2002 (2) TMI 121 - HC - Central Excise

Summary

Issues Involved:
1. Liability of the transferee for excise duty dues of the defaulter.
2. Priority of Crown debt over mortgage debt.
3. Applicability of Section 29 of the State Financial Corporations Act, 1951.
4. Interpretation of Rule 230(2) of the Central Excise Rules.

Summary:

1. Liability of the transferee for excise duty dues of the defaulter:
The petitioner, a Private Limited Company, purchased fixed assets from the Financial Corporation, which had taken over the defaulting company, Orissa Ply and Panels Ltd., u/s 29 of the State Financial Corporations Act, 1951. The petitioner contended that it was not liable for the excise duty dues incurred by the defaulter prior to its incorporation. The Court, however, held that Rule 230(2) of the Central Excise Rules allows the Excise Authorities to recover dues from the transferee of the business, even if the duty was assessed after the transfer but the liability arose before the transfer.

2. Priority of Crown debt over mortgage debt:
The Court referred to the Supreme Court's decision in State Bank of Bikaner-Jaipur v. National Iron and Steel Rolling Corporation, which established that a statutory charge for dues, such as sales tax, takes precedence over an existing mortgage. Similarly, in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., it was held that the principle of priority of Crown debt allows the State to recover dues over the rights of a mortgagee-bank. The Court concluded that the excise duty, being a Crown debt, has precedence over the mortgage debt recoverable by the Financial Corporation.

3. Applicability of Section 29 of the State Financial Corporations Act, 1951:
Section 29(2) of the State Financial Corporations Act suggests that the transfer by the Financial Corporation is deemed to be on behalf of the mortgagor, and the obligations attached to the property also transfer to the new owner. The Court held that the assignee-petitioner cannot resist the claim for recovery of debts by the department, as the transfer of the undertaking by the Financial Corporation does not nullify the liability for excise duty.

4. Interpretation of Rule 230(2) of the Central Excise Rules:
Rule 230(2) allows the Excise Authorities to detain goods, plant, and machinery in the possession of the transferee for the purpose of exacting duty due from the original manufacturer or dealer. The Court emphasized that this rule is broad in its application and does not exempt the transferee from the liability of the defaulter's excise duty. The Court dismissed the petitioner's challenge, recognizing the department's right to proceed against the unit in the hands of the petitioner.

Conclusion:
The Court dismissed the writ petition, upholding the Excise Department's right to recover the outstanding excise duty from the petitioner, who had acquired the assets from the Financial Corporation. The judgment emphasized the precedence of Crown debt over mortgage debt and the broad applicability of Rule 230(2) in enforcing excise duty liabilities.