2022 (12) TMI 1332 - HC - Central Excise

Recovery of Central Excise Duty alongwith interest and penalty - landowners - manufacture of excisable items or not - HELD THAT - Though the petitioners became owners of the subject land, they cannot be construed as manufacturers of the excisable goods in the plant and machinery which belonged to respondent No.4 out of which the excise duty arose. This issue is squarely covered by the decision of the Supreme Court in M/S. RANA GIRDERS LTD. VERSUS UNION OF INDIA OTHERS 2013 (8) TMI 540 - SUPREME COURT . That was a case where land belonging to the manufacturer was purchased in auction sale. When similar demand notice was issued, the same came to be challenged by the auction purchaser. Notice was issued to the auction purchaser because the borrower had failed to discharge the excise duty liability. In Rana Girders Ltd, Supreme Court had considered two earlier decisions in MACSON MARBLES PVT. LTD. VERSUS UNION OF INDIA 2003 (11) TMI 71 - SUPREME COURT and UNION OF INDIA VERSUS SICOM LTD. 2008 (12) TMI 53 - SUPREME COURT and thereafter held UPFC being a secured creditor had priority over the excise dues. We further hold that since the appellant had not purchased the entire unit as a business, as per the statutory framework, he was not liable for discharging the dues of the Excise Department. Statutory liabilities arising out of the land and building could be in the form of the property tax or other types of cess relating to property, etc. Likewise, statutory liability arising out of the plant and machinery could be the sales tax, etc. payable on the said machinery. As far as dues of the Central Excise are concerned, they were not related to the said plant and machinery or the land and building and thus did not arise out of those properties. Dues of the Excise Department became payable on the manufacturing of excisable items by the erstwhile owner, therefore, these statutory dues are in respect of those items produced and not the plant and machinery which was used for the purposes of manufacture. Following the decision of the Supreme Court in M/S. RANA GIRDERS LTD. VERSUS UNION OF INDIA OTHERS 2013 (8) TMI 540 - SUPREME COURT as well as of this Court in GOPAL AGARWAL VERSUS THE COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE, HYDERABAD 2015 (2) TMI 607 - ANDHRA PRADESH HIGH COURT , impugned notice dated 02.11.2004 issued by respondent No.3 is hereby set aside. However, it would be open to respondents No.1, 2 and 3 to take such steps as may be permissible in law for recovery of outstanding excise duty from respondent No.4 (M/s. Chemo Steels Private Limited). Petition allowed.

Summary

Issues:
Challenge to notice of demand for central excise duty, ownership of subject land and machinery, liability of excise duty on subsequent purchasers, interpretation of statutory liabilities, applicability of Supreme Court decisions.

Analysis:
The writ petition challenged a notice of demand issued to the petitioners for recovery of central excise duty, penalty, and interest due from a company. The subject land and machinery belonged to the company, and the excise duty arose during the manufacturing process. The petitioners, who purchased the land, were not considered manufacturers of excisable goods as per the Supreme Court decision in Rana Girders Ltd. v. Union of India. The Court held that excise dues are not related to the property but to the items produced, and the liability does not transfer to subsequent purchasers unless specific provisions exist.

The Supreme Court emphasized that excise dues are not linked to the property itself but to the items manufactured by the previous owner. The Court clarified that statutory liabilities arising from the land or machinery do not include excise dues. The judgment highlighted the distinction between statutory liabilities related to property taxes or sales tax on machinery and excise duty, which is based on the goods produced. The High Court's misinterpretation of the clause in the sale deed regarding statutory liabilities was corrected, emphasizing that excise dues are not part of the liabilities arising from the property or machinery.

The Court referenced its previous decision in Gopal Agarwal v. Commissioner of Customs and Central Excise, where a similar notice was set aside, allowing the authority to pursue other legal avenues for recovery. Following the precedents set by the Supreme Court and its own decisions, the High Court set aside the impugned notice but permitted the authorities to take lawful steps for recovering the outstanding excise duty from the original company. The writ petition was allowed without costs, and related petitions were closed as a result of the judgment.