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2020 (11) TMI 283 - HC - Central ExciseDemand of central excise arrears - Purchase of property in a public auction - whether there was attachment of liabilities and the same was passed along with the property or not? - When the question of recovery comes, there shall be a liability to pay the sum? HELD THAT - The respondents 1 to 3 have not exercised the powers conferred under them and seized or attached the goods for which, they have granted exemption of duty. Once there is no charge over the plant or machinery, or other properties, the respondents 1 to 3 will fall under the unsecured creditors and they cannot prevail over the rights of the secured creditor - the transaction between the assesses or licensee and authorities is personal between them. It will not continue unless and otherwise there is a specific condition attached to the same. The auction purchasers cannot be held liable for the arrears incurred by the previous licensee or industry in facour of whom the tax benefits are granted. In various judgements, the categorical declaration is that the auction purchaser is not liable to pay any arrears, or duty or statutory dues for the default of the previous establishment. The right of the auction purchaser is absolute and independent of all the liabilities of the erstwhile establishment or owner. That transaction is personal, right or interest in personam between those parties will not bind on the auction purchaser - Reliance can be placed in the case of SPECIAL OFFICER, COMMERCE, NORTH EASTERN ELECTRICITY COMPANY OF ORISSA (NESCO) ANR. VERSUS M/S RAGHUNATH PAPER MILLS PRIVATE LIMITED ANR. 2012 (11) TMI 406 - SUPREME COURT . Thus, the notice issues by the respondents 1 to 3 demanding arrears of tax or duty, committed by the previous owner from the petitioner / auction purchaser is without jurisdiction. The auction purchaser need not file an appeal against the notice or demand or order passed by the respondents. Since the notice is without jurisdiction, the writ petition is maintainable without any exhaustion of alternative remedy. It is always open to the respondents 1 to 3 to claim or demand the arrears of duty from the licensee or the beneficiary of the license and not from the writ petitioner who is a third party to that license - demand notices set aside - appeal allowed.
Issues Involved:
1. Liability of the auction purchaser for the arrears of duty and taxes of the defaulter. 2. Priority of secured debts over Crown debts. 3. Jurisdiction and validity of demand notices issued by tax authorities to the auction purchaser. 4. Applicability of statutory provisions regarding the liability of successors in business. Issue-Wise Detailed Analysis: 1. Liability of the Auction Purchaser for the Arrears of Duty and Taxes of the Defaulter: The petitioner, an auction purchaser of properties belonging to a defaulter, M/s. Rajam Mills Spinning Company Limited, contested the demand for recovery of ?12,50,577/- plus interest from them by the respondents 1 to 3. The respondents argued that the petitioner stepped into the shoes of the defaulter and thus inherited the liability. However, the court held that the transaction between the licensee and the authorities is personal and does not bind the auction purchaser unless there is a specific condition attached. The court cited several judgments, including *Rana Girders Limited vs. Union of India and Others* and *Ahmedabad Electricity Co. Ltd. vs. Gujarat Inns Pvt. Ltd.*, which established that auction purchasers are not liable for the arrears of the previous owners unless they purchase the entire business as an ongoing concern. 2. Priority of Secured Debts over Crown Debts: The court reiterated that secured creditors have priority over Crown debts. The judgment referenced *Union of India and Others vs. SICOM Limited and Another*, which clarified that Crown debts are considered unsecured and do not prevail over secured debts. The court also cited *UTI Bank Ltd. vs. The Deputy Commissioner of Central Excise* and *The Assistant Commissioner (CT) vs. The Indian Overseas Bank*, which confirmed that in the absence of a specific statutory provision claiming "first charge," the claim of secured creditors will prevail over Crown debts. 3. Jurisdiction and Validity of Demand Notices Issued by Tax Authorities to the Auction Purchaser: The court quashed the demand notices issued by respondents 1 to 3, stating that they were without jurisdiction. It was noted that the respondents had not exercised their powers to seize or attach the goods for which they had granted duty exemptions. The court emphasized that the auction purchaser is not liable for the arrears incurred by the previous licensee or industry. The judgment cited *Rana Girders Limited vs. Union of India and Others*, which highlighted that unless there is a specific provision in the statute claiming "first charge," the subsequent purchaser cannot be fastened with the liability relating to government dues. 4. Applicability of Statutory Provisions Regarding the Liability of Successors in Business: The court distinguished between the purchase of a business and the purchase of properties on an outright sale. It was clarified that the liabilities of the previous owner do not bind the auction purchaser unless the entire business is transferred or continued. The court referenced *Maharashtra Tubes Ltd. vs. State Industrial & Investment Corporation of Maharashtra Ltd. and Another* and *Solidare India Ltd. vs. Fairgrowth Financial Services Ltd. and Others*, which discussed the non-obstante clauses in different statutes and their precedence. The court concluded that the auction purchaser, who commenced a new business with different employees, is not liable for the arrears of the previous establishment. Conclusion: The court allowed the writ petitions, quashing the demand notices issued by the respondents and confirming that the auction purchaser is not liable for the arrears of the previous owner. The priority of secured creditors over Crown debts was upheld, and the jurisdiction of the tax authorities to demand arrears from the auction purchaser was negated. The court emphasized that the statutory provisions regarding the liability of successors in business do not apply in cases of outright property sales without the transfer of the business.
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