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15. In case of Collector of Aurangabad and Anr. v. Central Bank of India and Anr. , the Hon'ble Supreme Court went into the question of priority of Crown debt doctrine. The Court held that English Common Law Doctrine of the Priority of Crown debts was given judicial recognition in territory known as "British India" prior to 1950 in regard to the recovery of tax dues in priority to other private debts of the tax payer. It was further held that the doctrine having been incorporated into Indian law, is a "law in force" in the territory of India and by virtue of Article 372(1) of the Constitution of India, it continues to be in force in India until it is validly altered, repealed or amended. While so holding, the Hon'ble Supreme Court relied upon a judgment in the cases of Builder Supply Corporation v. Union of India and distinguished the case of Superintendent and Remembrance of Legal Affairs' case (supra). Despite so holding, the Hon'ble Supreme Court found that the doctrine of priority of Crown debts was not given judicial recognition in the territory of Hyderabad State before its incorporation into the Indian republic and, therefore, it could not be applied in the case before the Hon'ble Court. It is, thus obvious that apart from applicability of a doctrine, which was required to be seen as a matter of fact, whether this doctrine was applied or followed in a particular part of the Indian republic before the advent of Constitution was another factor required to be seen. This was a case where the collector of Aurangabad was claiming priority towards the payment of sale tax according to Common law doctrine of priority of Crown Debts and the Hon'ble Supreme Court in this regard held:

The royal prerogative may be defined as being that preeminence which the Sovereign enjoys over and above all other persons by virtue of the common law, but out of its ordinary course, in right of her legal dignity, and comprehends, all the special dignities liberties privileges, powers and royalties allowed by the common law to the Crown of England.

The question about the applicability of the priority of Crown debts was considered by the Bombay High Court in 1868 in Secretary of State in Council for India v. Bombay Landing and Shipping Co. Ltd. (1868-69) 5 Bom. H.C.O.C. 23, in which it was held that a judgment debt due to the Crown was in Bombay entitled to the same precedence in execution as a like judgment debt in England. If there is no special legislative provision affecting that right in the particular case. The same view has been taken by the Bombay High Court in a later case - Bank of India v. John Bowman - in which Chagla. C.J. pointed out that the priority given to the Crown was not on the basis of its debt being a judgment debt or a debt arising out of statute, but the Principle was that if the debts were of equal degree and the Crown and the subject were equal, the Crown's right would prevail over that of the subject. The same view has been adopted by a Full Bench of the Madras High Court in Manickam Chettair v. Income-tax Officer, Madura 1938-6 I.T.R. 180, in which it was held that the income tax debt had priority over private debts and the Court had inherent power to make an order for payment of moneys due to the Crown. A similar view has been expressed by the Madras High Court in Kaka Mohamed Ghouse Sahib and Co. v. United Commercial Syndicate 1963-49 I.T.R. 824 (Mad). All these authorities have been quoted with approval by this Court in Builders Supply Corporation v. Union of India , in which it was held that the Government of India was entitled to claim priority for arrears of income tax due to it from a citizen over debt from him to unsecured creditors and that the English common law doctrine of the priority of Crown debts has been given judicial recognition in the territory known as "British India", prior to 1950 in regard to the recovery of tax dues in priority to other private debts of the taxpayer. It was pointed out, therefore that the English Common Law doctrine having been incorporated into Indian law, was a 'law in force' in the territory of India, and, by virtue of Article 372(1) of the Constitution of India it continued to be in force in India until it was validly altered, repealed or amended.

20. Then came Dena Bank's case (supra), on which strong reliance has been placed by both the parties. The No. 1 for Union of India would urge that Dena Bank's case (supra) clearly laid down a ratio that the arrears of tax due of the State can claim priority over the other debts. On the other hand, No. 1 for PFC strenuously submitted that such priorities, even if available to claim, would be over the private debts and not the secured debts like that of the Financial Corporations. The submission made before the Hon'ble Supreme Court on behalf of Dena Bank was that right of the State to realize its arrears of tax could not take precedence over the right of the bank to enforce its security, it being a secured creditor, The question that arose for consideration in this case before the Hon'ble Supreme Court was as to whether recovery of sales tax dues (amount to Crown debt) shall have precedence over the right of bank to proceed against the property of the borrower mortgaged in favour of the Bank. While dealing with the common law doctrine of priority of crown debts, the Hon'ble Supreme Court held as under

30. This has been seriously contested by No. 1 for the respondents by referring to Dena Bank's case (supra) only. It is urged that the ratio laid down in the said case was not properly appreciated by the Division Bench of Orissa High Court in the case of Suburban Ply & Panels Pvt. Ltd's case (supra). Ratio in Dena Bank's case is clearly deduc-ible that priority was available against the unsecured debts and not the secured ones, which aspects, as per the No. 1, have not been properly noticed by Division Bench in Suburban Ply's case (supra). It is further submitted that Karnataka Sales Act, which was basically relied upon in Dena Bank's Case gave a priority to the sale tax even over the secured debts and that was the basic reason for the Supreme Court to hold that the Sale Tax would get priority over the debts of the bank in the said case. This appears to be so as can be seen from the observations of the Hon'ble Supreme Court recorded in Para 21 of the Judgment. It was found as a matter of fact that the appellant Bank was not allowed any relief in view of Section 15(2)(a) of Karnatka Sales Tax Act, which was found to have come into force on 18.12.1983 while the decree in favour of the bank was passed on 3.8.1992 and it was yet to be executed. It is in this background that the Hon'ble Supreme Court observed that even if it was to satisfy the sale held by the State, it would merely revive the arrears outstanding on account of sale tax and the amended Section 15(2)(a) of the Karnatka Sales Tax Act shall apply, which has a preferential right to recover its dues over the rights of the appellant-bank. It is in this background of preferential right having been recognized and created by a statute that the priority was given to the recovery of sale tax. However, that apparently is not the situation in the present cases. Though reliance has been placed on the provisions of the Excise Act and the Sales Tax Act, yet no provision is noticeable, which can give priority to the dues recoverable by the Excise Department or the Custom Department as the case may be. The provisions, which were pointed out before me, mainly related to the fact that the arrears of excise dues etc. are recoverable as arrears of land revenue in this regard, observation of Hon'ble Supreme Court in the case of M/s Builders Supply Corporation (supra) in regard to Section 46(2) of the Income Tax Act has already been made to show that it did not deal with principle of Crown debts at all. No. 1 for the respondents were justified in replying upon the case of Union of India v. Matherukunju Moosakutty and Ors. to say that Section 11 of the Central Excise and Salt Act, which has been referred to by the No. 1 for Union of India, would not give preference over the dues of other creditors either under the Scheme of Revenue Recovery Act or under the general law of priority of Crown debts. The Division Bench of Kerala High Court in this case has lightly noticed that the doctrine of Crown priority has a long history and this basic doctrine would be applicable only if it is shown that in a particular State, the Common law of England was adopted outside the Presidency Towns and in the absence thereof the rule of common law cannot be taken to have been the law enforced on the date the Constitution came into force. Finding that there was no law in force in the territory of the erstwhile Travancore State, which would enable the State or Union Government to claim that there should be priority for State dues over dues to other creditors held that excise due cannot have preference over dues to other creditors. Similar is the situation before me. It has neither been shown if this common law doctrine was enforced in the territory of these States for it to be a law for its applicability. While discussing the provisions of Section 11 of the Central Excise and Salt Act and Rule 230(2) of the Central Excise Rules, the Division Bench of this Court has held the goods which are pledged by the Company with the Bank cannot be detained for the purpose of extracting arrears of excise duty and similarly the goods which completely did not belong to the Company having been pledged in favour of the bank, were held not liable to adjustment or sale under the Central Excise Act. In other words, the doctrine of priority on the basis of Section 11 of the Central Excise Act and Rule 230(2) of the Central Excise Rules was held to be not creating any priority in those cases where there was special charge on the goods. (Ratio that is available from various cases referred in this regard is that when a promise(?) is made for recovering of taxes as land revenue, then it is not provision of providing for priority. Such a provision has to be made providing as precedence that it would have priority to claim a preference. Accordingly, the submission made by No. 1 for the petitioners- Union of India that it would have priority over the debts of the Financial Corporations on the basis of provisions of Section 11 of the Central Excise Act and Rule 230(2) of the Central Excise Rules cannot be accepted.