2012 (11) TMI 478 - HC - Central Excise

Demand of excise duty and penalty recovery of dues from the auction purchaser unit in terms of Rule 230(2) of the Central Excise Rules, 1944 - petitioner submitted that it had purchased the industrial unit in an auction from UPFC in March, 2002 free from all encumbrances. At the time of purchase of the unit there was no provision in the Central Excise Act relating to recovery of arrears of the erstwhile manufacturer from the buyer of the unit Held that - Even if it may be taken that there is no charge on the property on the plant and machinery, of the Excise duty, for which show cause notices were given prior to the sale of the UPFC, the petitioner as a purchaser under the terms of the agreement dated 14-3-2002, of the plant and machinery had agreed to bear all statutory liabilities arising out of plant and machinery of the industrial unit Penalty - Excisable duty becomes due and payable at the time of manufacture of the goods, the penalty in the present case was imposed by adjudicating orders dated 29-8-2002, and 22-7-2003, after the sale deed dated 8-3-2002 of land and building and the agreement of plant and machinery dated 14-3-2002 were executed - penalty as a quasi criminal liability, was leviable on represented through its Board of Directors, and personally on director of the company - penalty, therefore, having been levied and imposed after the purchase of land & building and plant & machinery installed in the unit which earlier belonged to M/s. P.J. Steels Ltd., Muzaffarnagar, is not payable by the petitioner, and is not covered under the stipulation in the sale deed and agreement as statutory liability nor it arose out of plant and machinery of the industrial unit - writ petition is partly allowed to the extent that the petitioner shall not be liable to pay penalties imposed upon M/s. P.J. Steels Ltd. and its Director under the impugned orders.

Issues Involved:
1. Liability of the petitioner for the excise dues of the predecessor company.
2. Applicability of Rule 230(2) of the Central Excise Rules, 1944.
3. Impact of the sale deed and agreement terms on statutory liabilities.
4. Priority of secured creditors over government dues.
5. Applicability of Section 11 of the Central Excise Act, 1944, as amended by the Finance Act, 2004.
6. Distinction between excise duty and penalty.

Issue-Wise Detailed Analysis:

1. Liability of the Petitioner for the Excise Dues of the Predecessor Company:
The petitioner, M/s. Rana Girders (P) Limited, purchased an industrial unit from UPFC, which had taken over the unit from M/s. P.J. Steels Pvt. Limited due to defaults in repayment. The central excise department sought to recover dues from the petitioner, citing the Supreme Court judgment in Macson Marbles (P) Limited v. Union of India, which held that excise duty is recoverable from the auction purchaser. The court acknowledged that at the time of purchase, there was no provision in the Central Excise Act relating to the recovery of arrears from the buyer of the unit.

2. Applicability of Rule 230(2) of the Central Excise Rules, 1944:
The petitioner argued that Rule 230(2) could not be invoked since the new Central Excise Rules, 2002, had come into force by the time of purchase. The court noted that Rule 230(2) allows for the detention of goods and assets in the custody of the successor for the purpose of exacting duty due from the predecessor. The court referenced the Supreme Court judgment in Macson Marbles, which upheld the applicability of Rule 230(2) in cases of business transfer by auction.

3. Impact of the Sale Deed and Agreement Terms on Statutory Liabilities:
The sale deed and agreement executed by UPFC included clauses stating that all statutory liabilities arising out of the property and plant and machinery would be borne by the purchaser. The court found that the petitioner had agreed to bear all statutory liabilities, including central excise dues, as part of the purchase agreement.

4. Priority of Secured Creditors Over Government Dues:
The petitioner relied on the judgment in Luxmi Oil Vanaspati Pvt. Ltd. v. Commissioner, Central Excise, which held that secured creditors have priority over government dues in the absence of a specific statutory provision creating a charge. The court distinguished this case, noting that the petitioner had agreed to bear statutory liabilities in the purchase agreement, and thus the central excise dues were recoverable from the petitioner.

5. Applicability of Section 11 of the Central Excise Act, 1944, as Amended by the Finance Act, 2004:
The court noted that the second proviso to Section 11, which allows for the recovery of sums due from the successor of a business, was inserted by the Finance Act, 2004. Although this provision came into force after the purchase, the court found that the enabling provision for recovery was already in place under Rule 230(2) and Section 38A of the Central Excise Act, validating actions taken under the previous rules.

6. Distinction Between Excise Duty and Penalty:
The court differentiated between excise duty, which becomes due at the time of manufacture, and penalties, which are imposed as a quasi-criminal liability after adjudication. The court held that the petitioner was liable for the excise duty but not for the penalties imposed on M/s. P.J. Steels Pvt. Limited and its director, as these were personal liabilities arising after the purchase.

Conclusion:
The writ petition was partly allowed. The petitioner was held liable for the central excise dues but not for the penalties imposed on the predecessor company and its director. The court directed that the central excise department could recover the dues from the detained goods or by selling the plant and machinery. There were no orders as to costs.

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