2015 (8) TMI 1126 - HC - Central Excise

Recovery of excise duty - Recovery from purchaser of wound up company - Held that - Corporation has not transferred or disposed of its business or trade. The Corporation has been wound up by an order of the Court and its assets have been sold off. A running business has not been sold. It has come on record that production activity is not being carried out since 1997. The Counter Affidavit of the Central Excise Department is silent as to how they have asserted that a running business of the Corporation has been purchased by the petitioner. In the absence of any proof of this nature coupled with the fact the Official Liquidator issued an advertisement for sale of the assets of the Corporation after a winding up order was passed by the High Court, we are of the opinion that the past dues of the Central Excise Department cannot be recovered from the petitioner under Section 11 of the Act. Similar notice was issued by the Central Excise Department demanding duty of finished goods lying in stock, which was received by the petitioner from the Official Liquidator pursuant to their highest bid being accepted. The Commissioner, Central Excise Department after considering the matter passed an order dated 28.07.2011 holding that the petitioner was not the manufacturer of goods and, therefore, was not liable to pay central excise duty quite apart from the fact that the petitioner had purchased the property in auction, which was free from all encumbrances and, consequently, dropped the proceedings. - since the petitioner had only purchased the assets of the Corporation in pursuance of the winding up order passed by the High Court and had not taken over a running business of the Corporation, the liability of past central excise dues payable by the Corporation cannot be fastened nor recovered from the petitioner - Decided in favour of assessee.

Issues:
1. Liability of the petitioner towards central excise dues of the Corporation after purchasing its assets.
2. Interpretation of Section 11 of the Central Excise Act in relation to recovery of dues from a successor in case of business transfer.
3. Determining the liability of the petitioner for central excise dues based on the winding up order of the Corporation.

Issue 1: Liability of the petitioner towards central excise dues of the Corporation after purchasing its assets:

The case involved a petitioner who purchased assets of a Corporation under a winding up order. The Central Excise Department claimed that the petitioner was liable for central excise dues of the Corporation. The petitioner argued that they should not be held responsible for past liabilities of the Corporation as they only acquired assets, not the business itself. The Court examined the nature of the purchase and concluded that since the Corporation was wound up, and its assets were sold off, without the transfer of a running business, the petitioner cannot be held accountable for the central excise dues under Section 11 of the Act. The Court emphasized that the petitioner merely bought assets free from encumbrances and did not acquire a running business, thereby ruling in favor of the petitioner and quashing the impugned notice.

Issue 2: Interpretation of Section 11 of the Central Excise Act in relation to recovery of dues from a successor in case of business transfer:

The Central Excise Department relied on Section 11 of the Act to argue that the petitioner, as a successor, was liable for the central excise dues of the Corporation. However, the Court analyzed the provision and its proviso, which states that excise dues can be recovered from a successor if the predecessor transfers or disposes of the business. The Court determined that in this case, the Corporation was wound up, and its assets were sold, not the business itself. As there was no transfer of a running business, the proviso of Section 11 was deemed inapplicable, leading to the conclusion that the petitioner cannot be held responsible for the central excise dues as a successor under the Act.

Issue 3: Determining the liability of the petitioner for central excise dues based on the winding up order of the Corporation:

The Court considered the winding up order of the Corporation, the sale of its assets, and the petitioner's bid for the assets. It was noted that the Commissioner of Central Excise Department had previously ruled that the petitioner was not liable for central excise duty on finished goods received from the Official Liquidator. This decision was based on the fact that the petitioner did not manufacture the goods and had purchased the property in an auction free from encumbrances. Taking into account these factors and the absence of evidence showing the petitioner acquired a running business, the Court concluded that the petitioner's liability for past central excise dues of the Corporation could not be enforced. As a result, the impugned notice demanding payment of central excise dues from the petitioner was quashed, and the writ petition was allowed in favor of the petitioner.

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