2014 (4) TMI 989 - HC - Central Excise

Recovery of demand from successor of Unit - Priority of dues - Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in exonerating the respondent from liability of payment of Government dues in the capacity of successor of Shree Vaishnavi Dyeing & Printing Mills Pvt. Ltd. in terms of proviso to section 11 of the Central Excise Act, 1944 - Held that - it is 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 are not the statutory liabilities which arise 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 etc. Likewise, statutory liability arising out of the plant and machinery could be the sales tax etc. payable on the said machinery. As far as dues of the Central Excise are concerned, they were not related to the said 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, therefore, these statutory dues are in respect of those items produced and not the plant and machinery which was used for the purposes of manufacture - Following decision of Rana Girders Ltd. v. Union of India 2013 (8) TMI 540 - SUPREME COURT - Decided against Revenue.

Summary

Issues:
1. Interpretation of liability for payment of Government dues in the capacity of successor under proviso to section 11 of the Central Excise Act, 1944.

Detailed Analysis:
The case involved a dispute regarding the liability of the respondent to pay outstanding dues of Rs. 16.91 lakhs as the successor of a manufacturing unit that had not paid central excise duty. The respondent had purchased the factory from Gujarat Industrial Investment Corporation Ltd. (GIIC) through auction. The Revenue contended that the respondent was liable for the dues as the assets were sold on an 'as is where is basis.' The Assistant Commissioner had ruled in favor of the Revenue, but the Commissioner(Appeals) and the CESTAT sided with the respondent, leading to the present appeal.

The High Court analyzed the legal position in similar cases, citing the judgment of the Supreme Court in the case of Rana Girders Ltd. v. Union of India. The Supreme Court had held that a buyer would be liable for central excise duty only if they purchased the entire business, not just assets. The Court emphasized that unless there is a specific statutory provision claiming 'first charge for the purchaser,' the buyer cannot be held responsible for the Government dues.

Further, the High Court scrutinized the clauses in the sale deed and agreement, which stated that the properties were sold free from encumbrances, and the statutory liabilities arising from the land and machinery would be borne by the purchaser. The Court clarified that excise dues do not fall under statutory liabilities arising from the land or machinery. It distinguished between statutory liabilities related to property taxes or sales tax and excise dues, which are specific to items produced and not the assets used for manufacturing.

Consequently, the High Court found the judgment of the lower court unsustainable in law and allowed the appeal, setting aside the demand for payment of dues from the respondent. The Court upheld the interpretation by the CESTAT, noting that the respondent had not purchased the entire business but only the land and machinery, absolving them from liability for the excise dues.

In conclusion, the High Court dismissed the tax appeal, affirming the decision of the CESTAT, which correctly applied the legal provisions and precedents to the facts of the case. The Court reiterated that the liability for excise dues is tied to purchasing the entire business, not just assets, and ruled in favor of the respondent based on this interpretation.