2017 (7) TMI 640 - HC - Central Excise

Charge on properties - section 11 of the Act - order of attachment - Central Excise authorities had various claims against one of its assessees. Such assessee is a borrower of a Bank. The Bank had proceeded under the provisions of the Act of 2002 against its security interest. It had put up the assets belonging to the defaulter/borrower for sale. The first petitioner had participated in such sale. The sale was on as is where is and whatever there is basis as appearing in the sale notice. The first petitioner being successful in the auction sale had purchased such properties from the Bank. Whether as purchaser of the assets of the assessee can the first petitioner be said to be a person liable to pay the amount defaulted by the assessee? - Held that - section 11E of the Act of 1944 will apply and will create a first charge on the property of the assessee or the purchaser of such property as the case may be in the event, the same is not contrary to the provisions of the Act of 2002. In the present case, the Bank claims first charge over the properties put up for sale. Moreover, as noted about, the entire business was not put up for sale. Only the assets of the assessee were put up for sale. Central Excise authorities have acted without jurisdiction in proceeding against the petitioners in respect of the defaults committed by the assessee. All proceedings including the orders of attachment initiated by the Central Excise authorities on the basis of default of its assessee against the petitioners are set aside. Petition allowed - decided in favor of appellant.

Summary

Issues:
Challenge to attachment notices issued by Central Excise authorities regarding liability of purchaser of assets from a defaulter company.

Analysis:
The petitioners contested the attachment notices, arguing that the purchase of assets from a defaulter company did not entail liability for central excise dues. They emphasized that the sale notice clearly indicated the sale was only for assets and not the business itself. Referring to legal precedents, they asserted that liability is imposed only when the entire business is acquired. The petitioners relied on judgments like Rana Girders Ltd. v. Union of India, which distinguished between asset purchase and business acquisition. They also cited cases like Shreejikrupa Spinners Pvt. Ltd. v. Union of India and Tata Metaliks Limited v. Union of India to support their stance.

The Department's advocate contended that the Bank, aware of the borrower's central excise liabilities, should not have sold the assets without informing the authorities. They argued that the purchaser, having knowledge of the defaults, should be liable for the dues.

The Court examined the sale transaction where the assets were sold on an "as is where is and whatever there is" basis, clarifying that the business was not part of the sale. Citing Rana Girders Ltd., the Court emphasized that liability arises only when the entire business is acquired. The judgment highlighted that statutory liabilities arising from the assets sold do not automatically include central excise dues unless specified. The Court also referenced Section 11E of the Central Excise Act, which establishes a first charge on the property of the assessee or purchaser, subject to other laws.

Consequently, the Court concluded that the Central Excise authorities lacked jurisdiction in pursuing the petitioners for the defaulter's liabilities. All proceedings and attachment orders against the petitioners were set aside, and the case was disposed of without costs. The judgment emphasized the distinction between business ownership and asset purchase, affirming that liability for central excise dues does not automatically transfer with asset acquisition unless explicitly provided for.

In summary, the judgment clarified the legal principles governing liability in asset purchase transactions and underscored the importance of distinguishing between business ownership and asset acquisition to determine liability for statutory dues.