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TMI Blog2021 (4) TMI 1052X X X X Extracts X X X X X X X X Extracts X X X X ..... thout any charge independent of business or trade of the previous owner, nor the Petitioner is in custody or possession of the said property as a successor of the previous owner against whom there was a demand of excise duty. This is also not a case where the entire unit, i. e. the entire business itself was purchased by the Petitioner - Excise duty liability can be fastened only on that person who had purchased the entire unit as a going concern and not on a person who had purchased land and building or machinery of the erstwhile concern. It is only in such cases that the buyer would be responsible to discharge the liability of Central Excise. Otherwise the purchaser cannot be fastened on the liability relating to the dues of the government unless there is a specific statutory provision to that effect. Petitioner is an auction purchaser of the said property and has not acquired the business of the Respondent No.3- borrower. True also that the said purchase as per the order of Confirmation of Sale is subject to worker s liability and other existing liabilities of the owners of the said property. Admittedly, the worker s dues have been settled. Excise dues are not dues which aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and after examining the legality and validity thereof, this Hon ble Court be pleased to quash and set aside the same. 3. Petitioner, is a Partnership firm registered under the Indian Partnership Act, 1932 and carries on business of construction and development. 2nd Respondent is the office of the Assistant Commissioner of Central Excise having claim of Excise duty dues against Respondent No. 3 viz. M/s. Bluemoon Engineers Limited (earlier known as HMP Engineering Ltd. ) and is now claiming the same from the Petitioner. 4. It appears that certain property admeasuring 24,280.94 square meters situated at Mulund, Mumbai (the said property ) belonging to company known as M/s. HMP Engineering Ltd., (name was subsequently changed to Blue Moon Engineers Ltd. i. e. Respondent No.3) had been mortgaged to Indian Bank (for short the Bank ) as security for certain facilities provided by the Bank to Respondent No. 3 -Company. In exercise of its rights as a mortgagee, the Bank intended to sell said property to recover its dues from Respondent No. 3. 5. At an auction conducted by the Debt Recovery Tribunal (for short DRT ), Kolkata, Petitioner s offer was accepted. Petitioner was dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Excise duty dues payable by Respondent No. 3 failing which, steps would be taken to realize the Excise duty dues under the Customs Property Adjustment Rules and also prohibiting/restraining the Petitioner from transferring or charging the property. Said notices as well have been replied to by the Petitioner. 12. It is submitted that after the purchase, Petitioner has started developing the property. Petitioner s project on said property consist of 5 buildings, containing 504 flats and with respect to 292 flats, it has entered into agreement/arrangements of sale with several flat purchasers who have availed of bank loans by mortgaging the flats to various banks / financial institutions. 13. It is further submitted that by virtue of order of confirmation of sale and certificate of sale of said property, Petitioner became owner of the said Property and all the rights, title and interest in the property stood vested in the Petitioner on and from 14.09.2004 as the property has been transferred in the name of the Petitioner and has also paid the property tax in its name. 14. It is submitted on behalf of the Petitioner that liability to pay excise duty arises from manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since Petitioner has purchased the property which was mortgaged to the seller bank, Petitioner would also get the same treatment as a secured creditor and therefore, his right could not be interfered with by the Excise Department for recovery of excise duty dues of the borrower -Respondent No.3. 17. It is also submitted on behalf of Petitioner that section 11 of the Excise Act or the proviso to section 11 do not apply in the present case as the petitioner has not succeeded to the business or trade of the Respondent No. 3 borrower in whole or in part. However, even assuming while denying the applicability of section 11, it is submitted that as per the proviso to section 11, Petitioner is not a successor in business of the borrower and assuming the section would be applicable yet the proviso would exclude the petitioner. In this context Petitioner relies upon the decision of this court in the case of Gharkul Industries Private Limited (supra), where this court has held that petitioner had purchased property belonging to a company in liquidation pursuant to a public auction as purchaser of assets and not purchaser as successor of business, the proviso to section 11 of the Central E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to said order on page 25, he submits that the intending purchaser (viz. Petitioner) had come forward with an amount of ₹ 13 crores to be split up respectively into 12 crores as the price for the Mulund property and the balance ₹ 1 crore for the release of the Victory House property, Kolkata; he submits that the application had been made in accordance with Clause No. (a) of the terms and conditions as stipulated in paragraph 4 cited in the order. He quotes paragraph 4(a) of the sanctioned terms and conditions is quoted as under : The defendants shall pay ₹ 1300 lacs to the applicant bank on or before 30th September 2004 by sale of land of Mulund unit and against/before release of Victory house property. Nine Quarterly installments of ₹ 50.00 lakhs each commencing from the quarter ending 31.12.2004 to Quarter Ending 31.12.2006. First of such installment will fall due for payment on 31.12.2004 and the same should be paid on or before that date. Subsequent installments will likewise fall due for payment on 31st March, 30th June, 30th September and 31st December etc. and should be paid by the defendants before the due date. 22. He submits that unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat all encumbrances, be known before hand; the amount to be received by auction of the property, should be sufficient to cover the costs, charges and expenses and discharge of the dues of the secured creditor and also discharge of the encumbrances upon the property including the arrears of VAT/sales tax dues. He submits that holding that the dues of the Sales tax Department therein were charge on the property u/s 37(1) of MVAT Act and property having stood attached by the Sales tax department before the auction, petitioner would be liable to pay the same to the department in order to obtain a clear and marketable title to the property having purchased the same on as is where is and whatever there is basis . Only when Petitioner discharges the dues it would then be entitled to a no dues certificate (NOC) from the sales tax department. Also in that case it was claimed that there was no notice to the auction purchaser of the charge by the tax department, but the bench has held that notice of such statutory charge is always presumed in law to one an all and none can claim ignorance of the same. Mr. Valve submits that the facts in the case at hand are no different except that in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant point of time when the Central Excise Department had raised a demand against the property that was successfully purchased by the Petitioner in the DRT Auction for the outstanding central excise dues of the erstwhile owners, i.e. M/ s. Bluemoon Engineers Pvt. Ltd., there existed no such section creating a first priority charge for the dues arising therefrom existed under the Excise Act. The Legislature, for the first time introduced Section 11E of the Excise Act (w.e.f. 1st April, 2011), which creates a first charge for the liabilities under the said Act. However, an express exception has been carved out under the said Section which saves first priority charges created under the RDDB Act or the SARFAESI Act. The aforesaid Sections and a similar claim of the Central Excise Department came up for discussion before the Aurangaband Bench of the Hon ble Bombay High Court in Siddhi Sugar and Allied Industries Ltd., 2019 (6) Mh.L.J., wherein the Court held that even without the aid of Section 26E of the Excise Act, it can be safely concluded that a secured creditor/ Bank would have a priority over the claim of the Central Excise Department. In the present matter, admitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs became owner of the both land and building as well as plant and machinery. 28. In that case the borrower had also to discharge liability of the excise duty of ₹ 1,00,72,442/- and to recover the said amount, concerned Commissioner was seeking to do so from Rana Girders as successor-in-interest of the land, building, plant and machinery. Rana Girders resisted the demand submitting that the property had been purchased in an open auction and free from all encumbrances and it was not the liability of the purchaser to make payment of the dues of the excise duty department. The issue that arose was whether Excise Department could recover the excise duty from Rana Girders which was the purchaser in auction on as is were is basis with a condition in the public notice of the auction which stipulated that all the statutory liabilities arising out of land would be borne by the purchaser except electricity dues. Also, there was a condition in the sale deed as well as in public notice which stipulated that all the statutory liability arising out of the properties shall be borne by the vendee and the seller would not be responsible. The Supreme Court formulated two questions for its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity. 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. Learned counsel for the respondents, heavily relied on the judgment of this Court in M/s. Macson Marbles (P) Ltd. Vs. Union of India (2008) 15 SCC 481 , reference to which is also made in the notice dated 25.02.1984 that was served upon the appellant by the Excise Department. He submitted that in that case this Court had held that even the successor in interest is liable to discharge the liability of the Excise Department. We may, however, note that this case was considered and specifically distinguished in Union of India Vs. SICOM Ltd. (2009) 2 SCC 121. In that case, considering the statutory right of the Financial Corporation under the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priority to Crown Debts, thus: 13. . 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 Crowns 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 p.666).Herbert Broom states: Quando jus domini regis et subditi concurrunt jus regis praeferri debat -- Where the title of the king and the tile of a subject concur, the King s title must be preferred. In this case detur digniori is the rule. .....where the titles of the King and of a subject concur, the King takes the whole. ....where the King s title and that of a subject concur, or are in conflict, the King s title is to be preferred.(Legal maxims, 10th Edn.,pp.35-36). This Common law doctrine of priority of State s debts has been recognised by the High Courts of India as applicable in British India before 1950 and hence the doctrine has been treated as law in force within the meaning of Article 372(1) of Constitution. It was, furthermore, observed : 10. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e examined. In this case, no such conflict arises between the corporation and the Excise Department. Hence it is unnecessary to examine this aspect of the matter. 11. 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 ₹ 3 lakhs while the Excise dues liable would be in the order of a lakh or so. It is difficult to conceive that the appellant had any opportunity to participate in the adjudication proceedings and contend against the levy of the penalty. Therefore, in the facts and circumstances of this case, we think it appropriate to direct that the said amount, if already paid, shall be refunded within a period of three months. In other respects, the order made by the High Court shall remain undisputed. The appeal is disposed of accordingly. The decision, therefore, was rendered in the facts of that case. The issue with which we are directly concerned did not arise for consideration therein. The Court also did not notice the binding precedent of Dena Bank Vs. Bhikhabhai Prabhudas Paresh Co. (2000) 5 SCC 694 as also other deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilding or the plant and machinery. Statutory liabilities arising out of the land and building could be in the form of the property tax or other types of cess relating to property etc. Likewise, statutory liability arising out of the plant and machinery could be the sales tax etc. payable on the said machinery. As far as dues of the Central Excise are concerned, they were not related to the said plant and machinery or the land and building and thus did not arise out of those properties. Dues of the Excise Department became payable on the manufacturing of excisable items by the erstwhile owner, therefore, these statutory dues are in respect of those items produced and not the plant and machinery which was used for the purposes of manufacture. This fine distinction is not taken note at all by the High Court. 29. Following extract from the case of Gharkul Industries Private Limited (supra) would be pertinent to be referred to, which contains section 11 of the Excise Act along with its proviso:- 11. Recovery of sums due to Government.-In respect of duty and any other sums of any kind payable to the Central Government under any of the provisions of this Act or of the rules m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent 1 is relying on section 11 of the Central Excise Act, 1944. This section states the manner in which the sums due to the Central Government can be recovered under the Central Excise Act, 1944. This section, inter alia, states that in respect of duty and any other sums of any kind payable to the Central Government under any of the provisions of the Central Excise Act, 1944, the empowered officer may deduct the said amount so payable from any money owning 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. Proviso to section11 is of relevance to the present petition. It reads as under:- 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 exercisable goods, materials, prepara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Excise Act, 1944 is not attracted to the present case and taking an overall view of the matter, in our opinion, the petitioners prayers deserve to be granted. Hence, we pass the following order:- ORDER (i) It is declared that the sale of the said property to the petitioners duly sanctioned by this Court by its order dated 23/12/2005 in Company Application No.866 of 2005 in Company Petition No. 163 of 1998 is not subject to proviso to section 11 of the Central Excise Act, 1944. (ii) Upon the petitioners depositing the entire sale proceeds as directed by this Court, respondent no.3 i.e. the official Liquidator shall take necessary steps as directed by this Court by its order dated 5/12/2003 in Company Application (L) No.282 of 2003 and order dated 23/12/2005 in Company Application No.866 of 2005 in Company Petition No..163 of 1998. (iii) Needless to say that the Excise Department can also file its claim before respondent 3. If such a claim is filed, respondent 3 shall adjudicate it in accordance with law. The petition is disposed of in the aforestated terms. 31. Considering the aforesaid findings of this court in the case of Gharkul Industries Private Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot mean excise duty dues, which arise out of manufacture. In our view, therefore, the language in the confirmation of the Sale is with reference to the liabilities relating to the said property and not with reference to the business of the Respondent No.3- borrower; we therefore hold that since Petitioner has not purchased the entire unit with business, it is not liable for the dues of the Excise Department. The arguments of the learned Counsel for the Revenue also do not impress us. 34. In view of the above discussion, where we have found that in view of the decision of the Supreme Court in the case of Rana Girders (supra), Petitioner would not be liable to excise duty dues of Respondent No.3- borrower, having purchased only the land and not the entire business of the borrower in the public auction, the decision of the Nagpur bench in the case of Medineutrina (supra) would not whelm the present case as the said decision has not considered the case of Rana Girders (supra). We also do not consider it necessary to deal with the case of Siddhi sugar (supra), inasmuch as that was case after the insertion of section 11-E to the Central Excise Act, (w.e.f 01.04.2011) whereas the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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