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TMI Blog2020 (11) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise 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 j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner, he had purchased the land, buildings and machineries at a huge cost of ₹ 31,00,02,500/- and invested an additional sum of ₹ 10 Crores, employed more than 300 persons and functioning in full swing. At this juncture, any order of attachment will put the petitioner to very serious and irreparable loss and prejudice. The auction was conducted by a secured creditor, in which, the respondents 1 to 3 do not have any charge and Section 11 of the Central Excise Act, 1944, does not create any charge over arrears of tax. As per the judgment of the Hon'ble Supreme Court in UNION OF INDIA AND OTHERS VS. SICOM LIMITED AND ANOTHER [2009 (2) SCC 121] Crown's preferential right is confined only to unsecured debts and not to secured debts. In fact, respondents 1 to 3 have addressed a letter to the fourth respondent for recovery of arrears due to them on 29.03.2010, which was replied by fourth respondent on 11.06.2010 that if any surplus amount left after Bank's dues are met, they will make payment towards Central Excise arrears. In spite of receiving the letter from fourth respondent, they have kept quiet without taking any action to exercise their prefere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty, for the capital goods imported under EOC Scheme without payment of duty. They are bound by the provision of the Act on the goods manufactured. Since the Licensee failed to apply for renewal nor replied to the show cause notice dated 20.04.2010 declared that they were no more an EOU and cancelled LOP. Therefore, all capital goods imported by the Assessee without payment of customs duty and capital goods procured indigenously without payment of Central Excise duty looses concession and the duty has to be paid. The Assessee failed to make the payment and not surrendered the registration as EOU. But the petitioner stepped into the shoes of M/s.Rajam Mills Spinning Company Limited cannot be relieved of the liability. As per the provisions of Customs Act, removal or attempt to removable of dutiable goods from customs area without permission are liable for confiscation. M/s.Rajam Mills Spinning Company Limited have removed the imported goods into DTA and failed to fulfill or observe the conditions, therefore, the imported goods are liable for seizure. Thus, the Assessee is liable to pay the duty prior to the date of alleged sale and public auction and the right of the department pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is liabilities. Now that, it has to be analysed as to 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? and the liability to pay the debts in general is different from the secured debts. 7. It is well settled that in the case of ordinary or unsecured debts, preference goes to the Crown's debt. The wages of the employees, statutory payments and other liabilities to the Government or Local Body shall be appropriated first and the residue shall be shared among the creditors on pro rata basis. It is not the same case in respect of the secured debts, the secured creditor will prevail over the other debtors. The preference of the crown debt, will not be applicable in the cases of secured debts. 8. In the instant case, one M/s.Rajam Mills Spinning Company Limited was granted a license as Export Oriented Unit (EOU) and availed the exemption of duty under the Customs and Central Excise Act, 1944. In that case, the availment of concession or tax exemption is personal to the licensee or assessee in favour of whom it was granted. It is not transferable wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w business of the same nature or he may use the property for some other new business or in other cases, he may sell away the plant and machinery and use the land and building for an entirely different purpose. For example, the buildings can be converted into School or Marriage Hall or Commercial Complex etc. In yet other cases, the land alone may be sold and the building may be put to his personal use or on the reverse, the land and building may be sold only using the plant and machineries at a different place. In cases of major industries, those properties can be used for starting a new division of the same or different business. Therefore, in all these cases, there is no relationship between the auction purchaser and the previous owner of the property or his business or the transaction personal to him. The transaction of the previous owner and his liability over the business are not binding on the third party purchaser. In other words, the business of the erstwhile owner of the industry, if not transferred, the liabilities will be personal to him. The licensee can start a new business with the same license after clearing the dues at a different property. Therefore, purchase of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any conditions from duty moved in violation of conditions are liable for confiscation. If payment of duty is not made, Section 110 of the Customs Act, make it liable for confiscation. 14. As per Section 125 of the Customs Act, read with Rules 24 and 25 of the Central Excise Rules, 2002, has power to seize the goods. 15. As per Section 112 and 114(A) of the Customs Act, penal action can be taken against the defaulter. Therefore, there is lot of powers conferred on the authorities to confiscate the assessee and assess the goods. However, after writing a letter dated 23.03.2010, the respondents 1 to 3 have kept quite. Unless the respondents have any prior charge or attachment over the property, they cannot lay their claim prevailing upon the secured creditor. 16. Admittedly, the fourth respondent being a secured creditor, as per the provisions of the SARFAESI Act, has preferential claim over the debt by sale of the properties. When the claim of the secured creditor is satisfied whatever surplus left is open for distribution among the other creditors. 17. The contention of the respondents 1 to 3 that as per the judgment of the Hon'ble Supreme Court in CENTRAL BANK OF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 only empowers detention and there was no other provision under the Central Excise Act or the Rules which envisages to create any charge over the assets of a unit to enable the realization of the Central Excise Duty on top priority. The Court held that UPFC had a priority being a secured creditor on the one hand and Central Excise having no charge over the property. The Court specifically took note of the fact that the petitioner in that case was not the successor of the erstwhile owner in business or trade and having acquired the property without any charge independent of business or trade of the previous owner, was not a person in custody or possession of the property as a successor of the previous owner against whom there was a demand of excise duty. 17.... 18. In so far dues of the Government in the form of tax or excise etc. are concerned, the Court was of the opinion that rights of the Crown to recover the dues 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral preferred. Where the right of the subject is complete and perfect before that of the king commences, the rule does not apply, for there is no point of time at which the two rights are at conflict, nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already. In Giles v.Grover it has been held that the Crown has no precedence over a pledge of goods. In Bank of Bihar v. State of Bihar the principle has been recognised by this Court holding that the rights of the pawnee who has parted with money in favour of the pawner on the security of the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. Rashbehary Ghose states in Law of Mortgage (TLL,7th Edn.,p.386) it seems a government debt in India is not entitled to precedence over a prior secured debt. 20. Coming to the liability of the successor in interest, the Court clarified the legal position enunciated in M/s. Macson by observing that such a liability can be fastened on that person who had purchased the entire unit as an ongoin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was no such specific provision as noticed in SICOM as well. Proviso to Section 11 is now added by way of amendment in the Act only w.e.f. 10.9.2004. Therefore, we are eschewing our discussion regarding this proviso as that is not applicable in so far as present case is concerned. Accordingly, we thus, hold that in so far as legal position is concerned, UPFC being a secured creditor had priority over the excise dues. We further hold that since the appellant had not purchased the entire unit as a business, as per the statutory framework he was not liable for discharging the dues of the Excise Department. 19.The Hon'ble Full Bench of this Court in UTI BANK LIMITED VS. DEPUTY COMMISSIONER OF CENTRAL EXCISE [2006 (5) CTC 801] has observed as under: 25. In the case on hand, the petitioner Bank which took possession of the property under Section 13 of the SARFAESI Act, being a special enactment, undoubtedly is a secured creditor. We have already referred to the provisions of the Central Excise Act and the Customs Act. They envisage procedures to be followed and how the amounts due to the Departments are to be recovered. There is no specific provision either in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 31B, as it includes ''secured debts due and payable to them by sale of assets over which security interest is created . 21. The Hon'ble Supreme Court in UNION OF INDIA AND OTHES VS. SICOM LIMITED AND ANOTHER [2009 (2) SCC 121] has observed as under: 2. Whether realization of the duty under the Central Excise Act will have priority over the secured debts in terms of the State Financial Corporation Act, 1951 (1951 Act) is the core question involved herein. 6. The principal question which, as noticed hereinbefore, arose for consideration before the High Court was as to whether dues of the first respondent-corporation will have priority over the Central Excise dues. The High Court, upon consideration of a large number of decisions opined that despite the fact that the dues of the appellant were recoverable as land revenue in terms of Rule 213(2) of the Central Excise Rules read with Section 32(g) and Section 151 of the Maharashtra Land Revenue Code, 1966, the same by itself would not mean that a first charge of the appellant- corporation would give way thereto. It was held : 30. Turning to provisions of Section 169 of the Code, sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the same would prevail over the common law. Thus, the common law principle which was existing on the date of coming into force of the Constitution of India must yield to a statutory provision. To achieve the same purpose, the Parliament as also the State Legislatures inserted provisions in various statutes, some of which have been referred to hereinbefore providing that the statutory dues shall be the first charge over the properties of the tax-payer. This aspect of the matter has been considered by this Court in a series of judgments. 13. These aspects of the matter, however, have been considered at some length by a Three Judge Bench of this Court in Dena Bank v. Bhikhabhai Prabhudas Parekh Co. Ors. [(2000) 5 SCC 694]. Dealing extensively with the doctrine of priority to Crown Debts, it was held: 7. What is the common law doctrine of priority or precedence of Crown debts? Halsbury, dealing with general rights of the Crown in relation to property, states that where the Crown's right and that of a subject meet at one and the same time, that of the Crown is in general preferred, the rule being detur digniori (Laws of England, 4th Edn., Vol. 8, para 1076, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asstt. Commissioner of Customs Central Excise, Hyderabad-I [1999 (106) ELT 296 (AP)] where the applicability of the provisions of the 1951 Act vis-`-vis the Central Excise dues were in question holding: 22. From the above it follows: That in the case of a pledge, pawnee has special property and lien which is not of an ordinary nature on the goods and so long as his claim is not satisfied no other creditor of the pawnor has any right to take away goods or its price. The right of a pawnee could not be extinguished by the subsequent attachment/seizure of the goods under any other law. It gives the Pawnee a primary right to sell the goods in satisfaction of the liability of the pawner. An unsecured creditor could not have any higher rights than the pawner and was entitled only to the surplus money after satisfaction of the secured creditor's dues. 14.The principles laid down in Dena Bank were reiterated recently in Bank of India v. Siriguppa Sugars Chemicals Ltd. [(2007) 8 SCC 353] wherein it was held: There is no dispute that the sugar was pledged with the appellant Bank for securing a loan of the first respondent and the loan had not been repaid. The g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he person entitled and having regard to the doctrine of Crown debt, the auction purchaser must satisfy it. 22. The Orissa High Court failed to notice the binding precedent of this Court in Dena Bank in its proper perspective. We are concerned here with the respective rights of a secured creditor and unsecured creditor over a property. If the finding of the Orissa High Court is correct, there was no necessity for the State Legislatures or the Parliament to amend laws incorporating provisions to create first charge over the properties of the debtor. The High Court failed to notice Article 372 of the Constitution as also the well settled principles of law that a statutory provision shall prevail over the Crown debt. 23. Furthermore, the right of a State Financial Corporation is a statutory one. The Act contains a non- obstante clause in Section 46B of the Act which reads as under : Section 46B--Effect of Act on other laws--The provision of this Act and of any rule or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was at all any doubt, the same stands resolved by view of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 41 of the same seeking to introduce Section 31B in the Principal Act, Which reads as under:- 31B.Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority. Explanation:-for the purposes of this Section, it is hereby clarified that on or after the commencement of the insolvency and bankruptcy Code, 2016, in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that code. 3.There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no further orders are required in W.P.No.40656 of 2015, as the said properties is covered in the list of the properties, which are the subject matter of the other two writ petitions. Hence, W.P.No.40656 of 2015 is dismissed. As this Court has allowed the writ petitions filed by Assets Reconstruction Company India Limited, The Sub-Registrar, Saidapet, Chennai is directed to remove the entries in the encumbrance certificate of the subject properties. 23. The Hon'ble Supreme Court in MAHARASHTRA TUBES LTD., VS. STATE INDUSTRIAL INVESTMENT CORPORATION OF MAHARASHTRA LIMITED AND ANOTHER [1993 (2) SCC 144] it has been observed as under: 9. Having reached the conclusion that both the 1951 Act and the 1985 Act are special statutes dealing with different situations the former providing for the grant of financial assistance to industrial concerns with a view to boost up industrialization and the latter providing for revival and rehabilitation of sick industrial undertakings, if necessary, by grant of financial assistance, we cannot uphold the contention urged on behalf of the respondent that the 1985 Act is a general statute covering a larger number of industrial concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exchange Regulation Act, 1973 (46 of 1973) and the Urban Land (ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than this Act. 8. The effect of this provision is that the said Act will have effect notwithstanding anything inconsistent therewith contained in any other law except to the provisions of the Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A similar non-obstante provision is contained in Section 13 of the Special Court Act which reads as follows: 13. Act to have overriding effect-The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any: instrument having effect by virtue of any law, other than this Act, or in any decree or order of any court, tribunal or other authority. 9. It is clear that both these Acts are special Acts. This Court has laid down in no uncertain terms that in such an event it is the later Act which must prevail. The decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, under Section 11(1), the Special Court can give directions regarding property of a notified party. Under Section 11(2), the Special Court is to distribute the assets of the notified party in the manner set out thereunder. Monies payable to the notified parties are assets of the notified party and are, therefore, assets which stand attached. These are assets which have to be collected by the Special Court for the purposes of distribution under Section 11(2). The distribution can only take place provided the assets are first collected. The whole aim of these provisions is to ensure that monies which are siphoned off from banks and financial institutions into private pockets are returned to the banks and financial institutions. The time and manner of distribution is to be decided by the Special Court only. Under Section 22 of the 1985 Act. recovery proceedings can only be with the consent of the Board for Industrial and Financial Reconstruction or the Appellate Authority under that Act. The Legislature being aware of the provisions of Section 22 under the 1985 Act still empowered only the Special Court under the 1992 Act to give directions to recover and to distribute the assets o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act is to have an overriding effect notwithstanding any provision to the contrary in another Act. In view of the ratio laid down in the above judgments, it is crystal clear that the priority right of the secured creditor will prevail over all other unsecured creditor. 25. In the present case, as discussed above, 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. 26. As discussed above, 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. 27. Section 11 of the Central Excise Act, 1944, does not create any charge over the property. In this context, it is useful to refer to the judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ICITY BOARD VS. HANUMAN RICE MILLS, DHANAURI AND OTHERS [2010 (9) SCC 145] has observed as under: 12. The position therefore may be summarised thus: (i) Electricity arrears do not constitute a charge over the property. Therefore, in general law, a transferee of a premises cannot be made liable for the dues of the previous owner / occupier. (ii) Where the statutory rules or terms and conditions of supply which are statutory in character, authorise the supplier of electricity to demand from the purchaser of a property claiming reconnection or fresh connection of electricity, the arrears due by the previous owner / occupier in regard to supply of electricity to such premises, the supplier can recover the arrears from a purchaser. Position in this case 13. The appellant did not plead in its defence that any statutory rule or terms and conditions of supply authorised it to demand the dues of previous owner from the first respondent. Though the appellant contended in the written statement that the dues of Durga Rice Mills were transferred to the account of the first respondent, the appellant did not specify the statutory provision which enabled it to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Paschimanchal Vidyut Vitran Nigam Ltd., etc, summarised the position in the following manner which is as under: (Hanuman Rice Mills case, SCC pp. 150-51, para 12) 12........ (i)Electricity arrears do not constitute a charge over the property. Therefore, in general law, a transferee of a premises cannot be made liable for the dues of the previous owner / occupier. (ii) Where the statutory rules or terms and conditions of supply which are statutory in character, authorise the supplier of electricity to demand from the purchaser of a property claiming reconnection or fresh connection of electricity, the arrears due by the previous owner / occupier in regard to supply of electricity to such premises, the supplier can recover the arrears from a purchaser . 21.In the light of the above discussion, specific factual details regarding the position of Respondent 1 which purchased the said premises under court auction-sale from the Official Liquidator on as-is-where-is and whatever there is basis and in the light of the Regulations quoted above, particularly, sub-clause 10(b) of Regulation 13, we hold that the request was not for the transfer from the previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required under section 45G (3) read with sec-93-A of the ESI Act 1948 to pay forthwith to me as Recovery Officer the above mentioned amount. Any payment made by you in compliance with this notice is in law deemed to have been made under the authority of the defaulter principal employer, and my receipt there of, will constitute a good and sufficient discharge of your liability to the defaulter principal employer (transferor) to the extent of the amount referred to in the receipt. Further, if you discharge any liability to the defaulter principal employer after receipt of this notice, you will be personally liable to me as Recovery Officer to the extent of the liability discharged or to the extent of the liability of the defaulter principal employer referred to in the first part, whichever is less. Furthermore, if you fail to make the payment in pursuance of this notice to me as Recovery Officer, you shall be deemed to be in default in respect of the amount specified in the notice and further proceeding may be initiated against you for the realization of the amount as if it were an arrear due from you, in the manner provided under Sec.45C to 45I of the ES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid judgment will not apply to the present case on hand. As already discussed elaborately that the difference between the purchase of the business and the purchase of the properties on outright sale. The judgment referred by the learned counsel for the respondent ESIC will apply only where the business is continued or revived and the person who was taken over the company or revive the company becomes the successor. But, in the instant case, it is not so. The auction purchaser has commenced a new business by investing huge amount of money and employing the different employees. It is not the case of the ESIC that the same employees are continuing in the same Insurance Corporation. In the absence of any continuance of business as successor in the business or as an occupier continuing the same business with the same employees with the same registration or code of ESI, the claim cannot be made against an independent establishment. 37. The judgment of this Court in BOOPATHY ASSOCIATES PRIVATE LIMITED VS. ESIC AND OTHERS [2013 (III) LLJ 518 (MAD)] relied on by the learned counsel for the respondent ESIC will also not applicable as the notice issued to the writ petitioner is without ..... X X X X Extracts X X X X X X X X Extracts X X X X
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