2008 (9) TMI 475 - HC - Central Excise

Recovery of excise dues petitioner purchased assets of defaulters company through bank by the impugned letters, department directing petitioner to clear outstanding excise dues of defaulter company - The matter is not res integra. - It may be specifically noted here that no such first charge has been pleaded by the Excise Authorities we hold that the Excise Department cannot enforce the payment of their dues against the property purchased by the petitioner though they would have the liberty to seek redress against the original debtors. - the present writ petition is allowed and the impugned letters are quashed.

Summary

Issues:
Challenge to payment of outstanding excise duty under Central Excise Act and Customs Act based on auction purchase of assets under SARFAESI Act.

Analysis:
The petitioner challenged the demand to pay outstanding excise duty of M/s. Euro Cotspin Ltd. based on letters from respondent No. 3. The petitioner, through agreements, had purchased assets of ECL from Punjab National Bank under SARFAESI Act after the default by another buyer. The petitioner argued that as a bona fide auction-purchaser, they should not be liable for the previous owner's dues, citing legal precedents.

The High Court referred to past judgments to analyze the issue. In M/s. Isha Marbles v Bihar State Electricity Board, the Supreme Court held that a purchaser cannot be held liable for liabilities not incurred by them. In State of Karnatka v. Shreyas Papers Pvt. Ltd., it was established that a purchaser for value without notice of arrears is not liable for the previous owner's debts. The Court also cited UTI Bank Ltd. v Deputy Commissioner of Central Excise, emphasizing that government dues have priority only when a specific provision claims "first charge" over the property.

The Court noted that the Excise Authorities did not claim a "first charge" in this case. Referring to Union of India v Punjab Financial Corporation, the Court reiterated that the Excise Department cannot enforce payment against the purchased property but can seek redress from the original debtors. Consequently, the Court allowed the writ petition, quashing the impugned letters demanding payment of excise duty, stating that the Excise Department cannot enforce dues against the petitioner's purchased property.

In conclusion, the judgment upheld the petitioner's challenge against the demand for outstanding excise duty, emphasizing the protection of auction-purchasers from the liabilities of the previous owner under the SARFAESI Act. The Court clarified the priority of government dues and secured creditors, ultimately ruling in favor of the petitioner and quashing the demand for payment.