2005 (3) TMI 163 - HC - Central Excise

Recovery of sums due to Government - implementation and enforcement of the notices - Whether letter dated 5th October, 2004 and notice of demand dated 19th November, 2004 could have been issued by respondent Nos. 4 and 3 respectively - HELD THAT - Admittedly, in the present case the petitioner does not owe any monies payable to Divya, nor is it possible to term the petitioner as a defaulter. In fact the entire case of the department is built on the proviso to the main provision. Merely because Divya has shown its address in the office record of the respondents as per the location of the plot in question that by itself is not sufficient for the purpose of applying either provision of Section 11 or proviso thereunder. Similarly so far as the second reason is concerned if provisions of Section 11 of the Act are applicable viz. the requisite condition postulated by the provision stands fulfilled it would empower the respondent to effect recovery from the successor, but the question whether Divya is or is not predecessor of the petitioner has not been answered by the respondent authorities. As already seen, it is not possible to term the petitioner as successor of Divya. And lastly the stand of the Revenue that who is the transferor of the property is not material is an incorrect reading of the provision. The Proviso to Section 11 of the Act specifically requires that the person who is the defaulter is termed as predecessor and only in case the predecessor transfers the business or trade or ownership thereof then the provision of the proviso is attracted. Therefore, it is not possible to uphold the action of respondent authority in calling upon the petitioner to discharge liabilities of Divya for the reasons stated hereinbefore. It is necessary to take note of the fact that no evidence has been placed on record to show that Divya has transferred its business or trade or ownership thereof in favour of the petitioner. The impugned letter dated 5th October, 2004 and notice of demand dated 19th November, 2004 issued by respondent No. 4 and 3 respectively are hereby quashed and set aside. The petition is accordingly allowed. Rule made absolute. There shall be no order as to costs.

Summary

Issues Involved:
1. Legality of the action taken by respondents No. 2 to 4.
2. Applicability of Section 11 of the Central Excise Act, 1944.
3. Validity of the demand notice and letter issued to the petitioner.

Detailed Analysis:

1. Legality of the action taken by respondents No. 2 to 4:
The petitioner challenged the actions of respondents No. 2 to 4 as illegal, without any authority of law, and unwarranted on facts. The petitioner sought a writ of certiorari to declare the proviso added by the Finance (No. 2) Act, 2004 as ultra vires and to restrain the respondents from giving any legal effect to the same. However, the petitioner later withdrew this challenge, focusing the case on the legality of the letter dated 5th October 2004 and the notice of demand dated 19th November 2004 issued by respondents No. 4 and 3, respectively.

2. Applicability of Section 11 of the Central Excise Act, 1944:
The core issue was whether Section 11 of the Central Excise Act, 1944, applied to the facts of the case. Section 11 pertains to the recovery of sums due to the Government, allowing for recovery from the defaulter or a person owing money to the defaulter. The proviso added by the Finance Act, 2004, extends this to successors in business or trade. The court noted that the petitioner did not owe any money to Divya Prints Pvt. Ltd. (Divya) and could not be termed a defaulter. The proviso to Section 11 requires that the predecessor must have transferred or disposed of its business or trade, which was not the case here. Divya had not transferred its business or trade to the petitioner, and GIDC, as the owner of the plot, had reallotted it to the petitioner without any ownership rights being transferred to Divya.

3. Validity of the demand notice and letter issued to the petitioner:
The court examined whether the demand notice and letter issued to the petitioner were valid. The respondents argued that the petitioner should have been aware of outstanding dues and that the principle of 'Buyer Beware' applied. However, the court found that the petitioner was not a successor to Divya and that the proviso to Section 11 did not apply. The court also noted that the decision in Macson Marbles Pvt. Ltd. v. Union of India was not applicable, as Divya had not transferred any property to the petitioner, and the property in question was not pledged, mortgaged, hypothecated, or assigned to GIDC. The court concluded that the impugned letter and notice of demand were invalid and quashed them.

Conclusion:
The court ruled in favor of the petitioner, quashing the letter dated 5th October 2004 and the notice of demand dated 19th November 2004 issued by respondents No. 4 and 3, respectively. The petition was allowed, and the rule was made absolute, with no order as to costs.