Metal Box India Limited vs Union of India and Others

Hemant Gupta, J.—Challenge in the present writ petition is to the demand (Annexure P-13) consequent to declining of an application for stay filed by the petitioner before the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi (for short ''the Tribunal'') against the recovery of Rs. 81,02,802.73.

The petitioner, a public limited company, has invoked the writ jurisdiction of this Court challenging the demand raised under the Central Excise and Salt Act, 1944 (since re-named as Central Excise Act, 1944) (hereinafter referred to as ''the Excise Act''). The petitioner-company asserts that its net-worth got fully eroded in the year 1987, which compelled its management to suspend operations of all units in all States and to approach the Board for Industrial and Financial Reconstruction (BIFR), a statutory body established under the Sick Industrial Companies (Special Provisions) Act, 1985 (for short ''the Act''). The petitioner asserts that in respect of the dues of Sales Tax Department, the petitioner filed a writ petition bearing CWP No. 7622 of 1991 before this Court, which was disposed of vide order dated 30.10.1991 in view of the judgment of Hon''ble Supreme Court since reported as The Gram Panchayat and another Vs. Shree Vallabh Glass Works Ltd. and others, AIR 1990 SC 1017 : (1991) 71 CompCas 169 : (1990) 1 SCALE 439 : (1990) 2 SCC 440 : (1990) 1 SCR 966 : (1992) 86 STC 41 : (1990) 2 UJ 27 Thereafter, fresh demand of sales tax was raised against the petitioner, which became subject matter of challenge by way of CWP No. 1685 of 1994. The said writ petition was allowed vide order dated 16.05.1994 holding that the recoveries were not permissible without permission of the BIFR in the light of the judgment in Shree Vallabh Glass Works Limited case (supra).

Thereafter, the Assistant Collector, Central Excise, issued a show cause notice on 28.07.1981 (Annexure P-6) to the petitioner to show cause as to why penalty should not be imposed for contravention of Rule 9(1) of the Central Excise Rules, 1944 and why the entire duty on the cartons supplied by customers should not be recovered. The Assistant Collector passed an order on 16.06.1982 holding that the value of packing material i.e. cartons should be included in the assessable value of metal containers and the central excise duty is recoverable. The Assistant Collector also imposed a penalty of Rs. 2000/- under Rule 9(2) of the Central Excise Rules, 1944 for contravention.

On the basis of such order, demand of Rs. 62,10,507.64 was raised against the petitioner for the period from 01.01.1980 to 12.02.1982. Aggrieved against the said demand, the petitioner filed an appeal, but pending appeal, recovery of central excise duty in terms of the adjudication order amounting to Rs. 81,02,802.73 was sought vide letter dated 01.10.1982. Aggrieved by the process of recovery, the petitioner filed an appeal before the Collector (Appeals), which was dismissed on 11.02.1983 holding that an appeal lies only against a final adjudication order and no appeal lies against any communication, which is merely a step towards implementation of the order of the adjudicating authority. Thereafter, the petitioner filed further appeal before the Tribunal alongwith an application for stay, which was also dismissed holding that no appeal can lie against the communication dated 01.10.1982, as it was an order of quantification of duty only.

It is, thereafter, the petitioner filed the present writ petition asserting that the petitioner is a sick industrial company and has protection under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. Reliance is also made to a similar writ petitions filed before the Bombay High Court and Madras High Court bearing W.P. No. 294 of 1993 and W.P. No. 14237 of 1994 respectively.

In the written statement filed, it was stated that the amount due to the Government can be recovered from the petitioner by the competent authority in exercise of the powers conferred under the Act unless the recovery is stayed by specific order of the Appellate Authority. It is further stated that the petitioner is not entitled to protection under the provisions of the Act, as the dues outstanding on account of the central excise duty are recoverable under the provisions of Excise Act.

Learned counsel for the petitioner has vehemently argued that once the matter including for recovery of dues of the central excise is pending before the BIFR, therefore, all proceedings against the petitioner-company are to be suspended. In support of such argument, learned counsel for the petitioner refers to a judgment of Hon''ble Supreme Court in Raheja Universal Limited Vs. NRC Limited and Others, AIR 2012 SC 1440 : (2012) 1 BC 686 : (2012) CLA 326 : (2012) 170 CompCas 256 : (2012) 2 CompLJ 1 : (2012) 2 CTC 103 : (2012) 4 SCC 148 : (2012) AIRSCW 1742 considering its earlier judgment in Deputy Commercial Tax Officer and Others Vs. Corromandal Pharmaceuticals and Others, AIR 1997 SC 2027 : (1997) 89 CompCas 1 : (1997) 3 JT 660 : (1997) 2 SCALE 640 : (1997) 10 SCC 649 : (1997) 2 SCR 1026 : (1997) 105 STC 327 : (1997) AIRSCW 1816 : (1997) 4 Supreme 259 dealing with recovery of dues of the State. It is argued that in terms of the judgment in Raheja Universal Limited case (supra), the recovery proceedings cannot continue even in respect of the dues payable to the State Government either under the State Sales Tax laws or under the Central Excise.

We have heard learned counsel for the parties and with their assistance gone through the provisions of the Act as well as the provisions of Section 11-E of the Excise Act inserted vide Finance Act No. 8 of 2011 w.e.f. 08.04.2011. The relevant provisions of the Act and the Excise Act are as under:

The Sick Industrial Companies (Special Provisions) Act 1985

"22. Suspension of legal proceedings, contracts, etc. - (1) Where in respect of an industrial company, an inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under Section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956, or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority.

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The Central Excise Act 1944

"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, the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002, be the first charge on the property of the assessee or the person, as the case may be."

The argument of learned counsel for the petitioner is that Sections 22 and 32 of the Act gives override effect to the provisions of the Act over any other law. Therefore, the proceedings for recovery under the Excise Act cannot proceeding against the petitioner in view of the fact that the reference is pending before the BIFR. Though learned counsel for the petitioner could not disclose about the status of the reference pending before the BIFR, but from the web-site of BIFR, it transpires that reference stands disposed of on 15.01.2014, as the scheme stands sanctioned. A copy of the order dated 15.01.2014 is taken on record as Mark-A. However, there is no discussion in the order available on the website regarding dues payable to the central excise department, though there is discussion in respect of the sales tax dues payable to the Government of Maharashtra. In respect of W.P. No. 294 of 1993, from the website of Bombay High Court, it transpires that the said writ petition stands disposed of on 23.01.2014, but such order is not available.

Section 11E of the Excise Act was inserted vide Finance Act No. 8 of 2011 w.e.f. 08.04.2011. The said provision start with non-obstante clause that 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 shall be the first charge on the property of the assessee except of the workmen under Section 529A of the Companies Act, 1956 and the dues of the secured creditors under the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002.

The Act is a central statute, whereas the Excise Act is another central statute. Section 11E has been inserted in the Excise Act giving overriding effect to the provisions of the dues of the State after the enactment of the Act and the amendments carried out. The provisions of the Act have not been saved while inserting Section 11E in the Excise Act. Therefore, in terms of Section 11E of the Excise Act, the excise dues are the first charge subject to the rights of the workmen and the secured creditors.

The judgment in Raheja Universal Limited case (supra) would not be applicable to the present case for the reason that it deals with the rights of two contractual parties vis-�-vis the Transfer of Property Act. The dues of the State under the Excise Act was not in issue, which has got statutorily first charge over the assets of the company. In view of the overriding effect of the provisions of the Excise Act, the proceedings of recovery of excise dues cannot be stayed in terms of Section 22 of the Act.

The another argument raised by Mr. Sagar is that Section 11E is not retrospective and, therefore, the excise dues determined for the year 1982 would not be covered by the provisions of Section 11E of the Excise Act. We do not find any merit in the said argument as well. In N.K. Bajpai Vs. Union of India (UOI) and Another, AIR 2012 SC 1310 : (2012) 2 CTC 449 : (2012) 190 ECR 159 : (2012) 3 RCR(Civil) 459 : (2012) 3 SCALE 452 : (2012) 4 SCC 653 : (2012) AIRSCW 1974 : (2012) 2 Supreme 417 , the Hon''ble Supreme Court examined the provisions of Customs Act, 1962 restricting the rights of the former members of the Customs, Excise and Service Tax Appellate Tribunal to appear before the Tribunal after they cease to be members including the operation of such law retrospectively or retroactively. It has been held to the following effect:

"60. One must clearly understand a distinction between a law being enforced retrospectively and a law that operates retroactively. The restriction in the present case is a clear example where the right to practice before a limited forum is being taken away in praesenti while leaving all other forums open for practice by the appellants. Though such a restriction may have the effect of relating back to a date prior to the presenti. In that sense, the law stricto sensu is not retrospective, but would be retroactive. It is not for the Court to interfere with the implementation of a restriction, which is otherwise valid in law, only on the ground that it has the effect of restricting the rights of the people who attain that status prior to the introduction of the restriction. It is certainly not a case of settled or vested rights, which are incapable of being interfered with. It is a settled canon of law that the rights are subject to restrictions and the restrictions, if reasonable, are subject to judicial review of a very limited scope.

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Earlier, the nature of law, as substantive or procedural, was taken as one of the determinative factors for judging the retrospective operation of a statute. However, with the development of law, this distinction has become finer and of less significance. Justice G.P. Singh, in his Principles of Statutory Interpretation (12th Edition, 2010) has stated that the classification of a statute, as either a substantive or procedural law, does not necessarily determine whether it may have retrospective operation. For example, a statute of limitation is generally regarded as procedural, but its application to a past cause of action has the effect of reviving or extinguishing a right to sue. Such an operation cannot be said to be procedural. It has also been noted that the rule of retrospective construction is not applicable merely because a part of the requisites for its action is drawn from a time antecedent to the passing of the relevant law. For these reasons, the rule against retrospectivity has also been stated, in recent years, to avoid the classification of statutes into substantive and procedural and the usage of words like ''existing'' or ''vested''."

The said view has been followed by a Division Bench of this Court in Punjab Marriage Palace and Resorts Association Vs. State of Punjab, (2014) 3 RCR(Civil) 674 . The provisions of Section 11E of the Excise Act are declaratory in nature and would be applicable irrespective of the fact; whether the central excise dues were due and payable prior to the amendment or after the amendment. Such provision is applicable to all dues of excise prior or after the provision was inserted in the said Act, it being declaratory and retroactive enactment.

Still further, in Central Bank of India Vs. State of Kerala and Others, (2010) 153 CompCas 497 : (2009) 2 CompLJ 36 : (2009) 3 JT 216 : (2009) 3 SCALE 451 : (2009) 4 SCC 94 : (2009) 3 SCR 735 : (2009) 12 Vat Reporter 137 : (2009) 21 VST 505 , the provisions of the amending State laws of creating first charge on the property of the dealer on the ground of inconsistency with the provisions under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 came up for consideration. The Supreme Court held that neither of the Statute i.e. Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 has created first charge as secured creditors in favour of the Banks, Financial Institutions qua the property of the borrower, therefore, the State law would prevail. It was observed as under:

"114. By enacting various provisos to sub-section (9), the legislature has ensured that priority given to the claim of workers of a company in liquidation under Section 529A of the Companies Act, 1956 vis a vis secured creditors like banks is duly respected. This is the reason why first of the five unnumbered provisos to Section 13(9) lays down that in the case of a company in liquidation, the amount realized from the sale of secured assets shall be distributed in accordance with the provisions of Section 529A of the Companies Act, 1956. This and other provisos do not create first charge in favour of the worker of a company in liquidation for the first time but merely recognize the existing priority of their claim under the Companies Act. It is interesting to note that the provisos to subsection (9) of Section 13 do not deal with the companies which fall in the category of borrower but which are not in liquidation or are not being wound up.

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The non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act give overriding effect to the provisions of those Acts only if there is anything inconsistent contained in any other law or instrument having effect by virtue of any other law. In other words, if there is no provision in the other enactments which are inconsistent with the DRT Act or Securitisation Act, the provisions contained in those Acts cannot override other legislations. Section 38C of the Bombay Act and Section 26B of the Kerala Act also contain non obstante clauses and give statutory recognition to the priority of State''s charge over other debts, which was recognized by Indian High Courts even before 1950. In other words, these sections and similar provisions contained in other State legislations not only create first charge on the property of the dealer or any other person liable to pay sales tax, etc. but also give them overriding effect over other laws.

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The Court could have given effect to the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act vis a vis Section 38C of the Bombay Act and Section 26B of the Kerala Act and similar other State legislations only if there was a specific provision in the two enactments creating first charge in favour of the banks, financial institutions and other secured creditors but as the Parliament has not made any such provision in either of the enactments, the first charge created by the State legislations on the property of the dealer or any other person, liable to pay sales tax etc., cannot be destroyed by implication or inference, notwithstanding the fact that banks, etc. fall in the category of secured creditors."

Examining the principles laid down in the said judgment to the facts of the present case, we find that Section 11E of the Excise Act gives overriding effect over the provisions of all Central and State statutes except to the extent of the dues of the workmen and the secured creditors. In Central Bank of India case (supra), the issue was considered in relation to the first charge given under the statute framed by the State Legislature vis-�-vis law framed by the Parliament. But in the present case, the issue pertains to the Statutes framed by the Parliament. Since Section 11E of the Excise Act was inserted after the enactment of the Act giving first charge over the dues of the central excise, thus, it will have overriding operation over the provisions of the Act.

In view of the above, we do not find any merit in the present writ petition. The same is accordingly dismissed.