By Santosh Hatwar

SECTION 11E is being inserted in the Central Excise Act, 1944 to create a first charge on the property of a defaulter for recovery of Central Excise dues subject to the provisions of the Companies Act, Recovery of Debt due to Bank and Financial Institution Act, 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Section 11E reads as follows:

11E. 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 there under, 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 Securitization 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.

According to this provision, after the dues, if any, under the provisions of Companies Act, Recovery of Debt due to Bank and Financial Institution Act, 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the dues under the Central Excise Act, 1944 shall have a ‘First Charge'.

Similar provisions are incorporated in Finance Act, 1994 by virtue of insertion of section 88 therein to provide for ‘First Charge' for service tax dues. Likewise, section 142A is inserted in the Customs Act, 1962 to provide for ‘First Charge' on Customs dues.

Section 529A of the Companies Act, 1956 provides for an overriding effect on any other law for the time being in force in this country with regard to workmen's dues and debts due to secured creditors. Similar is the situation in the other two legislations as well.

If the charge which is being created by virtue of these amendments to the respective indirect tax legislations is subject to the provisions of Companies Act, Recovery of Debt due to Bank and Financial Institution Act, 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, then how will this be regarded as the ‘First Charge'? Is the Government under an impression that anything will be left after clearing workmen's dues and debts of secured creditors?

At this juncture, it may be pertinent to note that similar provisions exist in State Financial Corporation Act, 1951 under which respective State Financial Corporations are established to serve as lending organizations for small and medium enterprises. Unfortunately, the latest provisions in the Customs, Excise and Service tax legislations inserted to uphold the primacy of these dues as ‘First Charge' does not mention anything about State Financial Corporation Act, 1951.

However, to resolve the primacy of all these legislations in recovering the dues, we have to wait for the Supreme Court to decide as to which of these legislations will ultimately prevail over the other for recovery of such dues (including these statutory levies) from defaulters.