2014 (11) TMI 459 - HC - Central Excise

Demand of excise duty and penalty recovery of dues from the auction purchaser unit in terms of Rule 230(2) of the Central Excise Rules, 1944 - Held that - The petitioner purchased land and building and not the business of the owner. The clause in the agreement requires the petitioner to discharge statutory liabilities arising out of land and building. The petitioner, therefore, cannot be called upon to discharge liability of the original owner under the Central Excises and Salt Act, 1944. An argument raised by counsel for the Revenue that in view of Rule 230(1) and (2) of the Central Excise Rules, liability to pay excise duty can be recovered from plant, machinery and building, cannot be accepted in view of the binding opinion recorded by the Hon ble Supreme Court, in Rana Girders Ltd. 2013 (8) TMI 540 - SUPREME COURT . Whether the show cause notice should be quashed - Held that - As a general rule, a party is relegated to seeking adjudication of the show cause notice but as controversy in the present petition is squarely covered in favour of the petitioner, by judgment of the Hon ble Supreme Court in M/s. Rana Girders Ltd. v. Union of India and others 2013 (8) TMI 540 - SUPREME COURT , relegating the petitioner to seeking adjudication of the show cause notice would be an empty formality - Decided in favour of assessee.

Summary

Issues involved:
1. Liability of the petitioner to discharge liabilities under the Central Excises and Salt Act, 1944 based on a notice served by the Central Excise Department.
2. Interpretation of Rule 230 of the Central Excise Rules, 1944 regarding the recovery of excise duty from a subsequent buyer of plant, machinery, or business.

Analysis:
1. Liability of the petitioner under the Central Excises and Salt Act, 1944:
The petitioner acquired land, building, and machinery from a defaulted company through an auction. The Central Excise Department issued a notice to the petitioner to discharge the liabilities of the original owner. The petitioner argued that as per the sale agreement, they were only responsible for statutory liabilities related to the property and not the excise duty of the original owner. The High Court referred to a Supreme Court judgment in a similar case and held that excise duty liabilities arise from manufacturing activities, not from assets purchased by a subsequent buyer. The Court concluded that the petitioner, who did not purchase the business, cannot be held liable for the original owner's excise duty obligations.

2. Interpretation of Rule 230 of the Central Excise Rules, 1944:
The Revenue contended that Rule 230 of the Central Excise Rules allows for the recovery of excise duty from a subsequent buyer of a business or assets. However, the High Court emphasized that the specific clauses in the sale agreement only obligated the petitioner to pay statutory liabilities related to the property and not the excise duty of the original owner. The Court relied on the Supreme Court judgment, which clarified that excise duty liabilities are tied to the manufactured items, not the assets themselves. Therefore, the Court rejected the Revenue's argument and quashed the show cause notices served to the petitioner.

In conclusion, the High Court ruled in favor of the petitioner, holding that they were not liable to discharge the excise duty obligations of the original owner based on the sale agreement and the interpretation of relevant legal provisions and precedents. The show cause notices were quashed, and the Court emphasized that seeking adjudication on the notices would be a mere formality given the clear legal position established by the Supreme Court judgment.