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TMI Blog2012 (11) TMI 478X X X X Extracts X X X X X X X X Extracts X X X X ..... 02. The land & building as well as plant & machinery were transferred by UPFC free from all encumbrances and liability. 3. By a special resolution dated 16-2-2002 the Board of Directors of M/s. Sarju Steels Pvt. Limited changed the name of the company to M/s. Rana Girders (P) Limited - the petitioner. The Registrar of Companies, Kanpur issued a certificate of incorporation, to the company, consequent upon change of its name on 28-3-2002 under Section 23(1) of the Companies Act, 1956. M/s. Rana Girders (P) Limited was registered under the Central Excise (No. 2) Rules, 2001, bearing registration No. AACCR0898QXN001. 4. On 25-8-2004 the petitioner-company received a notice from the office of Assistant Commissioner, Customs & Central Excise, Division-II, Muzaffarnagar regarding certain dues of its predecessor namely M/s. P.J. Steels (P) Ltd. for which adjudication orders dated 29-8-2002, 22-11-2002 and 22-7-2003 were passed. The Assistant Commissioner also drew attention of the petitioner to a judgment of Supreme Court in Macson Marbles (P) Limited v. Union of India - 2003 (158) E.L.T. 424, in which it was held that the Central Excise duty is recoverable from the auction pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst M/s. P.J. Steels (P) Ltd. It is stated in paragraph-26 of the writ petition that on 17-2-2005 the Superintendent of Central Excise visited the unit of the petitioner and detained 500 MT of M.S. Girders for recovery of Rs. 1,00,72,442/- plus interest. 8. It is submitted by learned counsel for the petitioner that though a request was made on 6-12-2004 for providing copies of the adjudication orders, the copies of the orders were provided to the petitioner by communication dated 21-2-2005. 9. In paragraph-31 of the writ petition it is stated that respondent no. 4 accompanied with respondent no. 3 visited the factory of the petitioner for detention/attachment of M.S. Girders weighing 678 MT (3800 pieces) valued at Rs. 1,32,21,000/- under Section 11 of the Central Excise Act, 1944, and ordered by his letter dated 24-2-2005 in exercise of powers under Section 11 of the Central Excise Act, 1944 read with Section 142(1)(b) of the Customs Act, 1962 and Section 35N of the Central Excise Act, 1944 that the goods detained vide detention memo dated 22-2-2005. The order enclosed the Superdnama dated 25-2-2005 with details of particulars of attached goods namely M.S. Girders, 380 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the transfer, disposal or change in the ownership is effected by the owner of the unit; whereas in the present case the sale of land & building and plant & machinery was made by UPFC and not by M/s. P.J. Steels (P) Ltd. Further the attachment could be made only for the purposes of recovery of such duty, which is due from the purchaser at the time of transfer. In the present case no attachment order was passed against M/s. P.J. Steels (P) Ltd. till the assets were purchased by the petitioner. The adjudication orders were made on 29-8-2002, 22-11-2002 and 22-7-2003, whereas the land & building was purchased on 8-3-2002, and plant and machinery on 14-3-2002. 13. Shri Subham Agrawal further submits that the second proviso to Section 11 of the Central Excise Act, 1944, is applicable only when there is voluntary act of transfer of the purchaser to evade the liability. It is not applicable when there is a coercive recovery by the mortgager by way of auction sale. In the instant case under Section 29(2) of the State Financial Corporation Act, the plant & machinery was transferred by UPFC to the petitioner, as the owner and not by the erstwhile defaulting unit. Under Section 29( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Excise Rules, 1944 (incorporated in second proviso to Section 11 w.e.f. 10-9-2004) was not applicable to the case. 16. Shri S.P. Kesarwani submits that the central excise department was entitled to recover the central excise dues against M/s. P.J. Steels (P) Ltd. The dues against M/s. P.J. Steels (P) Ltd. are recoverable against the petitioner, and as such the order dated 21-2-2005 was issued. A detention memo dated 22-2-2005 was drawn at the factory premises whereby Girders weighing 678 M.T. (2800 pieces) valued at Rs. 1,32,21,000/- (approximately) were detained under Section 11 of the Central Excise Act. Thereafter by order dated 24-2-2005 in exercise of powers under Section 11 of the Central Excise Act, 1944 read with Section 142(1)(b) of the Customs Act, 1962 and Section 35N of the Central Excise Act, 1944, the goods were detained vide detention memo dated 22-2-2005, and were ordered to be attached for auction. Clause (9) of the sale deed of the assets executed by the UPFC in favour of the petitioner provides as follows :- "9. That all the liabilities in respect of rates, rents, taxes and dues of Municipality and other local authorities etc. in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rector Shri Rakesh Kumar Singhal. The adjudication order dated 22-11-2002 imposed a duty of Rs. 1,15,576/- and penalty of Rs. 20,000/- and the adjudication order dated 22-7-2003 passed in pursuance to the show cause notice of the Preventing Officer of the Central Excise Commissionerate, Meerut dated 12-9-2001 detecting a shortage of 347.439 M.T. of M.S. Girders valued at Rs. 41,86,640/- involving Central Excise duty amounting to Rs. 6,69,862/- for which a show cause notice was issued on 9-9-2002. 20. By the order-in-appeal dated 30-4-2004, the adjudication Order-in-Original dated 22-7-2003 was confirmed. The Central Excise Appeal No. E/22-23/03-B arising out of order-in-original dated 29-8-2002 filed by M/s. P.J. Steels (Pvt.) Ltd. was dismissed on 30-4-2003 for non-compliance of the deposit of Rs. 10 lacs in terms of Section 35F of the Central Excise Act. The Central Excise Appeal No. E/4116/03-MB/SM arising out of order in appeal dated 5-9-2003 was also dismissed on 25-4-2004 for non-deposit of Rs. 50 lacs and thus for non-compliance of provisions of Section 35F of the Central Excise Act. 21. Rule 230 of the Central Excise Rules, 1944 provides :- "(1) When the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount so payable from any money owing to the person from whom such sums may be recoverable or due which may be in his hands or under his disposal or control, or may recover the amount by attachment and sale of excisable goods belonging to such person; and if the amount payable is not so recovered, he may prepare a certificate signed by him specifying the amount due from the person liable to pay the same and send it to the Collector of the district in which such person resides or conducts his business and the said Collector, on receipt of such certificate, shall proceed to recover from the said person the amount specified therein as if it were an arrear of land revenue. Provided that where the person (hereinafter referred to as predecessor) from whom the duty or any other sums of any kind, as specified in this section, is recoverable or due, 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 any other person, all excisable goods, materials, preparations, plants, machineries, vessels, utensils, implements and articles in the custody or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24 of the Electricity Act, there is no charge over the property in question when the premises come to be owned or purchased by the auction purchaser. He cannot be called upon to clear the past arrears when such purchaser seeks supply of electric energy. It was held that the liability of the Central Excise dues arises under the Central Excise Act and Rule 230(2) of the Central Excise Rules. The Rule clearly indicates that it is a mode of recovery of the excise dues from the assets owned by a predecessor and on his liabilities being assessed, the dues could be recovered even from the successor. It was held in paragraphs 5 and 8 as follows :- "5. In this case the liability arises under the Central Excise Act and Rule 230(2) of the Central Excise Rules. The said Rule clearly indicates that it is a mode of recovery of the excise dues from the assets owned by a predecessor and on his liabilities being assessed could be recovered even from the successor. 8. The Department having initiated the proceedings under Section 11A of this Act adjudicated liability of respondent No. 4 and held that respondent No. 4 is also liable to pay penalty in a sum of Rs. 3 lakhs while the Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax, to fall due when the tax becomes a debt owed to the taxing State when it has been determined by the assessment and quantified, and a notice of demand has been issued, does not apply to the present case. 28. In Luxmi Oil Vanaspati Pvt. Ltd. v. Commissioner, Central Excise - 2010 UPTC 1327 (Alld.) this Court held that the purchasers or its directors are not liable to pay excise dues of previous owners of the unit on the ground that the business of the previous owner was not purchased but only land and building was purchased. The Court held that excise dues are sovereign dues and as such stand priority over all other dues. Relying upon M/s. Isha Marbles v. Bihar State Electricity Board and Another (supra) and State of Karnataka v. Shreyash Papers Private Limited and Others - JT 2006 (1) SC 180 it was held that in case of sale of property under Section 29 of the State Financial Corporation Act, the purchaser for value without notice of the arrears of sales tax of the defaulting earlier company cannot be held responsible for payment of the same when the property had fallen to his hands, free of charge. It was held that Rule 230(2) authorises detention of all excisable goods, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Excise having no 'charge' over the property has no right to recover such dues from subsequent purchasers, who happens to be bona fide purchasers." 29. In Union of India and Others v. Sicom Limited and Another, (2009) 2 SCC 121 = 2009 (233) E.L.T. 433 (S.C.) = 2010 (18) S.T.R. 673 (S.C.) the Supreme Court held that considering the statutory right of the Financial Corporation under the State Financial Corporation Act, 1951 and the non obstante clause occurring therein it had a preferential claim in relation to its secured debts. In Sicom Limited (supra) the Central Government expressed its intention to attach and seize the property for recovery of certain sums of money in the form of Central Excise dues from the property mortgaged to financial corporation. The Supreme Court held that rights of the Crown to recover the debt would prevail over the right of the subject. Crown debt means the debts due to the State or the King. Such creditors, however, must be held to mean unsecured creditors. The principle of Crown debt pertains to the common law principle. When Parliament or a State Legislature makes an enactment, the same would prevail over the common law and thus, the common law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10-9-2004, as we find that there is a clear and unequivocal stipulation in the deed of sale dated 8-3-2002, of the land and building in paragraph-8 and in the agreement of sale of plant and machinery dated 14-3-2002 in paragraph-4 that all the statutory liabilities arises out of the said property (land and building) and in the agreement dated 14-3-2002, for plant and machinery shall be borne by the purchaser, and that the Corporation shall not be held responsible for the same. It thus cannot be denied that the central excise dues and penalty are the statutory liabilities, which had purchased the land & building and plant & machinery of M/s. P.J. Steels (P) Ltd. agreed to pay all statutory liabilities. The show cause notices for payment of Excise duty and penalty, were given prior to the purchase of the land and building and plant and machinery by the petitioner. The Excise duty is on the manufacture and not on sale. The adjudication officer only confirms the show cause notice, which in turns relate back to the payment of Excise duty on the date when goods were manufactured. The penalty, however, has a different status and is imposed only after its goods have been clandestinely rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the penalty was imposed and was due and payable on the date when the land and building, and plant and machinery was purchased by the petitioner. We are further of the opinion that the penalty as a quasi criminal liability, was leviable on M/s. P.J. Steels (P) Ltd. represented through its Board of Directors, and personally on Shri Rakesh Kumar Singhal - the director of the company. The penalty, therefore, having been levied and imposed after the purchase of land & building and plant & machinery installed in the unit which earlier belonged to M/s. P.J. Steels Ltd., Muzaffarnagar, is not payable by the petitioner, and is not covered under the stipulation in the sale deed and agreement as statutory liability nor it arose out of plant and machinery of the industrial unit.
36. The writ petition is partly allowed to the extent that the petitioner shall not be liable to pay penalties imposed upon M/s. P.J. Steels Ltd. and its Director under the impugned orders. The Central Excise Department will, however, be entitled to recover the central excise dues from the detained goods, or by sale of plant and machinery of the company. There shall be no orders as to costs. X X X X Extracts X X X X X X X X Extracts X X X X
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