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18 Oct 2014

Bank has preferential rights to recover its dues under SARFAESI Act over dues of Excise Department

The honorable Allahabad High Court in case of State Bank of India v Assistant Commissioner of Central Excise & Service Tax (2014) 49 taxmann.com 303 Allahabad has held that Rights of a bank to recover its dues under SARFAESI Act have first preferential charge over that of central excise/customs/service tax dues.

It was observed by the High Court that the Crown's preferential right to recover its debts over other creditors is confined to ordinary or unsecured creditors and that the Crown's debts does not override the right of a secured creditor unless there is a statute to the contrary. Also there is no provision under the Central Excise Act and the Customs Act, which gives first preference or the first charge for recovery of the amount. The Central Excise Act and Customs Act only envisage procedures for recovery of the amount and there is no provision giving first charge to the department for recovery of the amount. On the other hand, the SARFAESI Act, 2002 clearly provides a provision for recovery of the amount to a secured creditor, who had the first charge.

In the light of the aforesaid, the SARFAESI Act, 2002, being a special enactment and the petitioner being a secured creditor had the first charge to recover the amount, the Central Excise Department had no authority of law to restrain the petitioner-bank from proceeding with the recovery of the amount from the assets of assessee-company over which the petitioner had the first charge.