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2021 (4) TMI 1052 - HC - Central ExciseSale of mortgaged property for recovery of excise dues - priority of secured debt over excise duty dues - Petitioner has purchased all the security that was owned by borrowers - HELD THAT - In the present case as well there is only purchase of land by Petitioner in the auction conducted by DRT, Kolkata and not transfer or disposal of business or trade in whole or in part but only a transfer or disposal of mere landed asset, the proviso to section 11 of the Excise Act would not be attracted. A secured creditor has priority over crown debts/excise dues. Going forward, this is a case where petitioner has purchased land in an auction conducted pursuant to proceedings under the RDDB Act by the Debt Recovery Tribunal Kolkata of the property belonging to the Respondent No. 3 company. Petitioner is not a successor of the business of the erstwhile owner in business or trade viz of Respondent No.3, having acquired the property without any charge independent of business or trade of the previous owner, nor the Petitioner is in custody or possession of the said property as a successor of the previous owner against whom there was a demand of excise duty. This is also not a case where the entire unit, i. e. the entire business itself was purchased by the Petitioner - Excise duty liability can be fastened only on that person who had purchased the entire unit as a going concern and not on a person who had purchased land and building or machinery of the erstwhile concern. It is only in such cases that the buyer would be responsible to discharge the liability of Central Excise. Otherwise the purchaser cannot be fastened on the liability relating to the dues of the government unless there is a specific statutory provision to that effect. Petitioner is an auction purchaser of the said property and has not acquired the business of the Respondent No.3- borrower. True also that the said purchase as per the order of Confirmation of Sale is subject to worker s liability and other existing liabilities of the owners of the said property. Admittedly, the worker s dues have been settled. Excise dues are not dues which arise out of land or building. Such liabilities could be in the form of property tax, municipal tax, other types of cess relating to property etc. but cannot mean excise duty dues, which arise out of manufacture - the language in the confirmation of the Sale is with reference to the liabilities relating to the said property and not with reference to the business of the Respondent No.3- borrower; we therefore hold that since Petitioner has not purchased the entire unit with business, it is not liable for the dues of the Excise Department. As far as the reliance of the learned Counsel for the Petitioner on the decision of this Court in the case of STATE BANK OF INDIA VERSUS THE STATE OF MAHARASHTRA AND ORS. 2020 (12) TMI 1214 - BOMBAY HIGH COURT is concerned, there appears to be no doubt about the conclusion in the said decision that if any Central Statute creates priority of a charge in favour of a secured creditor, the same will rank above the charge in favour of a State for a tax due thereunder. That the mortgage of the secured creditor will get prior charge over the revenue. The impugned notices dated 29th / 30 th January, 2008, 17th October, 2008 and 14th May, 2009 relating to excise duty dues are quashed and set aside - Petition allowed - decided in favor of petitioner.
Issues Involved:
1. Priority of Secured Debt vs. Crown Debt/State Dues/Tax Dues. 2. Applicability of Section 11 of the Central Excise Act, 1944. 3. Liability of the auction purchaser for excise duty dues of the previous owner. Issue-wise Detailed Analysis: 1. Priority of Secured Debt vs. Crown Debt/State Dues/Tax Dues: The petitioner argued that as a secured creditor, they have priority over the excise duty dues claimed by the state. The petitioner relied on the Supreme Court decision in *Rana Girders vs. Union of India & Ors.* and various Bombay High Court decisions, including *Siddhi Sugar & Allied Industries, Latur vs. State of Maharashtra & Ors.* and *Gharkul Industries Pvt. Ltd. vs. Superintendent, Central Excise Range & Others*. The petitioner asserted that since they purchased the property mortgaged to the bank, they should be treated as a secured creditor and not be liable for the excise duty dues of the borrower (Respondent No. 3). 2. Applicability of Section 11 of the Central Excise Act, 1944: The petitioner contended that Section 11 of the Excise Act or its proviso does not apply to them as they have not succeeded to the business or trade of Respondent No. 3. They relied on the decision in *Gharkul Industries Private Limited*, which held that the auction purchaser of assets is not liable as a successor in business. The petitioner argued that they only purchased the land and not the business, and hence, the excise duty dues cannot be recovered from them. 3. Liability of the Auction Purchaser for Excise Duty Dues of the Previous Owner: The petitioner claimed that they purchased the property in an auction conducted by the Debt Recovery Tribunal (DRT) and were unaware of the excise duty payable by Respondent No. 3 at the time of purchase. They argued that they are not liable for the excise duty dues as they only acquired the property and not the business. The petitioner highlighted that they have already settled the workers' liability and other existing liabilities related to the property, but excise duty dues do not fall under such liabilities. Court's Analysis and Judgment: Priority of Secured Debt vs. Crown Debt/State Dues/Tax Dues: The court agreed with the petitioner, stating that a secured creditor has priority over crown debts/excise dues. The court referenced the Supreme Court decision in *Rana Girders* and concluded that the petitioner, having purchased the property from a secured creditor, cannot be held liable for the excise duty dues of Respondent No. 3. Applicability of Section 11 of the Central Excise Act, 1944: The court found that Section 11 of the Excise Act does not apply to the petitioner as they did not succeed to the business or trade of Respondent No. 3. The court cited the *Gharkul Industries* case, which clarified that the proviso to Section 11 applies only when there is a transfer or disposal of business or trade, not mere assets. Since the petitioner only purchased the land, the proviso to Section 11 is not attracted. Liability of the Auction Purchaser for Excise Duty Dues of the Previous Owner: The court held that the petitioner, as an auction purchaser of the property, is not liable for the excise duty dues of Respondent No. 3. The court emphasized that excise duty liabilities arise from the manufacture of excisable goods and are not related to the land or property purchased by the petitioner. The court referenced the *Rana Girders* decision, which stated that excise dues are not statutory liabilities arising out of land or building. Conclusion: The court allowed the writ petition, quashing and setting aside the impugned notices dated 29th/30th January 2008, 17th October 2008, and 14th May 2009. The court directed that any recovery made from the petitioner concerning the excise duty dues be refunded within four weeks from the date of the order.
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