2008 (2) TMI 2 - HC - Central Excise

Default in making payment of central excise - recovery of govt. dues - attachment of assets - purchase of immovable/movable assets of a tax defaulter - revenue does not have priority over secured creditors - buyer of the assets sold in auction by the secured creditor can not be said as successor of business for transferring duty liability u/s 11 of CE Act, 1994

Issues Involved:
1. Priority of tax dues under the Central Excise Act, 1944 over secured creditors under the SARFAESI Act, 2005.
2. Effect of prior attachment by revenue on property sold by a secured creditor under the SARFAESI Act.
3. Whether a transfer under the SARFAESI Act is a voluntary transfer by "the person" under Section 11 of the Central Excise Act, 1944.
4. Whether the purchase of assets of a tax defaulter amounts to a transfer or disposal of business or trade, resulting in a change in ownership.

Issue-wise Detailed Analysis:

1. Priority of Tax Dues:
The court examined whether tax dues under the Central Excise Act, 1944 have priority over secured creditors under the SARFAESI Act, 2005. It was determined that the excise dues do not have priority over the claims of secured creditors. The court referenced the Supreme Court judgment in Dena Bank v. Bhikhabhai Prabhudas Parekh and Co., which established that the Crown's preferential right to recover debts does not extend to secured creditors. The SARFAESI Act, particularly Section 35, overrides other laws, including the Central Excise Act, ensuring that secured creditors have priority.

2. Effect of Prior Attachment:
The court considered the impact of a prior attachment by the revenue on the property sold by a secured creditor. It was concluded that an attachment does not create any interest in the property but only prevents its alienation. The court cited the case of Narayan Ganesh Varde v. Fatma Daud, which held that attachment does not confer title or make the attaching creditor a secured creditor. The SARFAESI Act's provisions override the attachment, and the secured creditor's sale of the property is valid and takes precedence.

3. Voluntary Transfer under SARFAESI Act:
The court addressed whether a transfer under the SARFAESI Act is considered voluntary under Section 11 of the Central Excise Act, 1944. It was determined that the transfer by a secured creditor under the SARFAESI Act is deemed a transfer by the owner of the property. The court referenced the Supreme Court judgment in Macson Marbles Pvt. Ltd. v. Union of India, which held that such transfers are considered voluntary. Therefore, the transfer to the petitioner was deemed voluntary.

4. Transfer or Disposal of Business:
The court examined whether the purchase of assets amounts to a transfer or disposal of business or trade, resulting in a change in ownership. It was concluded that merely purchasing assets does not constitute a transfer of business unless the purchaser succeeds in the business. The court referenced the Supreme Court judgment in State of Karnataka v. Shreyas Papers Pvt. Ltd., which held that the transfer of assets does not equate to the transfer of business. The petitioner had not succeeded in the business of the tax defaulter, and therefore, the proviso to Section 11 of the Central Excise Act did not apply.

Conclusion:
The court ruled in favor of the petitioner, stating that the excise dues do not have priority over the claims of secured creditors under the SARFAESI Act. The prior attachment by the revenue was deemed non-est, and the transfer under the SARFAESI Act was considered voluntary. The purchase of assets did not amount to a transfer of business, and the petitioner was not liable for the arrears of Central Excise dues. The petition was allowed, and the rule was made absolute in terms of the prayer clause (a), with no order as to costs.

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