2015 (11) TMI 146 - HC - Central Excise

Recovery of duty under Section 11 of the Central Excise Act 1944 from the Purchase of asset - charge on the property of the defaulting company / seller - Cancellation of registration of central excise in the hands of purchaser of the property since the registration of seller is still existing - Held that - proviso to section 11 of the Act clearly provides that the dues of the defaulter can be recovered from the person who succeeds in such business or trade of the defaulter. Evidently therefore a pre-requisite for exercise of powers under the proviso to section 11 of the Act is that the successor should have purchased the business or trade of such person. - on a perusal of the provisions of sub-section (1) of section 15 of the Karnataka Sales Tax Act it is apparent that the provisions thereof are more rigorous inasmuch as the same envisage that the transferor and transferee shall be jointly and severally liable to pay any tax or penalty or any other amount payable in respect of such business and remaining unpaid at the time of transfer. Under the said provision the transferor is deemed to be the dealer liable to pay the tax or penalty or other amount under the Act. However under the proviso to section 11 of the Act in case where the person from whom the duty or any other sums of any kind is recoverable or due transfers or otherwise disposes of his business or trade in whole or in part or effects any change in the ownership thereof as a consequence of which he is succeeded in such business or trade by any other person all excisable goods materials preparations plants machineries vessels utensils implements and articles in the custody or possession of the person so succeeding may also be attached and sold for recovery of such dues. Thus under the proviso to section 11 of the Act it is only the specified assets that can be attached and sold for recovery of the central excise dues of the predecessor but the purchaser is not deemed to be a defaulter. It is evident that resort could not be made to the proviso to section 11 of the Act inasmuch as what has been transferred are the assets of the defaulting unit and not the business or trade. The above position has been further made clear by the Supreme Court in the case of Rana Girders Limited v. Union of India and others (2013 (8) TMI 540 - SUPREME COURT ). In the facts of the said case before the High Court the Excise Department had contested the petition on the ground that the appellant therein being the successor-in-interest which had purchased the land and building as well as plant and machinery was liable to make the payment having regard to the judgement of the Supreme Court in Macson s case 2003 (11) TMI 71 - SUPREME COURT OF INDIA . The appellant therein had argued that since the appellant had not purchased the entire unit of the principal borrower the judgement of Macson case was not applicable and that on the contrary it is the law laid down in Union of India v. SICOM Ltd. (2008 (12) TMI 53 - SUPREME COURT ) the ratio whereof was attracted. It was argued that Macson case was specifically distinguished by the Supreme Court in SICOM Ltd. case holding that Macson case would be applicable only in transfer of ownership of business i.e. when there is a sale of business as an ongoing concern and not in case of mere transfer of its specified assets. The High Court after referring to the stipulations in the sale deed to the effect that the statutory liabilities arising out of the property shall be borne by the vendee was of the view that these covenants provided clear and unambiguous stipulation as per which the appellants therein agreed to discharge the statutory liabilities and since the excise dues were statutory in nature it had become the liability of the appellant to pay the same. What has been purchased by the petitioner are the assets of the defaulter unit-GSL (India) Limited and not the business or trade in whole or part of the defaulter. In view of the decision of the Supreme Court in State of Karnataka v. Shreyas Papers (P) Ltd. (2006 (1) TMI 243 - SUPREME COURT) foisting of liability of the defaulting transferor onto the transferee comes into effect only if the ownership of the business is transferred. As discussed hereinabove the ownership of the business has not been transferred to the petitioner and consequently pursuant to the sale of the assets of the defaulting unit the petitioner is not rendered a successor in the business or trade in whole or in part of the defaulting unit and hence the proviso to section 11 of the Act would not be attracted - respondents are not justified in seeking to cancel the registration granted in favour of the petitioner on the ground that in respect of the same premises two units cannot be registered. It is apparent that the proviso to section 11 of the Act could not have been invoked by the respondents in the facts of the present case. Under the circumstances the demand raised by the respondents for the outstanding central excise dues of GSL (India) Limited being contrary to the provisions of section 11 of the Act as well as the show cause notice dated 23.02.2012 to the extent the same calls upon the petitioner to show cause as to why its central excise registration should not be suspended/revoked for non compliance of the Terms and Conditions of the Sale Certificate issued by ARCIL cannot be sustained. - Decided in favour of petitioner. The respondents are not justified in seeking to cancel the registration granted in favour of the petitioner on the ground that in respect of the same premises two units cannot be registered. - There is no infirmity in the action of the respondents in issuing registration certificate in favour of the petitioner despite a subsisting registration certificate in favour of GSL (India) Limited. Consequently the said ground stated in the show cause notice is misconceived and does not merit acceptance.

Summary

Issues Involved:
1. Liability of the petitioner to pay outstanding central excise dues of GSL (India) Limited.
2. Validity of the show cause notice for suspension/revocation of the petitioner's Central Excise License.
3. Applicability of Section 11 and Section 11E of the Central Excise Act, 1944.
4. Legitimacy of granting central excise registration to the petitioner despite subsisting registration in favor of GSL (India) Limited.

Detailed Analysis:

1. Liability of the Petitioner to Pay Outstanding Central Excise Dues of GSL (India) Limited:
The petitioner purchased only the secured assets of GSL (India) Limited in an auction held by ARCIL under the Securitisation Act and not the company itself. The court noted that the sale was of assets and not the business as a going concern. The proviso to Section 11 of the Central Excise Act applies when a defaulter transfers his business or trade in whole or in part, or effects any change in ownership, resulting in the successor being liable for the predecessor's dues. Since the petitioner did not purchase the business but only the assets, the proviso to Section 11 was not applicable. The court referenced the Supreme Court's decision in State of Karnataka v. Shreyas Papers (P) Ltd., which held that the transfer of business requires the sale of the business as a going concern, not just the assets.

2. Validity of the Show Cause Notice for Suspension/Revocation of the Petitioner's Central Excise License:
The show cause notice was issued primarily on two grounds: non-payment of GSL (India) Limited's dues and non-production/clearance of excisable goods. The court found that the notice was hasty regarding non-production/clearance as the petitioner had recently acquired the assets and registration. The main ground for the notice was non-compliance with the terms of the sale certificate issued by ARCIL. The court held that the central excise authorities have no privity with the sale certificate, which is a contract between ARCIL and the petitioner. Therefore, non-compliance with the sale certificate's terms cannot be a ground for revocation of the central excise registration.

3. Applicability of Section 11 and Section 11E of the Central Excise Act, 1944:
Section 11 allows recovery of sums due to the government from the successor if the business or trade is transferred. The court reiterated that since only the assets were transferred and not the business, Section 11 was not applicable. Section 11E creates a first charge over the property for central excise dues. However, this charge applies if the proviso to Section 11 is attracted, which was not the case here as the business was not transferred. The court referenced the Supreme Court's decision in Rana Girders Limited v. Union of India, which clarified that liability for central excise dues arises only when the entire business is purchased as a going concern.

4. Legitimacy of Granting Central Excise Registration to the Petitioner Despite Subsisting Registration in Favor of GSL (India) Limited:
The court addressed the issue of whether two entities can have central excise registration for the same premises. It cited the decision in Surat Metallics Ltd. v. Commissioner of Central Excise, which held that the defaulter's failure to apply for deregistration should not prevent a new entity from obtaining registration. The court found no legal basis for denying the petitioner registration due to the existing registration of GSL (India) Limited.

Conclusion:
The court allowed the petition, quashing the demand for outstanding dues and the show cause notice to the extent it sought action against the petitioner for non-compliance with the sale certificate terms and the argument that two entities cannot be registered for the same premises. The rule was made absolute with no order as to costs.