Rajasthan High Court - Jaipur
M/S Universal Polysack India Pvt Ltd vs U O I And Ors on 14 February, 2019
Bench: Mohammad Rafiq, Goverdhan Bardhar
HIGH COURT OF JUDICATURE FOR RAJASTHAN
BENCH AT JAIPUR
D.B. Civil Writ Petition No. 2306/2017
M/s Universal Polysack India Pvt. Ltd., NH-8, Village Piplaj,
Ajmer Road, Beawar District Ajmer Raj, through its Director and
Authorised Signatory Shri Govind Goyal S/o Shri Surendra Goyal,
Aged about 36 years, R/o B-42, RIICO Housing Colony, Ajmer
Road, Beawar Raj.
----Petitioner
Versus
1. Union of India, through Secretary Revenue, Ministry of
Finance, Department of Revenue, North Block, New Delhi-
110001.
2. Commissioner Central Excise Jaipur- I, NCRB, Statue
Circle, C-Scheme, Jaipur- 302005
3. Deputy Commissioner of Central Excise, Ajmer Division,
Ajmer
4. Superintendent Central Excise And Service Tax Range-V,
Beawar, District Ajmer Raj.
5. M/s. Oosyine Mar Pack Ltd. Retd. Office At, 11, K.K.
Tagore Street, Kalkatta-700007
6. M/s. Keymer Bagshawe Marketing Co. Pvt. Ltd., Regd.
Office At, 11, K.k. Tagore Street, Kalkatta-700007
7. Oriental Bank Of Commerce, Plot No. 5, Sector-32,
Institutional Area Gurgaon-122001
----Respondents
For Petitioner(s) : Shri Sameer Jain with Shri Arjun
Singh & Shri Daksh Pareek
For Respondent(s) : Shri Sandeep Pathak with Ms. Vartika
Mehra for respondent-Excise
Department
Shri K.M. Mathur for respondent-Bank
Shri Gaujan Pathak with Shri Aditya
Bohra for respondent nos.5 and 6.
HON'BLE MR. JUSTICE MOHAMMAD RAFIQ
HON'BLE MR. JUSTICE GOVERDHAN BARDHAR
Judgment
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14/02/2019
(PER HON'BLE MOHAMMAD RAFIQ, J.)
REPORTABLE
This writ petition has been filed by M/s. Universal Polysack
India Pvt. Ltd., Beawar challenging the recovery and auction letter
dated 8.2.2017 issued by the respondent-Central Excise
Department and their communication dated 15.3.2016 and
29.9.2015 and also to seek a declaration to the effect that
petitioner is not the defaulter and cannot be made responsible for
the dues of the defaulting borrower/erstwhile assessee as he has
purchased the property under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (for short-`the SARFAESI Act') with zero duty
liability.
Facts of the case are that the respondent no.5-M/s. Oosyine
Mar Pack Ltd. took a loan facility against the mortgaged land,
plant and machinery in the year 2001 from respondent no.7-
Oriental Bank of Commerce on the personal guarantee of
respondent no.6-M/s. Keymer Bagshawe Marketing Co. Pvt. Ltd.
The loan account of the respondent no.5 as per the guidelines of
the RBI was declared as Non Profitable Asset (NPA) on
30.11.2009. The respondent-bank thereafter on 29.3.2011 in
terms of Section 13 of the SARFAESI Act and the SARFAESI Rules,
2002 took over the mortgaged property i.e. factory with all its
assets, possession and control. The respondent no.7 vide its
notice dated 18.6.2011 and 7.8.2011 wanted to sell the
mortgaged property for the reserve price, which was later revised
under Section 13A of the Act read with Rule 9 of the SARFAESI
Rules.
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Shri Sameer Jain, learned counsel for the petitioner has
submitted that the factory premises was situated in backward area
and therefore nobody turned up to purchase the said factory
under the SARFAESI Act. Petitioner however purchased the
aforesaid factory premises with land, plant and machinery as one
time settlement in terms of agreement to sale dated 19.10.2012
for a sale consideration of Rs.5.48 crores. Necessary changes
were also included in the revenue records of the jamabandi.
Petitioner as well as respondent nos.5 and 6 and also respondent
no.7-Bank were parties to the aforesaid agreement to sale. Clause
13 thereof categorically stated that petitioner will not be
responsible for statutory dues like Sales Tax, VAT, Customs,
Central Excise, labour dues, Electricity dues, etc. In other words,
petitioner-company purchased the land, building, scrap plant and
machinery under the SARFAESI Act from the respondent-bank
which had the first charge thereon. Consequential sale deed
(Annexure-4) was executed on 20.3.2013 to which all the above
referred to four parties were signatories, for a sum of
Rs.5,47,77,000. As per the terms and conditions of the contract,
payment in terms of SARFAESI Act was paid by the petitioner to
the Bank. There was a specific clause pertaining to the fact that
none of the statutory dues on account of any taxes or of any other
kind prior to execution of agreement will be on the part of the
petitioner, rather the same would be borne by respondent nos.5
and 6. Petitioner thus purchased the land, building, the junk plant
and machinery, etc. with zero liability.
It is argued that petitioner soon after taking possession of
the disputed articles, removed the junk plant and machinery and
after a long time was able to find out buyer at throw away prizes
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amounting to Rs.63,000, Rs.29,826, Rs.4,76,595 and Rs.2,04,025
respectively, thus a total of Rs.7.75 lakhs was received as sale
consideration. Petitioner has not carried out manufacturing
activity, but merely purchased entire plant and machinery from
M/s.Lohiya Corp. Ltd. Petitioner then sought registration with the
Central Excise Department, which was granted on 9.4.2013 by the
learned Assistant Commissioner, Ajmer Division. The value of the
plant and machinery was approximately 6-7 crores. Petitioner by
dint of hard work was able to achieve the turnover of
approximately Rs.30 crores in the respective financial years on
which Central Excise Duty at the applicable rate of duty was paid
approximately @ 12-14%.
Shri Sameer Jain, learned counsel for the petitioner further
submitted that the controversy started when the respondent-
Central Excise Department issued recovery notice to the petitioner
on 29.9.2015 for the dues pertaining to respondent no.5-M/s.
OMPL vide various adjudication orders. The amount as per the
letter of the respondent-department was about of Rs.51 lacs.
Petitioner immediately responded to the recovery notice on
5.10.2015 and requested the respondents to withdraw the said
letter in view of the stipulation in agreement to sale as also the
sale deed and also the judgement of this Court delivered in
respect of the dues of the provident fund pertaining to respondent
no.5 in respect of the same factory. Instead of withdrawing the
recovery letter, the respondent issued another letter dated
15.3.2016 for depositing the dues of the respondent no.5 and
threatened that upon their failure to do so, disciplinary
proceedings under Section 142 of the Customs Act, 1962 would be
made applicable read with notification no.68/63 dated 4.5.1963.
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Petitioner submitted a detailed representation/reply to the
respondent nos.2 to 4 contending that the recovery proceedings
are contrary to the provisions of Section 11, 11E of SARFAESI Act
and legal proposition of law settled by the Supreme Court.
Petitioner then met the respondent no.2 at Jaipur along with
representation on 8.8.2016, who required the petitioner to submit
the address of respondent nos.5 and 6 and that the banker which
he submitted to the Range Superintendent as per his direction
dated 20.8.2016. However, the respondent again issued yet
another recovery letter dated 8.2.2017 wherein petitioner was
addressed as a defaulter in lieu of predecessors. This recovery
letter showed a sum of Rs.25.31 lakhs towards the Central Excise
Duty and Service Tax. The penalty of Rs.25.50 lakhs was
demanded. Total demand was thus aggregating to Rs.50.82 lakhs.
The said amount was to be deposited within a period of seven
days from the date of service of notice, failing which the
attachment/recovery proceedings and consequential action in
terms of Section 11 of the Central Excise Act read with Section
142 of the Customs Act read with Customs Attachment Rules of
1995 read with notification no.68/63 CE dated 4.5.1963.
Shri Sameer Jain, learned counsel for the petitioner has
argued that as per the provisions of SARFAESI Act read with the
Rules, the property was discovered by the secured creditor i.e.
respondent no.7 on 21.1.2010 under Section 13(2) and 13(4).
Under Section 13(12), the auction proceedings failed and
thereafter with the consent and approval of the Bank, the
agreement to sale was executed in favour of the petitioner. It is
submitted that the petitioner also made the payment of the
respondent-bank for purchase of the disputed property on finance
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taken from the Bank of Baroda and the assets acquired are under
mortgage of Financing Bank to the petitioner.
Action of the respondent-department is violative of principles
of natural justice as no show cause notice was served on the
petitioner, nor any opportunity of hearing in terms of Section 11A
was given within a period of limitation, thus violating the
principles of audi altem partem. Reliance in this connection is
placed on the judgement of the Supreme Court in 1987 (28) ELT
53, 1988 (35) ELT 349 (SC).
It is argued that in terms of Section 11 of the Central Excise
Act as amended recovery can only be initiated between the
predecessor and successor if the transaction is carried inter vivos
and not where a secured creditor enforces the right under a
Statute. In the present case, the business was not transferred and
nor was there any change in the ownership. The property under
mortgaged of the erstwhile manufacturer was taken over by the
secured creditor under the SARFAESI Act and the Rules, therefore,
the same was sold under auction, which failed and thus the
concerned approval of the secured creditor in terms of section
13(13) in accordance with law, property/assets i.e. land and plant
and machinery was sold to the petitioner. Learned counsel relied
on the judgement of the Apex Court in State of Karnataka vs.
Shriyansh Papers Ltd.-(2006) 1 SCC 615 and division bench
judgement of Bombay High Court in 2009 (229) ELT 173.
It is argued that as per Section 11 of the Customs Act
recovery and attachment can be effected only upon the excisable
goods, materials, plant and machinery and movable assets which
are succeeded from the predecessor. In the present case, the
assets in question which were secured and mortgaged were sold
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and not the business secondly the notice for recovery by the
excise department cannot be made applicable as land which is an
immovable property cannot be attached and plant and machinery
was sold as scrap and new plant and machinery which were
financed by Bank of Baroda was used. Reliance is placed on the
judgement of Bombay High Court in 2008 (229) ELT 173.
It is argued that as one time settlement was executed
between creditor and borrower from 2011 that property in
question was sold to the petitioner under SARFAESI Act and
thereafter agreement to sale was entered into between all the four
parties on stringent terms and conditions under zero duty liability
with regard to payment of due amount and then only the
possession was handed over. Reliance in support of the arguments
is placed on the judgement of the Supreme Court in 2010(8) SCC
129 wherein it was held that the Bank is trustee of public funds, it
is not only entitled but duty bound to recover the amount by
adopting all legally permissible methods. Under the scope of
Section 13 of the SARFAESI Act, no property mortgaged with the
bank possession of which was taken under the SARFAESI Act could
not be sold by any other person then the petitioner with the
consent of the bank. The auction essentially was therefore under
the SARFAESI Act. Reliance in support of this argument is placed
on the division bench judgement of Punjab and Haryana High
Court in T.C. Spinners Pvt. Ltd. vs. Union of India-2009 (243) ELT
31 (P&H).
It is argued that when there is no transfer of business and
the property is taken by secured creditor, no recovery can be
taken from the person like petitioner. Reliance is placed upon the
following judgements:-.
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I. 2009(233) ELT 433 (SC) UOI Vs. SICOM and Ors.
II. 2013 (295) ELT 12 SC Rana Girders Vs. UOI & Ors.
III. 2017 (351) ELT 287 Raj., Natural Fillers (P) Ltd. & Ors. vs.
UOI & Ors.
IV. 2015 (326) ElT 674 (Guj.), Lamifab Industries vs. UOI
V. AIR 2000 SC 3654, Dena Bank Vs. Bhikha Bai
VI. 2008 (229) ELT Page 173 Bombay.
VII. 2009 (243) ELT page 31 (PH), T.C. Spinner Pvt. Ltd. vs. UOI
VIII. D.B. Civil Writ Petition No.3135/2014, M/s. Tirupati
Plasmotics Pvt. Ltd. vs. UOI & Ors.
It is argued that the judgement of Macson Marbles Pvt. Ltd.
is distinguishable on facts as the same did not consider the larger
bench decision of the Supreme Court in AIR 2000 SC 3654.
Lastly, the learned counsel cited the Circular no.F.No.96/79/
2014-CX.I (Pt.II) issued by the Ministry of Finance, Department of
Revenue, Central Board of Excise and Customs dated 9.2.2015
addressed to all Chief Commissioners of Central Excise on the
basis of judgement of the Supreme Court in Rana Girders Ltd.,
supra conveying that buyer of the assets of a unit in such cases
where same is bought in the public auction from the bank or
financial institution can be considered as successor for the purpose
of Section 11 of the Central Excise Act, 1944 in business only if
the unit is brought or taken over by the 'buyer' from the assessee.
The Circular aforesaid in this behalf provides as under:
"The issue was whether the buyer of the assets of a
unit or the unit as a whole can be taken as successor
where the same is brought in the public auction from
the bank or financial institution when such bank or
financial institutions have taken over the unit or assets
to recover the debt. It was concluded that the buyer in
such cases cannot be considered as successor in
business. Only when the unit is bought/taken over from
the assessee directly, the buyer can be considered as
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successor to the earlier assessee for the purpose of
Section 11 of the Central Excise Act, 1944."
Shri Sandeep Pathak, learned counsel for the respondents
has submitted that notice has been issued to the petitioner under Section 11AA of the Central Excise Act, 1944 for realisation of dues. Property in question was purchased by the petitioner through sale deed dated 20.3.2013. The respondent-Central Excise Department was not a party to the above deed of conveyance and therefore the stipulations therein does not bind the respondent-department. Reliance in support of his arguments is made on the judgement of the Supreme Court in M.C. Chacko vs. State Bank of Travancore-AIR 1970 SC 500. The Supreme Court in that case while interpreting Section 2(d) of the Indian Contract Act held that it widens the definition of `consideration' so as to enable a party to a contract to enforce the same in India in certain cases in which the English Law would regard that party as the recipient of a purely voluntary promise and would refuse to him a right of action on the ground of nudum pactum. Further reliance is placed on the judgement of Himachal Pradesh High Court in Harnam Singh & Ors. vs. Smt. Purbi Devi-AIR 2000 HP 108 in which it was held that the doctrine of privity of contract implies a mutuality at will and is interaction of parties and their successors. It creates a legal bond or tie or vinculum juris personal to the parties. A person cannot be subject to obligation of a contract to which he is not a party. In view of settled proposition of law, the terms of the agreement/deed of conveyance cannot be entered against the respondent-department. It is argued that Section 11 of the Central Excise Act deals with recovery of dues payable to the Government and proviso thereof clearly provides (Downloaded on 06/06/2021 at 01:29:18 AM) (10 of 23) [CW-2306/2017] that when any person liable to pay excise dues transfers his business, whole or in part in favour of another, excise dues of such predecessor are recoverable from such subsequent purchaser as arrears of land revenue.
Shri Sandeep Pathak, learned counsel for the respondents has further argued that contention of the petitioner that he purchased the land under SARFAESI Act, 2002 is wholly undeniable. A bare perusal of the agreement to sale and deed of conveyance entered into between the parties makes it apparent that the sale has been carried out under One Time Settlement Scheme of the Bank. Reference is made to clause 7 of the deed of conveyance. Further contention of the petitioner is that since notices under Section 13(2) of SARFAESI Act came to be issued against the borrower (respondent no.5), therefore, all proceedings subsequent to issuance of such notice shall be unnecessary be treated to have been taken under the SARFAESI Act is also untenable. The Banks are not barred to consider any other mode of settlement of default account of a borrower even subsequent to issuance of such notice. The sale of immovable property under the SARFAESI Act strictly carried out in accordance with the provisions of Rule 8 and 9 of the Security Interest (Enforcement) Rules, 2002, which was not followed in the present case. Moreover, for sale of immovable property under SARFAESI Act, issuance of certificate in terms of Rule 9(6) of the Security Interest Rules is mandatorily issued by the authorised officer recommended.
It is argued that Section 11E of the Central Excise Act, 1944 categorically provides that subject to provisions of specified enactments, central excise dues shall have first charge over the property of an assessee. In the present case since the deed of (Downloaded on 06/06/2021 at 01:29:18 AM) (11 of 23) [CW-2306/2017] conveyance between the petitioner, borrower and bank was as per the guidelines of the bank with respect of one-time settlement of NPA Accounts as such the central excise due of the purchaser bank was liable to be recovered from the present petitioner. He being the subsequent purchaser under the proviso to Section 11(1) read with Section 44 of the Central Excise Act. Learned counsel in support of his arguments has relied on the judgement of Gujarat High Court, in the case of Baroda City Co-operative Bank Ltd. v. State of Gujarat,-2010 (2) GLH 525 and argued that in view of the ratio of the aforesaid judgement, the first charge created in favour of Excise dues by virtue of section 11E of the Central Excise Act, 1944 will have priority over secured creditors since at the relevant time, the was no statutory first charge of secured creditor under the SARFAESI Act, 2002. It is submitted that the Gujarat High Court, in the case of Tax Recovery Officer v. Industrial Finance Corporation of India-(2011) 52 (3) GLR 2342, considering the judgment of the Court in Baroda City Co-operative Society has again reiterated that the rights of secured creditor will be above dues of the state unless there is a statutory first charge created in favour of government due. Therefore, in the present case, statutory first charge of excise dues is created by virtue of section 11E of the Central Excise Act, 1944. First charge of secured creditors was not in existence prior to amendment in SARFAESI Act brought vide notification dated 16.08.2016. Therefore, during the present period of dispute, excise dues had priority of charge over secured creditors. Reliance is also placed on the judgement of the Supreme Court in Central Bank of India vs. State of Kerala-(2009) 4 SCC 94 to argue that the Supreme Court in that case has categorically held that there was no (Downloaded on 06/06/2021 at 01:29:18 AM) (12 of 23) [CW-2306/2017] provision in the SARFAESI Act that creates first charge of secured creditors. As such, from the submissions made hereinabove, it is apparent that the dues of central excise have first charge over the property in question. Learned counsel submits that various judgments relied upon by the petitioner are distinguishable and not applicable to the facts of the present case.
The judgment passed by the Supreme Court in Rana Girders, supra relied by petitioner, deals with a situation wherein property has been purchased under public auction. Further, the said judgment was passed without considering the proviso to Section 11 of the Excise Act as the same was inserted subsequent to the period in dispute in the matter. In the present case the cause of action has admittedly arose after the insertion of the said proviso to Section 11 of the Central Excise Act. As such the said judgment has no applicability in the present matter.
We have given our anxious consideration to the rival submissions and perused the material on record.
The Supreme Court in State of Karnataka & Anr. vs. Shreyas Papers Pvt. Ltd. & Ors.(2006) 1 SCC 615 while dealing with the provisions of Section 15(1) of the Karnataka Sales Tax Act, 1957 held that the provisions therein are foisting liability of defaulting transferor onto the transferee and held that this would be applicable only in case of transfer of "ownership of business" i.e. sale of the business as a going concern and not in case of mere transfer of assets. In that case, the Financial Corporation and Marketing acting under Section 29(1) of the State Financial Corporation took over the assets of defaulting company i.e. land, (Downloaded on 06/06/2021 at 01:29:18 AM) (13 of 23) [CW-2306/2017] building, plant and machinery and thereafter advised the same for sale. The first respondent before the Supreme Court entered into agreement with the bank for purchase of the said assets. In the offer of purchase, the first respondent specifically stated that it would take over the unit with zero liabilities and would not be responsible for any existing statutory liabilities except as specified therein. The Corporation accepted the offer and the sale took place. The argument of the appellant that the first respondent was, as transferee of the business of the defaulting company, liable for the latter's tax dues, was rejected. Relevant discussion is found in para 15 of the judgment, which is reproduced hereunder:
"15. A careful reading of Section 15(1) of the KST Act shows that the consequences contemplated therein, namely, foisting of the liabilities of the defaulting transferor onto the transferee, would come into effect only if the "ownership of the business" is transferred. Although, Mr. Hegde strenuously urged that "business"
could not be separated from the assets of the business, we are unable to accept this contention. Business is an activity, directed with a certain purpose, more often towards producing income or profit. Ownership of assets is merely an incident rather than a characteristic of business. Hence, the mere transfer of one or more species of assets does not necessarily bring about the transfer of the "ownership of the business" for "ownership of a business" is much wider than mere ownership of discrete or individual assets. In fact, "ownership of business" is wider than the sum of the ownership of a business' constituent assets. Above all, transfer of "ownership of business" requires that the business be sold as a going concern. In our view, therefore, Section 15(1) is intended to operate only (Downloaded on 06/06/2021 at 01:29:18 AM) (14 of 23) [CW-2306/2017] when there is complete transfer of "ownership of business" so as to render the transferee as a successor-in-interest of the transferor. Only in such an eventuality does Section 15(1) make the transferee liable for the transferor's sales tax liabilities." The Supreme Court in Ahmedabad Municipal Corporation vs. Haji Abdul Gafur Haji Hussenbhai-(1971) 1 SCC 757 was dealing with a case where a person in arrears of the property tax, due under the Bombay Provincial Municipal Corporation Act, 1949 therefore the Municipal Corporation, Ahmebadad created a charge over his property taking him as a defaulter. However, the property on which the charge was created was sold in execution of a mortgaged decree. When the Municipal Corporation sought to exercise their charge over the property, the purchaser in court- auction filed a suit for a declaration that he was the now owner of the property and that the arrears of the municipal taxes due by the transferor were not recoverable from him by proceeding against the property purchased in the auction. The stand of the Municipal Corporation before the Supreme Court was that since the local law provided for creation of a charge against the property itself for which municipal tax was due, transferee of such properties were imputed with constructive knowledge of any charge created against the properties that they had purchased. The Supreme Court however rejected this argument and held that while constructive notice was sufficient to satisfy the requirement of notice in the proviso to Section 100 of the Transfer of Property Act, whether the transferee had constructive notice of the charge had to be determined on the facts and circumstances of the case. It was held that there could be no fixed presumption as to the (Downloaded on 06/06/2021 at 01:29:18 AM) (15 of 23) [CW-2306/2017] transferee having constructive notice of the charge against the property.
In Dena Bank vs. Bhikhabhai Prabhudas Parekh & Co. & Ors.- (2001) 247 ITR 165 (SC), the appellant-bank filed suit for recovery of Rs.19,27,142.29 against the respondent partnership firm and its partners on the basis of a mortgage by deposit of title deeds, entered into by them. Meanwhile, the State Government exercised the right to recover sales tax arrears from the respondent-firm, attached and auctioned the same. The State Government was impleaded as party to the suit. However, the suit was dismissed. During the pendency of the appeal, however, the appellant-bank and the respondent firm reached at a compromise to which the State was not a party. During the pendency of the appeal before the High Court, the High Court passed the decree on the basis of compromise according to its terms after excluding clause (7), which was held to be illegal and not enforceable against the State. The decree passed by the High Court clearly recognised the State's claim as preferential. The Supreme Court held that the High Court rightly directed that any amount recovered by the appellant-bank would first be paid towards meeting arrears of the sales tax and balance, if any, could be adjusted against the amount due to the appellant-bank. Even according to judgement of the Supreme Court in Dena Bank, the Bank was held liable to pay the sales tax dues of the State, not the auction purchaser.
The Supreme Court in M/s. Isha Marbles vs. Bihar State Electricity Board-1995 (2) SC 626 has held that a bonafide auction-purchaser under a statutory sale was not liable to clear electricity dues of the previous owner. The Full Bench of the (Downloaded on 06/06/2021 at 01:29:18 AM) (16 of 23) [CW-2306/2017] Madras High Court in UTI Bank Ltd. vs. Deputy Commissioner of Central Excise-AIR 2007 Madras 118 has held as under:
"All the decisions relied on by Mr. V.T. Gopalan, clearly show that the Government is entitled to claim its dues/taxes/duties in preference to other ordinary debts. In all those cases there is no provision as found in SARFAESI Act or a specific provision claiming to have "first charge" as provided in Rajasthan Sales Tax Act in State Bank of Bikaner & Jaipur vs. National Iron & Steel Rolling Corporation [1995 (2) SCC 19 - Three Judge Bench], Madhya Pradesh General Sales Tax in State of M.P. vs. State Bank of Indore [2002 (10) SCC 441 - Three Judge Bench], and Karnataka Sales Tax Act in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. [(2000) 5 SCC 694]. As explained in the case of Constitution Bench judgment in Builders Supply Corporation vs. Union of India [AIR (1965) SC 1061], the arrears of tax due to the State can claim priority over private debts and thus the rule of common law amounts to law in force in the territory of British India at the relevant time within the meaning of Article 372 (1) of the Constitution of India and therefore continues to be in force thereafter. In Dena Bank case (cited supra) it is held that the Crown's preferential right to recover all debts over other creditors is confined to ordinary and unsecured creditors."
In the light of the above discussion, we conclude, "(i) Generally, the dues to Government, i.e., tax, duties, etc. (Crown's debts) get priority over ordinary debts.
(ii) Only when there is a specific provision in the statute claiming "first charge" over the property, the Crown's debt is entitled to have priority over the claim of others.
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(iii) Since there is no specific provision claiming "first charge" in the Central Excise Act and the Customs Act, the claim of the Central Excise Department cannot have precedence over the claim of secured creditor, viz., the petitioner Bank.
(iv) In the absence of such specific provision in the Central Excise Act as well as in Customs Act, we hold that the claim of secured creditor will prevail over Crown's debts."
In view of our above conclusion, the petitioner UTI Bank, being a secured creditor is entitled to have preference over the claim of the Deputy Commissioner of Central Excise, first respondent herein.
The Supreme Court in Rana Girders Ltd. vs. Union of India & Ors.-(2013) 10 SCC 746 has settled this controversy once and for all. Therein, the Supreme Court was dealing with the question as to when the liability of auction purchaser (subsequent purchaser) to pay outstanding dues of the Central Excise of the erstwhile owner would arise. The Supreme Court held that only where entire business itself is purchased as an ongoing concern, that the purchaser can be held responsible to discharge liability of Central Excise as well. Mere purchase of some of the properties of a person, who had outstanding dues in respect of excise duty, does not make subsequent purchaser liable therefore, in absence of specific provision in the statute creating first charge relating to government dues/excise dues over said property, which charge binds the subsequent purchaser/transferee either at law or in equity. In the present case, no such statutory provision creating first charge in relation to the excise duty at the relevant time is shown to exist. We may for the facility of reference, reproduce paras 21 to 23 of the aforesaid judgement in Rana Girders, supra which reads as under:
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(18 of 23) [CW-2306/2017] "21. A harmonious reading of the judgments in Macson and SICOM would tend us to conclude that it is only in those cases where the buyer had purchased the entire unit i.e. the entire business itself, that he would be responsible to discharge the liability of Central Excise as well. Otherwise, the subsequent purchaser cannot be fastened with the liability relating to the dues of the Government unless there is a specific provision in the Statute, claiming "first charge for the purchaser". As far as Central Excise Act is concerned, there 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.
22. With this, we now revert to the first issue, namely interpretation of the clause in the Sale Deed for land and building and similar clause in Agreement of Sale for machinery on the basis of which appellant is held to be liable to pay the dues. These clauses have already been incorporated in the earlier portion of our judgment.
23. We may notice that in the first instance it was mentioned not only in the public notice but there is a specific clause inserted in the Sale Deed/Agreement as well, to the effect that the properties in question are being sold free from all encumbrances. At the same time, there is also a stipulation that "all these statutory liabilities arising out of the land shall be borne by (Downloaded on 06/06/2021 at 01:29:18 AM) (19 of 23) [CW-2306/2017] purchaser in the sale deed" and "all these statutory liabilities arising out of the said properties shall be borne by the vendee and vendor shall not be held responsible in the Agreement of Sale." As per the High Court, these statutory liabilities would include excise dues. We find that the High Court has missed the true intent and purport of this clause. The expressions in the Sale Deed as well as in the Agreement for purchase of plant and machinery talks of statutory liabilities "arising out of the land" or statutory liabilities "arising out of the said properties" (i.e. the machinery). Thus, it is only that statutory liability which arises out of the land and building or out of plant and machinery which is to be discharged by the purchaser. Excise dues are not the statutory liabilities which arise out of the land and building 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."
The Supreme Court in the aforesaid judgement was dealing with the expression "sale deed" where stipulation was to the effect "all the statutory liabilities arising out of the land shall be borne by (Downloaded on 06/06/2021 at 01:29:18 AM) (20 of 23) [CW-2306/2017] the purchaser in the sale deed" and "all the statutory liabilities arising out of the said properties shall be borne by the vendee and the vendor shall not be held responsible in the agreement to sale." In that case, the High Court had taken the view that statutory liability referred to in the sale deed shall also include the excise dues. However, the Supreme Court did not approve of the said approach of the High Court by holding that the expressions in the sale deed as well as in the agreement for purchase of plant and machinery talk of statutory liabilities "arising out of the land" or statutory liabilities "arising out of the said properties" (i.e. the machinery). Thus, it is only that statutory liability, which arises out of the land and building or out of plant and machinery, which is to be discharged by the purchaser. Excise dues are not the statutory liabilities, which arise out of the land and building or the plant and machinery.
In the present case, the agreement to sale dated 19.10.2012 executed amongst all four parties referred to in clause 10 has provided as under:
"10. The Mortgagor/Borrower further confirms that all liabilities for dues statutory or otherwise, till the date of this agreement including Sales Tax dues, Customs and Central Excise dues, labour dues and local bodies dues and any other dues of the borrower company shall be to the account of and be borne by the Borrower/Mortgagor as applicable and neither the intending Purchaser nor Oriental Bank of Commerce shall be liable to pay the same either in whole or part under any circumstances. The borrower confirms that the borrower shall reimburse the monthly expenses of Rs. 42.214.00 from April, 2011 tot he date of Registration of Sale Deed on account of Security Guard (Downloaded on 06/06/2021 at 01:29:18 AM) (21 of 23) [CW-2306/2017] Expenses and any claim received from the Land Revenue Authority shall be retained by the Bank."
The deed of conveyance also in para 13 categorically stated that respondent no.5-M/s. Oosyine Mar Pack Ltd. confirms that only it be liable for all the legal dues till the execution of sale deed, which includes sales tax, value added tax, customs and central excise and labour dues, dues of the electricity department and local bodies, which shall be paid by the first party to the deed of conveyance namely; the seller/mortgager and second party- M/s. Keymer Bagshawe Marketing Co. Pvt. Ltd., the loanee and the third party-bank and the fourth party, the buyer under no circumstance would be liable to pay the same either partly or fully.
Evidently, the agreement to sale dated 19.10.2012 executed amongst all four parties in the present case, in its clause 10 has provided that the mortgagor/borrower further confirms that all liabilities for dues statutory or otherwise, till the date of this agreement including Sales Tax dues, Customs and Central Excise dues, labour dues and local bodies dues and any other dues of the borrower company shall be to the account of and be borne by the Borrower/Mortgagor as applicable and neither the intending Purchaser nor Oriental Bank of Commerce shall be liable to pay the same either in whole or part under any circumstances. The ratio of the judgement of the Supreme Court in Rana Girders, supra, therefore, would fully apply to the facts of the present case also and thus the excise duty would not be covered by any of the expressions used in clause 10, supra.
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(22 of 23) [CW-2306/2017] Last but not the least, we may refer to the Circular no.F.No.96/79/2014-CX.I (Pt.II) issued by the Ministry of Finance, Department of Revenue, Central Board of Excise and Customs dated 9.2.2015 addressed to all Chief Commissioners of Central Excise on the basis of judgement of the Supreme Court in Rana Girders Ltd., supra conveying that buyer of the assets of a unit in such cases where same is bought in the public auction from the bank or financial institution can be considered as successor in business only when the unit is brought or taken over by the petitioner from the assessee. The buyer thus can be considered as successor to the earlier assessee for the purpose of Section 11 of the Central Excise Act, 1944 only if he buys or takes over the unit as running business directly from the assessee. But in the present case, it was through the Bank that the unit was purchased by the petitioner vide deed of conveyance dated 20.03.2013.
Most of the judgements cited by the respondents are on the question whether the priority should be given to the dues of the Central Excise Department over the secured creditors, but they do not directly deal with the question whether despite stipulation to the contrary, the buyer of the land and building and plant and machinery of the defaulting unit from the bank with whom all such properties were mortgaged, can be required to pay the dues of the central excise even when he has not purchased the said unit as an ongoing business and the stipulations in the agreement to sale and the deed of conveyance clearly provided that all liabilities or duties statutory or otherwise till the date of the sale including the sale tax dues, customs and central excise dues, labour dues, local bodies dues or any other dues, shall be to the count of and be (Downloaded on 06/06/2021 at 01:29:18 AM) (23 of 23) [CW-2306/2017] borne by, the borrower/mortgager and neither the subsequent purchaser, nor the bank, would be liable to pay the same.
In view of above discussion, the present deserves to be succeed and is accordingly allowed. The impugned recovery and auction letter dated 8.2.2017 and communications dated 15.3.2016 and 29.9.2015 are quashed and set aside.
(GOVERDHAN BARDHAR),J (MOHAMMAD RAFIQ),J
RS/58
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