2018 (3) TMI 183 - HC - Central Excise

Attachment of immovable property - recovery of dues of lessee - whether the department can seek recovery of the dues of Harshwardhan Exports through sale of the property of the petitioner? - proviso to subsection (1) of Section 11 of the Central Excise Act as well as on subclause (ii) of clause( c) of subsection (1) of section 142 of the Customs Act. Held that - invocation of the said provisions by the department is defective. The central excise dues are that of Harshwardhan Exports. The department has not set up any case of Harshwardhan Exports and the petitioner Chandra Dyeing being one and same entity though on paper, separate companies. The transaction of transfer of the leasehold rights of Harshwardhan Exports to the petitioner took place before the order of attachment was passed. It is not a case where the transfer took place after the property was attached. In plain terms, the said provisions apply in case of transfer of business and not merely transfer of property or assets. In absence of any assertion of the department that Harshwardhan Exports and the petitioner Chandra Dyeing are the clones and the entire exercise of creating Harshwardhan Exports as a separate company was a sham transaction to defraud the Government revenue, in facts of the present case, there is no possibility allowing the respondents to sell the property of the petitioner for the unpaid dues of the Harshwardhan Exports. Even in the show cause notice dated 04.02.2010, the department has not built any such case - Merely because Harshwardhan Exports agreed not to vacate the premises till full export obligations are discharged, would not create any additional right in the property which can be sold for the purpose of recovery of the dues of Harshwardhan Exports. The attachment and distress imposed by the department on the property in question are set aside - petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Legality of the attachment of the petitioner's property by the respondent authorities.
2. Applicability of Section 11 of the Central Excise Act, 1944, and Section 142 of the Customs Act, 1962, to the case.
3. Validity of the transfer of leasehold rights before the order of attachment.

Issue-wise Detailed Analysis:

1. Legality of the attachment of the petitioner's property by the respondent authorities:
The petitioners challenged the respondent authorities' action of attaching an immovable property and preventing its use by placing a prohibition on entering the premises. The property in question was a plot leased to the petitioner company, Chandra Dyeing, which was later subleased to Harshwardhan Exports. The respondent authorities attached the property to recover dues from Harshwardhan Exports. The court noted that the lease between Chandra Dyeing and Harshwardhan Exports was terminated before the attachment order, and possession was handed back to Chandra Dyeing. Therefore, the attachment was deemed invalid as the property was no longer under Harshwardhan Exports' control at the time of attachment.

2. Applicability of Section 11 of the Central Excise Act, 1944, and Section 142 of the Customs Act, 1962, to the case:
Section 11 of the Central Excise Act pertains to the recovery of sums due to the government, allowing attachment and sale of excisable goods belonging to the defaulter. A proviso added in 2004 extends this to goods, materials, and machinery in the possession of a successor in business. Similarly, Section 142 of the Customs Act allows for the recovery of sums due by attaching and selling goods under the defaulter's control. The court observed that these provisions apply to the transfer of business, not merely the transfer of property or assets. Since the leasehold rights were transferred before the attachment order, and there was no evidence that Harshwardhan Exports and Chandra Dyeing were the same entity, the provisions did not justify the attachment.

3. Validity of the transfer of leasehold rights before the order of attachment:
The court examined whether the transfer of leasehold rights from Harshwardhan Exports to Chandra Dyeing was valid before the attachment order. It was established that the lease was terminated due to non-payment of rent, and possession was returned to Chandra Dyeing before the attachment order. The court highlighted that the attachment provisions apply to business transfers and not merely property transfers. Additionally, the lease period would have expired by January 2005, rendering any attachment of the leasehold rights moot. The court concluded that the department could not sell what Harshwardhan Exports no longer owned, thus invalidating the attachment.

Conclusion:
The court set aside the attachment and distress imposed by the department on the property in question, noting that the attachment provisions were misapplied, and the transfer of leasehold rights was valid and occurred before the attachment order. The petition was disposed of accordingly.