2011 (2) TMI 1367 - HC - Central Excise

Validity of registration certificate - Vipulam Enterprises had stopped manufacturing activities and therefore, the registration was automatically invalid whereby, the question of surrendering, cancelling or revoking the registration did not arise - priority regarding Central Excise dues - Held that - merely because the defaulter unit, though it had ceased to carry on business on the premises in question, had failed to apply for deregistration, the same should not, in any manner, come in the way of the petitioners in obtaining central excise registration in respect of the premises in question. A case where an existing unit is functioning from the same premises may stand on a different footing, but when the erstwhile unit has stopped functioning at the premises and the premises have not been transferred by the owner of the said unit but by a secured creditor in favour of a bonafide purchaser, things would stand on a different footing. A Central Excise registration in respect of a unit cannot continue for all times to come despite the fact that the unit has ceased to function since long, merely because the said unit has not surrendered its registration certificate or applied for deregistration or central excise authorities have not revoked the same - the stand adopted by the respondent authority that in respect of the same premises, since the earlier registration has not been cancelled, fresh registration cannot be granted to another person is not backed by any statutory provision and as such, cannot be accepted. The action of the respondents in denying registration to the petitioner in respect of the subject property on the ground that the registration of the erstwhile unit has not been cancelled is not a valid ground for refusing registration to the petitioner - petition allowed - decided in favor of petitioner.

Issues Involved:
1. Validity of demands for outstanding dues from M/s. Vipulam Enterprises Pvt. Ltd.
2. Issuance of registration certificate under Rule 174 of the Central Excise Rules, 1944.
3. Priority of secured creditors over government dues.
4. Timeliness of recovery actions by the Central Excise Department.
5. Legal provisions for registration and deregistration under the Central Excise Act and Rules.

Detailed Analysis:

1. Validity of Demands for Outstanding Dues:
The petitioners challenged the letters dated 26.9.2000 and 2.11.2000 from the Central Excise Department directing them to pay outstanding dues of M/s. Vipulam Enterprises Pvt. Ltd. The petitioners argued that they purchased the unit from the Gujarat State Financial Corporation (respondent No.2) without any encumbrances, and hence, they were not liable for the dues of Vipulam Enterprises. The Court noted that the property was sold to the petitioners by a secured creditor (respondent No.2) under Section 29 of the State Financial Corporations Act, 1951, and the Supreme Court in Union of India v. Sicom Ltd. held that the Crown's preferential right to recover debts is limited to ordinary or unsecured creditors. Therefore, the Central Excise Department's demand was without authority of law.

2. Issuance of Registration Certificate:
The petitioners applied for registration under Section 6 of the Central Excise Act, 1944, read with Rule 174 of the Central Excise Rules, 1944. The Central Excise Department refused to issue the registration certificate, citing the outstanding dues of Vipulam Enterprises. The Court held that the refusal to grant registration on the grounds that the earlier unit's registration had not been canceled was invalid. The Court agreed with the Bombay High Court's view in Tata Metaliks Ltd. v. Union of India, which stated that the absence of deregistration by the previous unit should not prevent the issuance of a new registration to a bona fide purchaser.

3. Priority of Secured Creditors Over Government Dues:
The Court reiterated that the Financial Corporation, as a secured creditor, had priority over the Central Excise Department's claims. The property was sold to recover the dues of the secured creditor, and hence, the Central Excise authorities could not demand payment from the petitioners for the dues of the defaulter unit.

4. Timeliness of Recovery Actions:
The Court noted that the dues of the defaulter unit were from 1987, and the Central Excise Department sought to recover them in 2000. Citing previous judgments, the Court held that such a delay was unreasonable and time-barred. The authorities cannot delay recovery actions and then expect to recover dues from unsuspecting buyers.

5. Legal Provisions for Registration and Deregistration:
The Court examined Rule 174 of the Central Excise Rules, 1944, which requires registration for manufacturing activities. It found that the rule did not prevent the issuance of a new registration if the previous unit had ceased operations but had not applied for deregistration. The Court emphasized that the Central Excise registration should not continue indefinitely if the unit has ceased to function.

Conclusion:
The Court quashed the impugned letters demanding payment of the outstanding dues of M/s. Vipulam Enterprises Pvt. Ltd. It directed the respondents to refund the deposit made by the petitioners with interest. The Court upheld that the petitioners were entitled to a registration certificate under Rule 174 of the Central Excise Rules, 1944, and the refusal to grant the certificate was invalid. The petition was allowed with no orders as to costs.

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