2016 (6) TMI 820 - HC - Central Excise

Recovery of central excise duty from successor of Unit - Auction purchaser - Restriction on to deliver or otherwise dispose of the plant and machinery without the order in writing of the Assistant Commissioner of Customs and Central Excise. - Held that - In the present case while the auction notice no doubt requires the auction purchaser to ascertain whether there are any central excise dues or not the correspondence to which our attention is drawn shows that Export-Import Bank of India had informed central excise officials by letter dated 10.07.2013 that despite repeated reminders and requests to take possession of the finished goods lying in the premises of M/s.Bommidala Filaments Limited the Central Excise Department had failed to take possession; Exim Bank had sold the assets charged to them through auction to the successful bidder; they had already transferred the assets to the successful bidder; as the finished goods are not charged to Exim Bank and Exim Bank is not an agent of the Customs and Central Excise Department they were not bound to take responsibility of keeping the goods in its custody; and the Central Excise Department could take possession of the finished goods immediately. It is evident that the impugned notices calling upon M/s.Polisetty Somasundaram (the auction purchaser) and M/s.Kohinoor Ropes Private Limited (which had purchased the plant and machinery from Polisetty Somasundaram) not to deliver or dispose of the plant and machinery merely on the ground that these goods hitherto belong to M/s.Bommidala Filaments Limited who had defaulted in payment of central excise dues fall foul of the law declared by the Supreme Court in Rana Girders Limited 2013 (8) TMI 540 - SUPREME COURT The impugned proceedings are accordingly set aside and the writ petitions are allowed. It is made clear that this order does not preclude the respondents from taking possession of the finished goods from the premises of M/s.Polisetty Somasundarm towards recovery of the Central Excise dues. - Decided in favor of petitioner.

Summary

Issues:
Jurisdiction invoked over notice questioning plant and machinery disposal without order from Assistant Commissioner of Customs and Central Excise; Transfer of assets under SARFAESI Act auction; Liability for central excise dues on auction purchaser; Interpretation of proviso to Section 11 of Central Excise Act; Application of Supreme Court judgments on successor liability; Attachment of movable assets under proviso to Section 11; Central Excise Department's failure to take possession of finished goods; Legality of notices on auction purchaser and subsequent buyer; Compliance with Supreme Court rulings on liability for central excise dues.

Jurisdiction Invoked Over Notice:
The High Court's jurisdiction was invoked to challenge a notice preventing the disposal of plant and machinery without the Assistant Commissioner of Customs and Central Excise's written order. The petitioners had acquired assets through auction under the SARFAESI Act, leading to the detention of the plant and machinery during transportation to Maharashtra.

Transfer of Assets Under SARFAESI Act Auction:
Assets of defaulting companies were auctioned by Exim Bank, with a partnership firm purchasing the assets and subsequently selling the plant and machinery to another company. The petitioners argued that the central excise liability of the defaulting company did not transfer to them, as the sale had occurred two years before the attachment order.

Liability for Central Excise Dues:
The Central Excise Department contended that the auction purchaser was liable for central excise dues of the defaulting company based on a Supreme Court ruling. The Department argued that the property was transferred subject to such dues, holding the auction purchaser responsible for payment.

Interpretation of Proviso to Section 11:
The proviso to Section 11 of the Central Excise Act was analyzed to determine the attachment and sale of assets in case of business transfer or ownership change. The Court found that the proviso was not applicable as the business had not been transferred, and the auction purchaser held title over the assets.

Application of Supreme Court Judgments:
Counsel cited Supreme Court judgments on successor liability for central excise dues, emphasizing that liability only extended to buyers of entire businesses. The Court clarified that the auction purchasers were not liable for the defaulting company's central excise dues as they did not acquire the entire business.

Attachment of Movable Assets:
The Court explained that the Central Excise Department could not attach the movable assets post-sale, as the auction purchasers had obtained title through a sale certificate. The proviso to Section 11 did not apply, as the assets were no longer owned by the defaulting company.

Central Excise Department's Failure:
Despite requirements in the auction notice to address central excise dues, the Central Excise Department had failed to take possession of finished goods, leading to correspondence indicating the auction purchaser's willingness to cooperate in removing the goods from the premises.

Legality of Notices:
The Court deemed the notices restricting the disposal of plant and machinery as unlawful, following the precedent set by the Supreme Court. The proceedings were set aside, allowing the Central Excise Department to recover dues by taking possession of finished goods from the premises.

Compliance with Supreme Court Rulings:
The judgment ensured compliance with Supreme Court rulings on successor liability for central excise dues, clarifying that auction purchasers were not automatically liable for the defaulting company's obligations. The writ petitions were allowed, with no costs imposed, and pending miscellaneous petitions were disposed of.