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2015 (11) TMI 317 - HC - Central ExciseRejection of application for adding subject plot in the Central Excise Registration Certificate of the petitioner firm - Recovery of duty u/s 11 - Purchase of plot from transferee of loan defaulted property - Rejection of request since due not paid by previous owners - Held that - A careful reading of the proviso to section 11 of the Act shows that the consequences contemplated therein, namely, enabling the officer so empowered by the Central Board of Excise and Customs to attach and sell the goods specified therein purchased by the transferee for recovering the duty or other sums recoverable or due from the defaulting predecessor at the time of such transfer, would come into effect only if the defaulter transfers or otherwise disposes of his business or trade in whole or in part, or effects any change in the ownership thereof, in consequence of which, he is succeeded in such business or trade by the transferee - mere transfer of one or more species of assets does not necessarily bring about the transfer of the ownership of the business for ownership of a business is much wider than mere ownership of discrete or individual assets. In fact, ownership of business is wider than the sum of the ownership of a business constituent assets. Above all, transfer of ownership of business requires that the business be sold as a going concern. The court was of the view that section 15(1) was intended to operate only when there is complete transfer of ownership of business so as to render the transferee as a successor-in-interest of the transferor. Only in such an eventuality does section 15(1) make the transferee liable for the transferor s sales tax liabilities. The proviso to section 11 of the Act clearly provides that the dues of the defaulter can be recovered from the person who succeeds in such business or trade of the defaulter. Evidently therefore, a pre-requisite for exercise of powers under the proviso to section 11 of the Act is that the successor should have purchased the business or trade of such person. As held by the Supreme Court in the above decision, the business is an activity, directed with a certain purpose, more often towards producing income or profit. Hence, the mere transfer of one or more species of assets does not necessarily bring about the transfer of the business. The transfer of a business requires that the business be sold as a going concern which is clearly not the position in the present case. Besides, on a perusal of the provisions of sub-section (1) of section 15 of the Karnataka Sales Tax Act, it is apparent that the provisions thereof are more rigorous, inasmuch as, the same envisage that the transferor and transferee shall be jointly and severally liable to pay any tax or penalty or any other amount payable in respect of such business and remaining unpaid at the time of transfer. Under the said provision, the transferor is deemed to be the dealer liable to pay the tax or penalty or other amount under the Act. The respondents also seek to recover the central excise dues of the defaulter unit from the petitioner in view of the above referred condition imposed by GIIC at the time of sale in favour of M/s Poonam Enterprise. In the opinion of this court, the terms and conditions of sale are an agreement between GIIC and M/s Poonam Enterprises and may also be binding on the petitioner as its successor in title. However, the said agreement does not create any right in favour of the Central Excise authorities and merely protects the rights of GIIC qua M/s Poonam Enterprise or its successor. Reliance placed upon the said condition, therefore, does not carry the case of the respondents any further and in the absence of any statutory power being vested in the authorities under the Central Excise Act empowering them to recover the outstanding dues from the petitioner or its predecessor in title, the sale being of the assets of the defaulter unit and not a going concern, it is not permissible for the respondents to seek to recover the outstanding dues of M/s Nakhua Poly Containers P. Ltd. from the petitioners. Recovery is sought to be made from the petitioner not in respect of any of its dues, but the dues of the erstwhile defaulter. When the assets of the defaulter unit came to be sold to M/s Poonam Enterprise by GIIC, section 11E of the Act had not been brought on the statute book and, therefore, crown debts did not have any priority over the claims of the secured creditors. The properties of the defaulter unit came to be sold to M/s Poonam Enterprise by way of auction sale in the year 2009 and accordingly ceased to be the property of the defaulter unit. Since the properties of the defaulter unit had already been disposed of prior to the insertion of section 11E of the Act, no charge can be said to be created on the properties in question so as to enable the respondents to invoke section 11E of the Act. - Once the properties are sold prior to the insertion of section 11E of the Act, the said provision would not act retrospectively to cover properties which are no longer the properties of the assessee or other person. The provisions of section 11E of the Act would, therefore, have no applicability to the facts of the present case. Stand adopted by the respondent authorities is that unless the earlier registration is surrendered and cancelled and outstanding dues of the Government are paid, the fresh registration for the same premises cannot be issued. As held hereinabove, insofar as payment of outstanding dues of the Government is concerned, the unit has not been sold as a going concern and hence, the question of invoking the proviso to section 11 of the Act would not arise. The question as to whether fresh registration can be given to the petitioner despite the fact that the earlier registration has not been surrendered stands concluded by the above decision. Resultantly, the respondents cannot refuse to grant Central Excise registration in respect of the premises in question to the petitioner on the ground that the earlier registration has not been surrendered and that there are outstanding dues of the erstwhile unit. - Decided in favour of assessee.
Issues Involved:
1. Whether the respondents can recover central excise dues from the petitioner, the successor of the subsequent owner of the property. 2. Whether the respondents are barred from recovering central excise dues due to gross delay. 3. Whether the Central Government has a first charge over the property under section 11E of the Central Excise Act, 1944. 4. Whether the respondents are justified in refusing to grant central excise registration to the petitioner firm. Detailed Analysis: Issue 1: Recovery of Central Excise Dues from the Petitioner The court examined whether the respondents could recover central excise dues from the petitioner, who is the successor of the subsequent owner of the property. The court noted that the proviso to section 11 of the Central Excise Act allows recovery from the successor only if the defaulter transfers or disposes of his business or trade, thereby succeeding in such business or trade. In this case, the assets of M/s Nakhua Poly Containers P. Ltd. were sold by GIIC under section 29 of the State Financial Corporations Act, 1951, and not as a going concern. The court cited the Supreme Court's decision in State of Karnataka v. Shreyas Papers (P) Ltd., which held that the transfer of assets does not equate to the transfer of the "ownership of the business." Consequently, the court concluded that the central excise dues of the defaulter unit could not be recovered from the petitioner. Issue 2: Delay in Recovery of Dues The court addressed whether the respondents were barred from recovering central excise dues due to gross delay. The defaults of the defaulter unit occurred between 1998 and 2005, but the respondents did not take any recovery steps until 2012. The court referred to its decision in Ani Elastic Industries v. Union of India, which held that a delay of five years in initiating recovery was unreasonable. In this case, the delay was approximately seven to fourteen years, which the court deemed grossly unreasonable, further barring the respondents from recovering the dues from the petitioner. Issue 3: First Charge under Section 11E The court considered whether the Central Government had a first charge over the property under section 11E of the Central Excise Act, 1944. Section 11E, effective from 8.4.2011, creates a first charge on the property of the assessee for any duty, penalty, or interest payable. However, the court noted that the assets were sold to M/s Poonam Enterprises in 2009, prior to the enactment of section 11E. Consequently, the court held that section 11E did not apply retrospectively and could not be invoked to claim a first charge over the property already sold. Issue 4: Refusal to Grant Central Excise Registration The court examined whether the respondents were justified in refusing to grant central excise registration to the petitioner. The respondents argued that registration could not be granted unless the earlier registration was surrendered and outstanding dues were paid. The court referred to its decision in Surat Metallics Ltd. v. Commissioner of Central Excise, which held that the failure of the defaulter unit to apply for deregistration should not prevent the new owner from obtaining registration. The court concluded that the respondents' refusal to grant registration was unjustified and contrary to the provisions of law. Conclusion: The court allowed the petition, permanently prohibiting the respondents from recovering any amounts due from the petitioner related to M/s Nakhua Poly Containers Pvt. Ltd. The court also quashed the impugned order and directed the respondents to refund the sum of Rs. 12,84,023/- deposited by the petitioner. The prayer for adding plot No.4705 to the petitioner's Central Excise Registration was deemed satisfied.
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