Bank has preferential right to recover Dues over Indirect Tax dues

The hon­or­able Alla­habad High Court in case of State Bank of India v Assis­tant Com­mis­sion­er of Cen­tral Excise & Ser­vice Tax (2014) 49 303 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.

 

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