
15

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
16

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
17

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   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,
18

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
19

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. 
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
20

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.
21

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 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
22

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
23

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 ­
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,
24

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.  ­
Notwithstanding   anything   to   the   contrary
contained   in   any   Central   Act   or   State   Act,
any   amount   of   duty,   penalty,   interest,   or
any   other   sum   payable   by   an   assessee   or
any other person under this Act or the rules
made   thereunder   shall,   save   as   otherwise
provided   in   section   529A   of   the   Companies
Act, 1956, (1 of 1956) the Recovery of Debts
Due to Banks and the Financial Institutions
Act,   1993   (51   of   1993)   and   the
Securitisation   and   Reconstruction   of
Financial   Assets   and   the   Enforcement   of
Security Interest Act, 2002, (54 of 2002) be
the   first   charge   on   the   property   of   the
assessee   or   the   person,   as   the   case   may
be.”
Rule   173   Q   of   Central   Excise   Rules.
1944 Prior to 12.5.2000
“ Rule   173   Q.   Confiscation   and   Penalty­
(1)   If   any   manufacturer,   producer   or
licensee of a warehouse­
(a) Removes   any   excisable   goods   in
contravention   of   any   of   the   provisions   of
these rules; or
(b) Does   not   account   for   any   excisable
goods manufactured, produced or stored by
him; or
(c) Engages   in   the   manufacture,
production   or   storage   of   any   excisable
25

goods without having applied for the license
required under section 6 of the Act; or
(d) Contravenes   any   of   the   provisions   of
these rules with intent to evade payment of
duty,
Then   all   such   goods   shall   be   liable   to
confiscation and the manufacturer producer
or   licensee   of   the   warehouse,   as   the   case
may   be   shall   be   liable   to   a   penalty   not
exceeding   three   times   the   value   of   the
excisable   goods   in   respect   of   which   any
contravention   of   the   nature   referred   to   in
clause   (a)   or   clause   (b)   or   clause   (c)   or
clause   (d)   has   been   committed   or   five
thousand rupees, whichever is greater. 
(2) Where­
(a)   In   case   of   a   contravention   of   the   nature
referred   to   in   clause   (a)   or   clause   (b)   or
clause   (c)   or   clause   (d)   of   sub   rule   (1),   the
duty   leviable   on   the   excisable   goods
referred to in that sub rule exceeds one lakh
rupees, or
(b)   Any   manufacturer,   producer   or   licensee
of   a   warehouse,   whose   excisable   goods
were   confiscated   under   sub   rule   (1)   and
upon   whom   penalty   was   imposed   under
that   sub   rule,   contravenes   against   any   of
the   provisions   of   clause   (a)   or   clause   (b)   or
clause   (c)   or   clause   (d)   of   sub   rule   (1)   and
the   duty   leviable   on   the   excisable   goods   in
respect   of   the   contravention   for   the   second
or   any   subsequent   occasion   exceeds   ten
thousand rupees.
Then,   in   a   case   falling   under   clause   (a)   of
this   sub   rule   or   in   a   case   falling   under
clause   (b)   thereof   (whether   the
contravention   under   that   clause   has   been
26

committed for the second or any subsequent
occasion),   the   officer   adjudging   the   case
under section 33 of the Act may, in addition
to the award of the confiscation and penalty
under the sub rule (1), direct, for reasons to
be   recorded   in   writing,   the   confiscation   of
any or all of the following belonging to such
manufacturer,   producer   or   licensee   of   a
warehouse, namely:­
(i) any   land,   building,   plant,   machinery,
materials, conveyance, animal or any other
thing   used   in   connection   with   the
manufacture,   production,   storage,   removal
or disposal of such goods, or
(ii) any   other   excisable   goods   on   such
land,   or   in   such   building   or   produced   or
manufactured   with   such   plant,   machinery,
materials or thing]”
(Central Excise Rules, 1944)
“ Rule  211 .   On   confiscation,   property  to
vest in Central Government:  ­
(1)   When   anything   is   confiscated   under
these   rules,   such   things   shall   thereupon
vest in" Central Government.
(2)   The   officer   adjudging   confiscation   shall
take   and   hold   possession   of   the   things
confiscated,   and   every   Officer   of   Police,   on
the   requisition   of   such   officer,   shall   assist
him   in   taking   and   holding   such
possession.”
Rule 28 of Central Excise Rules, 2001
[Issued   in   supersession   of   Central
Excise Rules, 1944]
“ Rule   28.   Confiscated   property   to   vest
in Central Government:  ­  
27

When   any   goods   are   confiscated   under
these   rules,   such   things   shall   thereupon
vest in the Central Government.
The   Central   Excise   Officer   adjudging
confiscation shall take and hold possession
of   the   things   confiscated,   and   every   officer
of   police,   on   the   requisition   of   such   Central
Excise   Officer,   shall   assist   him   in   taking
and holding such possession.”
Rule 28 of Central Excise Rules, 2002
[Issued   in   supersession   of   Central
Excise Rules, 2001]
“Rule   28.   Confiscated   property   to   vest
in Central Government:  ­ 
When   any   goods   are   confiscated   under
these   rules,   such   things   shall   thereupon
vest in the Central Government.
The   Central   Excise   Officer   adjudging
confiscation shall take and hold possession
of   the   things   confiscated,   and   every   officer
of   police,   on   the   requisition   of   such   Central
Excise   Officer,   shall   assist   him   in   taking
and holding such possession.”
Rule 28 of Central Excise Rules, 2017
[Issued   in   supersession   of   Central
Excise Rules,2002]
“RULE 28.   Confiscation and penalty.   —
(1)   Subject   to   the   provisions   of   section   11
AC   of   the   Act,   if   any   producer,
manufacturer,   registered   person   of   a
warehouse,   or   an   importer   who   issues   an
invoice   on   which   CENVAT   credit   can   be
taken, or a registered dealer,
(a)   removes   any   excisable   goods   in
contravention   of   any   of   the   provisions   of
these rules or the notifications issued under
these rules; or
28

(b) does not account for any excisable goods
produced or manufactured or stored by him;
or
(c)   engages   in   the   manufacture,   production
or   storage   of   any   excisable   goods   without
having applied for the registration certificate
required under section 6 of the Act; or
(d)   contravenes   any   of   the   provisions   of
these rules or the notifications issued under
these rules with intent to evade payment of
duty,
then,   all   such   goods   shall   be   liable   to
confiscation   and   the   producer   or
manufacturer   or   registered   person   of   the
warehouse,   or   an   importer   who   issues   an
invoice   on   which   CENVAT   credit   can   be
taken,   or   a   registered   dealer,   as   the   case
may   be,   shall   be   liable   to   a   penalty   not
exceeding   the   duty   on   the   excisable   goods
in respect of which any contravention of the
nature referred to in clause (a) or clause (b)
or   clause   (c)   or   clause   (d)   has   been
committed,   or   five   thousand   rupees,
whichever is greater.
(2)   An   order   under   sub­rule   (1)   shall   be
issued   by   the   Central   Excise   Officer,
following the principles of natural justice.”
SARFAESI Act, 2002
Section 2(zc) to 2(zf) 
“(zc)   “ secured   asset ”   means   the   property
on which security interest is created; 
(zd)  “ secured creditor”  means—
(i)   any   bank   or   financial   institution   or   any
consortium   or   group   of   banks   or   financial
institutions   holding   any   right,   title   or
29

interest   upon   any   tangible   asset   or
intangible asset as specified in clause (l);
(ii)   debenture   trustee   appointed   by   any
bank or financial institution; or
(iii)   an   asset   reconstruction   company
whether acting as such or managing a trust
set up by
such   asset   reconstruction   company   for   the
securitisation or reconstruction, as the case
may be; or
(iv)   debenture   trustee   registered   with   the
Board   appointed   by   any   company   for
secured debt securities; or
(v)   any   other   trustee   holding   securities   on
behalf of a bank or financial institution,
in whose favour security interest is created
by   any   borrower   for   due   repayment   of   any
financial
assistance.]
(ze)  “secured debt”  means a debt which is
secured by any security interest;
(zf)   “security   interest”   means   right,   title
or   interest   of   any   kind,   other   than   those
specified   in   section   31,   upon   property
created   in   favour   of   any   secured   creditor
and includes—
(i)   any   mortgage,   charge,   hypothecation,
assignment   or   any   right,   title   or   interest   of
any kind, on tangible asset, retained by the
secured   creditor   as   an   owner   of   the
property, given on hire  or financial lease or
conditional sale or under any other contract
which   secures   the   obligation   to   pay   any
unpaid   portion   of   the   purchase   price   of   the
asset   or   an   obligation   incurred   or   credit
provided   to   enable   the   borrower   to   acquire
the tangible asset; or
30

(ii)   such   right,   title   or   interest   in   any
intangible asset or assignment or licence of
such   intangible   asset   which   secures   the
obligation   to   pay   any   unpaid   portion   of   the
purchase price of the intangible asset or the
obligation incurred or any credit provided to
enable   the   borrower   to   acquire   the
intangible   asset   or   licence   of   intangible
asset.”
Section 13 
“   13. Enforcement of security interest    .—
( 1)   Notwithstanding   anything   contained   in
section 69 or section 69A of the Transfer of
Property Act, 1882 (4 of 1882), any security
interest   created   in   favour   of   any   secured
creditor   may   be   enforced,   without   the
intervention of the court or tribunal, by such
creditor in accordance with the provisions of
this Act.
(2)   Where   any   borrower,   who   is   under   a
liability   to   a   secured   creditor   under   a
security   agreement,   makes   any   default   in
repayment   of   secured   debt   or   any
instalment   thereof,   and   his   account   in
respect   of   such   debt   is   classified   by   the
secured   creditor   as   non­performing   asset,
then,   the   secured   creditor   may   require   the
borrower by notice in writing to discharge in
full   his   liabilities   to   the   secured   creditor
within   sixty   days   from   the   date   of   notice
failing   which   the   secured   creditor   shall   be
entitled   to   exercise   all   or   any   of   the   rights
under sub­section (4).
(3)   The   notice   referred   to   in   sub­section   (2)
shall give details of the amount payable by
the   borrower   and   the   secured   assets
intended   to   be   enforced   by   the   secured
31

creditor   in   the   event   of   non­payment   of
secured debts by the borrower.
  (4)   In   case   the   borrower   fails   to   discharge
his   liability   in   full   within   the   period
specified   in   sub­section   (2),   the   secured
creditor may take recourse to one or more of
the   following   measures   to   recover   his
secured debt, namely:—
(a)   take   possession   of   the   secured
assets   of   the   borrower   including   the
right   to   transfer   by   way   of   lease,
assignment   or   sale   for   realising   the
secured asset;
[(b)   take   over   the   management   of
the   business   of   the   borrower   including
the   right   to   transfer   by   way   of   lease,
assignment   or   sale   for   realising   the
secured asset:
Provided   that   the   right   to   transfer
by   way   of   lease,   assignment   or   sale
shall   be   exercised   only   where   the
substantial   part   of   the   business   of   the
borrower   is   held   as   security   for   the
debt:
Provided   further   that   where   the
management   of   whole   of   the   business
or part of the business is severable, the
secured   creditor   shall   take   over   the
management   of   such   business   of   the
borrower   which   is   relatable   to   the
security for the debt;
(c)   appoint   any   person   (hereafter
referred to as the manager), to manage
the   secured   assets   the   possession   of
which   has   been   taken   over   by   the
secured creditor;
(d) require at any time by notice in
writing,   any   person   who   has   acquired
any   of   the   secured   assets   from   the
borrower and from whom any money is
32

due   or   may   become   due   to   the
borrower,   to   pay   the   secured   creditor,
so much of the money as is sufficient to
pay the secured debt.
(5)   Any   payment   made   by   any   person
referred to in clause (d) of sub­section (4) to
the   secured   creditor   shall   give   such   person
a   valid   discharge   as   if   he   has   made
payment to the borrower.
(6)   Any   transfer   of   secured   asset   after
taking   possession   thereof   or   take   over   of
management   under   sub­section   (4),   by   the
secured   creditor   or   by   the   manager   on
behalf   of   the   secured   creditor   shall   vest   in
the transferee all rights in, or in relation to,
the   secured   asset   transferred   as   if   the
transfer   had   been   made   by   the   owner   of
such secured asset.
(7)   Where   any   action   has   been   taken
against   a   borrower   under   the   provisions   of
sub­section   (4),   all   costs,   charges   and
expenses   which,   in   the   opinion   of   the
secured   creditor,   have   been   properly
incurred by him or any expenses incidental
thereto,   shall   be   recoverable   from   the
borrower   and   the   money   which   is   received
by the secured creditor shall, in the absence
of   any   contract   to   the   contrary,   be   held   by
him   in   trust,   to   be   applied,   firstly,   in
payment   of   such   costs,   charges   and
expenses and secondly, in discharge of the
dues of the secured creditor and the residue
of   the   money   so   received   shall   be   paid   to
the   person   entitled   thereto   in   accordance
with his rights and interests.
8 ……………………..
9 ……………………..
10 ……………………
11 ……………………
12 ……………………
33

13 ……………………
SARFAESI Act, 2002
Section 35  
“   35.   The   provisions   of   this   Act   to
override   other   laws    .—The   provisions   of
this   Act   shall   have   effect,   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.”             (emphasis
supplied)
31. We have heard learned counsel for both the parties at
length and have carefully perused the record.
32. The   Commissioner   Customs   and   Central   Excise,
Ghaziabad   vide   order   dt.   26.03.2007,   ordered   the
confiscation of all the land, building, plant, machinery
etc.   of   RIL.   This   confiscation   order   was   passed   under
rule   173Q(2)   of   the   Central   Excise   Rules,   1944.
However,   in   the   impugned   order,   the   High   Court   has
not   considered   that   on   the   date   of   the   confiscation
orders   i.e.   26.03.2007   and   29.03.2007,   Rule   173Q(2)
stood omitted from  the statute books vide government
notification dated 12.05.2000. 
34

33. We do not find merit in the submission of the learned
Counsel   for   the   Respondent   that   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 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.
34. Constitution   bench   of   this   Court   in   Kolhapur
Canesugar   Works   Ltd.   Vs   Union   of   India   &   Ors.
[(2000) 2 SCC 536]  has held that:
“11.   In   the   factual   backdrop   of   the   case
discussed   earlier   the   question   that   arises
for  determination  is   whether  after  omission
of   the   old   Rule   10   and   10­A   and   its
substitution   by   the   new   Rule   10   by   the
Notification   No   267/77   dated   6.8.77   the
proceedings   initiated   by   the   notice   dated
27.4.77   could   be   continued   in   law.   If   the
question is answered in the affirmative then
the   order   dated   15/27th   October,   1977   of
the   Asstt.   Collector   of   Central   Excise
confirming   the   demand   for   re­credit   of   the
amount   of   Rs.   61,41,930   cannot   be
interfered   with.   On   the   other   hand,   if   the
question   is   answered   in   the   negative   then
the said order is to be taken as non­est.
.
.
35

.
34.   (...)   It   is   not   correct   to   say   that   in
considering   the   question   of   maintainability
of   pending   proceedings   initiated   under   a
particular provision of the rule after the said
provision   was   omitted   the   Court   is   not   to
look for a provision in the newly added rule
for continuing the pending proceedings. It is
also   not   correct   to   say   that   the   test   is
whether   there   is   any   provision   in   the   rules
to   the   effect   that   pending   proceedings   will
lapse   on   omission   of   the   rule   under   which
the   notice   was   issued.   It   is   our   considered
view that in such a case the Court is to look
to the provisions in the rule which has been
introduced   after   omission   of   the   previous
rule   to   determine   whether   a   pending
proceeding will continue or lapse. If there is
a   provision   therein   that   pending
proceedings shall continue and be disposed
of   under   the   old   rule   as   if   the   rule   has   not
been   deleted   or   omitted   then   such   a
proceeding   will   continue.   If   the   case   is
covered by Section 6 of the General Clauses
Act   or   there   is   a   pari­materia   provision   in
the   statute   under   which   the   rule   has   been
framed   in   that   case   also   the   pending
proceeding will not be  affected by omission
of   the   rule.   In   the   absence   of   any   such
provision   in   the   statute   or   in   the   rule   the
pending   proceedings   would   lapse   on   the
rule   under   which   the   notice   was   issued   or
proceeding   was   initiated   being
deleted/omitted.   It   is   relevant   to   note   here
that   in   the   present   case   the   question   of
divesting the Revenue of a vested right does
not   arise   since   no   order   directing   refund   of
the   amount   had   been   passed   on   the   date
when Rule 10 was omitted.
36

35. We, therefore, hold that the decisions of
the   Full   Bench   of   the   Gujarat   High   court
and   the   Division   Bench   of   the   Karnataka
High   Court   noted   above   were   not   correctly
decided. The said decisions are overruled.
36. In the case in hand, Rule 10 or Rule 10­
A   is   neither   a   "Central   Act"   nor   a
"Regulation" as defined in the Act. It may be
a   Rule   under   Section   3(51)   of   the   Act.
Section   6   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".
37.   The   position   is   well   known   that   at
common law,  the  normal  effect  of  repealing
a   statute   or   deleting   a   provision   is   to
obliterate   it   from   the   statute   book   as
completely   as   if   it   had   never   been   passed,
and   the   statute   must   be   considered   as   a
law   that   never   existed.   To   this   rule,   an
exception   is   engrafted   by   the   provisions
Section   6(1).   If   a   provision   of   a   statute   is
unconditionally   omitted   without   a   saving
clause in favour of pending proceedings, all
actions must stop where the omission finds
them,   and   if   final   relief   has   not   been
granted before the omission goes into effect,
it cannot be granted afterwards. Savings of
the   nature   contained   in   Section   6   or   in
special Acts may modify the position. Thus,
the operation of repeal or deletion as to the
future and  the past  largely depends  on the
savings   applicable .   In   a   case   where   a
particular   provision   in   a   statute   is   omitted
and   in   its   place   another   provision   dealing
with   the   same   contingency   is   introduced
without   a   saving   clause   in   favour   of
37

pending   proceedings   then   it   can   be
reasonably inferred that the intention of the
legislature   is   that   the   pending   proceeding
shall not continue but a fresh proceeding for
the   same   purpose   may   be   initiated   under
the new provision.”    
(emphasis supplied)
35. The   Gujarat   High   Court   in   Kotak   Mahindra   Bank
Ltd.   Vs.   District   Magistrate   [2010   SCC   online
Gujarat   10656]   has   held  that   from   a   perusal   of  Rule
28,   it   is   clear   that   the   Legislature   intended   to
confiscate   only   “goods”   which   is   distinct   from
immovable   property   like   land,   building,   plant,
machinery etc. We quote, with approval, the reason for
which,   the   High   Court   held   that   “The   competent
authority of Excise and Customs Department, including
the   Commissioner   of   Central   Excise   and   Customs,
Vadodara­II   had   no   jurisdiction   to   confiscate   the   land
under Rule 173Q (2), the said rule having been omitted
and substituted by Rule 28, by the time the Order dated
25.02.2006   was   passed.   The   order   being   without
jurisdiction  is   nullity  in  the   eye   of   law  and  thereby  the
38

authorities   cannot   derive   advantage   of   the   order   dated
25.02.2006.”
36. In   the   case   at   hand,   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.   Firstly,   as
has been held by a Constitution Bench of this Court in
Kolhapur Canesugar Works Ltd. Vs Union of India
&   Ors.   [(2000)   2   SCC   536] ,   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,
39

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 present 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
40

“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   (supra)   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.
41

37. Secondly,   coming   to   the   issue   of   priority   of   secured
creditor’s debt over that of the Excise Department, the
High   Court   in   the   impugned   judgment   has   held   that
“In   view   of   the   matter,   the   question   of   first   charge   or
second charge over  the properties would  not arise.”   In
this context, we are of the opinion that the High Court
has misinterpreted the issue to state that the question
of   first   charge   or   second   charge   over   the   properties,
would not arise. 
38. A  Full  Bench   of  the  Madras High  Court  in  the  case  of
UTI Bank Ltd. Vs. Dy. Commissioner Central Excise
[2006   SCC   Online   Madras   1182],   while   dealing   with
a similar issue, has held that:
“25.   In   the   case   on   hand,   the   petitioner
Bank which took possession of the property
under   Section   13   of   the   SARFAESI   Act,
being a special enactment, undoubtedly is a
secured   creditor.   We   have   already   referred
to   the   provisions   of   the   Central   Excise   Act
and   the   Customs   Act.   They   envisage
procedures   to   be   followed   and   how   the
amounts   due   to   the   Departments   are   to   be
recovered.   There   is   no   specific   provision
either   in   the   Central   Excise   Act   or   the
Customs   Act,   claiming   "first   charge"   as
provided   in   other   enactments,   which   we
have pointed out in earlier paragraphs.
42

26. In the light of the above discussion, we
conclude, 
“(i)  Generally,  the   dues   to   Government,  i.e.,
tax,   duties,   etc.  (Crown's   debts)   get   priority
over ordinary debts.
(ii) Only when there is a specific provision in
the   statute   claiming   "first   charge"   over   the
property,   the   Crown's   debt   is   entitled   to
have priority over the claim of others.
(iii)   Since   there   is   no   specific   provision
claiming "first charge" in the Central Excise
Act   and   the   Customs   Act,   the   claim   of   the
Central   Excise   Department   cannot   have
precedence   over   the   claim   of   secured
creditor, viz., the petitioner Bank.
(iv) In the absence of such specific provision
in   the   Central   Excise   Act   as   well   as   in
Customs   Act,   we   hold   that   the   claim   of
secured   creditor   will   prevail   over   Crown's
debts."
In   view   of   our   above   conclusion,   the
petitioner   UTI   Bank,   being   a   secured
creditor   is   entitled   to   have   preference   over
the   claim   of   the   Deputy   Commissioner   of
Central Excise, first respondent herein.” 
(emphasis supplied)
This   Court,   while   dismissing   the   Civil  Appeal  No.3627
of   2007   filed   against   the   judgment   of   the   Full   Bench,
vide order dated 12.09.2009 held as under: 
“Having   gone   through   the   provisions   of   the
Securitization   Act,   2002,   in   light   of   the
43

judgment of the Division Bench of this court
in the case of Union of India vs Sicom Ltd. &
Anr.,   reported   in   2009   (1)   SCALE   10,   we
find   that   under   the   provisions   of   the   said
2002   Act,   the   appellants   did   not   have   any
statutory   first   charge   over   the   property
secured   by   the   respondent   bank.   In   the
circumstances,   the   Civil   Appeal   is
dismissed with no order as to costs” 
(emphasis supplied)
Hence   the   reasoning   given   by   the   High   Court   stands
strong and has been affirmed by this Court. 
39. This   Court,   in   Dena   Bank   vs   Bhikhabhai   Prabhu
Dass Parikh & Anr. [(2000) 5 SCC 694],  wherein the
question   raised   was   whether   the   recovery   of   sales   tax
dues (amounting to Crown debt) shall have precedence
over   the   right   of   the   bank   to   proceed   against   the
property   of   the   borrowers   mortgaged   in   favour   of   the
bank, observed as under:
“10. However, the Crowns preferential right
of   recovery   of   debts   over   other   creditors   is
confined to ordinary or unsecured creditors.
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   of   recovery   of   its   debts
over   a   mortgagee   or   pledgee   of   goods   or   a
Secured Creditor.”              (emphasis
supplied)
44

40. Further,   in   Central   Bank   of   India   Vs.   Siriguppa
Sugars   &   Chemicals   Ltd.   &   Ors.   [(2007)   8   SCC
353],   while   adjudicating   a   similar   matter,   this   Court
has held as under:
“18. Thus, going by the principles governing
the   matter,   propounded   by   this   Court   there
cannot   be   any   doubt   that   the   rights   of   the
appellant­bank over the pawned sugar had
precedence   over   the   claims   of   the   Cane
Commissioner   and   that   of   the   workmen.
The   High   Court   was,   therefore,   in   error   in
passing an interim order to pay parts of the
proceeds   to   the   Cane   Commissioner   and   to
the   Labour   Commissioner   for   disbursal   to
the   cane   growers   and   to   the   employees.
There   is   no   dispute   that   the   sugar   was
pledged   with   the   appellant   bank   for
securing   a   loan   of   the   first   respondent   and
the   loan   had   not   been   repaid.   The   goods
were   forcibly   taken   possession   of   at   the
instance   of   the   revenue   recovery   authority
from   the   custody   of   the   pawnee,   the
appellant­bank.   In  view  of  the  fact  that  the
goods were validly pawned to the appellant
bank,   the   rights   of   the   appellant­bank   as
pawnee cannot be affected by the orders of
the   Cane   Commissioner   or   the   demands
made   by   him   or   the   demands   made   on
behalf   of   the   workmen.   Both   the   Cane
Commissioner   and   the   workmen   in   the
absence   of   a   liquidation,   stand   only   as
unsecured  creditors  and  their rights  cannot
prevail over the rights of the pawnee of the
goods.”     (emphasis supplied)
45

41. The   Bombay   High   Court   in   Krishna   Lifestyle
Technologies   Ltd.   Vs.   Union  of  India  &  Ors.   [2008
SCC   Online   Bombay   137],   wherein   the   issue   for
consideration was “whether 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, 2002” held that:
“ 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. Deputy Commissioner of C.
Excise,   Chennai­II   has   examined   the   issue
in   depth.   The   Court   was   pleased   to   hold
that   tax   dues   under   the   Customs   Act   and
Central   Excise   Act,   do   not   have   priority   of
claim 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
46

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.”
(emphasis supplied)
42. An SLP (No. 12462/2008) against the above judgement
of   the   Bombay   High   Court   stands   dismissed   by   this
Court on 17.07.2009 by relying upon the judgement in
the   matter   of   Union   of   India   vs   SICOM   Ltd.   &   Anr.
Reported in [(2009) 2 SCC 121],  wherein the question
involved   was   “Whether   realization   of   the   duty   under
the   Central   Excise   Act   will   have   priority   over   the
secured   debts   in   terms   of   the   State   Financial
Corporation Act, 1951” and this Court held as under:
“9.   Generally,   the   rights   of   the   crown   to
recover the debt would prevail over the right
of   a   subject.   Crown   debt   means   the   debts
due  to the  State  or the king; debts  which a
prerogative   entitles   the   Crown   to   claim
priority   for   before   all   other   creditors.   [See
Advanced   Law   Lexicon   by   P.   Ramanatha
Aiyear   (3rd   Edn.)   p.   1147].   Such   creditors,
however,   must   be   held   to   mean   unsecured
creditors .   Principle   of   Crown   debt   as   such
pertains   to   the   common   law   principle.   A
common   law   which   is   a   law   within   the
47

meaning   of   Article   13   of   the   Constitution   is
saved in terms of Article 372 thereof. Those
principles of common law, thus, which were
existing   at   the   time   of   coming   into   force   of
the   Constitution   of   India   are   saved   by
reason   of   the   aforementioned   provision.   A
debt which is secured or which by reason of
the provisions of a statute becomes the first
charge   over   the   property   having   regard   to
the   plain   meaning   of   Article   372   of   the
Constitution of India must be held to prevail
over the Crown debt which is an unsecured
one.             (emphasis
supplied)
43. In view of the above, we are of the firm opinion that the
arguments of the learned counsel for the Appellant, on
the   second   issue,   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   present   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
48

Act,   2002,   the   Secured   Creditor   will   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,   shall   have   overriding
effect   on   all   other   laws.   It   is   further   pertinent   to   note
that   even   the   provisions   contained   in   Section   11E   of
the   Central   Excise   Act,   1944   are   subject   to   the
provisions contained in the SARFAESI Act, 2002. 
44. Thus,   as   has   been   authoritatively   established   by   the
aforementioned   cases   in   general,   and   Union   of   India
vs   SICOM   Ltd.   (supra)   in   particular,   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,   will   have   an   overriding   effect
on the provisions of the Act of 1944. 
45. 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 contention that a confiscation order cannot
49

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   present   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   present   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.
46. Further,   the   contention   that   in   the   present   case,   the
confiscation   proceedings   were   initiated   almost   8­9
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
50

created   after   some   time   period   has   lapsed   post   the
initiation   of   the   confiscation   proceedings,   will   not
provide   legitimacy   to   a   confiscation   order   that   is   not
rooted in any valid and existing statutory provision.
47. To   conclude,   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,   will   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 will have an overriding effect on the provisions of
the Central Excise Act of 1944.
48. Accordingly, the Appeal is Allowed and the confiscation
orders   dated   26.03.2007   and   29.03.2007,   passed   by
51

the   Commissioner   Customs   and   Central   Excise,
Ghaziabad, are quashed.
………………………………..J.
                                               [L. NAGESWARA RAO]
………………………………..J.
                                              [VINEET SARAN]
New Delhi
Dated: February 24, 2022
52