2013 (8) TMI 540 - SC - Central Excise

Recovery of demand from successor of Unit - Priority of dues - Liability under the provisions of Excise Act and State Financial Corporation Act - Whether liability arises in law (de-hors the stipulation in Sale Deed /Agreement of Sale) having regard to the legal provisions contained in the Excise Act and State Financial Corporation Act - Held that - UPFC being a secured creditor had priority over the excise dues - 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 - the subsequent purchaser cannot be fastened with the liability relating to the dues of the Government unless there was a specific provision in the Statute, claiming first charge for the purchaser - As far as Central Excise Act was concerned, there was no such specific provision as noticed in SICOM as well - Proviso to Section 11 was now added by way of amendment in the Act only w.e.f. 10.9.2004. Dues payable Interpretation of Stipulation - Whether the appellant had agreed to discharge the dues payable to the excise department by the borrower on the interpretation of stipulation contained in the Sale Deed of the land and building and Agreement of Sale of plant and machinery - Held that - Statutory liability arising out of the plant and machinery could be the sales tax etc. payable on the said machinery - dues of the Central Excise were not related to the 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. The statutory dues were in respect of those items produced and not the plant and machinery which was used for the purposes of manufacture - The expressions in the Sale Deed as well as in the Agreement for purchase of plant and machinery talks of statutory liabilities arising out of the land or statutory liabilities arising out of the said properties (i.e. the machinery) - it was only that statutory liability which arises out of the land and building or out of plant and machinery which is to be discharged by the purchaser - Excise dues were not the statutory liabilities which arised out of the land and building or the plant and machinery - 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 - The appeal was allowed and the judgment of the High Court was set aside - the notice of the Excise Department calling upon the appellant to pay the dues of the erstwhile owner of the unit was also stands quashed.

Issues Involved:
1. Whether the excise department can recover the amount in question from the appellant.
2. Interpretation of stipulation contained in the Sale Deed and Agreement of Sale regarding the appellant's liability to discharge the dues payable to the excise department by the borrower.
3. Legal provisions under the Excise Act and State Financial Corporation Act regarding the appellant's liability.

Issue-wise Detailed Analysis:

1. Recovery of Excise Amount from the Appellant:
The core issue is whether the excise department can recover the excise duty from the appellant, who purchased the land, building, and machinery of the borrower in an auction conducted by the Uttar Pradesh Financial Corporation (UPFC). The appellant contends that the properties were purchased "free from all encumbrances," and thus, it is not liable for the borrower's excise dues.

2. Interpretation of Stipulation in Sale Deed and Agreement:
The High Court held that the appellant is liable to pay the excise duty based on the stipulations in the Sale Deed and Agreement, which stated that "all the statutory liabilities arising out of the property shall be borne by the vendee." However, the Supreme Court noted that these clauses refer to statutory liabilities "arising out of the land" or "arising out of the said properties" (i.e., the machinery). The Court clarified that excise dues do not arise out of the land and building or the plant and machinery but are related to the manufacturing of excisable items by the erstwhile owner. Therefore, the High Court's interpretation was incorrect.

3. Legal Provisions under the Excise Act and State Financial Corporation Act:
The Court examined whether the appellant's liability arises under the legal provisions of the Excise Act and the State Financial Corporation Act. Referring to the case of State of Karnataka vs. Shreyash Papers (P) Ltd., the Court highlighted that Rule 230 of the Central Excise Rules authorizes detention but does not create a charge over the assets. The Court also noted that the UPFC, as a secured creditor, had priority over the excise dues, as established in the case of Union of India vs. SICOM Ltd. The Court distinguished the case of M/s. Macson Marbles Pvt. Ltd., stating that the liability to discharge excise dues applies only when the entire business unit is purchased as an ongoing concern, not when only specific assets are purchased.

Conclusion:
The Supreme Court concluded that the appellant is not liable to pay the excise dues of the borrower. The judgment of the High Court was set aside, and the notice from the Excise Department demanding payment from the appellant was quashed. The appellant was also entitled to the cost of the appeal.

Summary:
The Supreme Court examined whether the excise department could recover dues from the appellant, who purchased the borrower's assets in an auction. The Court clarified that the stipulations in the Sale Deed and Agreement did not cover excise dues, which are related to manufacturing activities and not to the land, building, or machinery. The Court also emphasized that the UPFC, as a secured creditor, had priority over the excise dues. Consequently, the appellant was not liable for the borrower's excise dues, and the High Court's judgment was overturned.

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