Document Fragment View

Matching Fragments

Hon'ble Pankaj Mithal, J.

1. We have heard Shri Subham Agrawal for the petitioner. Shri S.P. Kesarwani, Additional Chief Standing Counsel appears for the State respondents.

2. M/s P.J. Steels Pvt. Limited, Meerut Road, Muzaffarnagar set up an industrial unit with the financial assistance of U.P. Financial Corporation (UPFC). On the defaults committed by the company in repayment, the industrial unit was taken over by the UPFC under Section 29 of the State Financial Corporation Act and was put to sale. M/s Sarju Steels Pvt. Limited purchased the unit and took over physical possession from UPFC. The land & building was transferred by UPFC to M/s Sarju Steels Pvt. Ltd by a transfer deed dated 8.3.2002. By a separate deed the plant and machinery of the unit was transferred to the purchaser on 14.3.2002. The land & building as well as plant & machinery were transferred by UPFC free from all encumbrances and liability.

-

1000000 2.16/Jt. Commr/2003 dt. 22.7.03 669862 669862

-

-

3. 82/Off/136/01/02 dt. 22.11.02 115576 20000

-

-

6. The petitioner by its letter dated 6.12.2004 submitted a reply against the recovery of dues stating that it had purchased the industrial unit in an auction from UPFC in March, 2002 free from all encumbrances. At the time of purchase of the unit there was no provision in the Central Excise Act relating to recovery of arrears of the erstwhile manufacturer from the buyer of the unit. At the time of purchase from UPFC there was no liability against the defaulting unit, of any central excise demand. The provisions of Section 11 of the Central Excise Act, 1944, relating to recovery of predecessor's dues from the successor came into force from 10.9.2004 and as such the petitioner is not liable to pay any demand and penalty raised against M/s P.J. Steels (P) Limited.

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 (5), the UPFC shall be deemed to be the owner of M/s P.J. Steels (P) Ltd for the purposes of suits against M/s P.J. Steels (P) Ltd. The recovery, if any, could be made from UPFC and not from the petitioner, who is a bonafide auction purchaser, in an auction for value.

14. Shri Subham Agrawal has relied upon M.A. & Company vs. Assistant Commissioner (Judicial) Sales Tax, Farrukhabad and another (1964) 15 STC 487 (All) to submit that the tax becomes payable when the liability to pay the taxes arises. There is a distinction between the expressions 'tax payable' and 'tax due'. The tax is due when it becomes debt, owed to the taxing State after it is determined by assessment and is quantified, and a notice of demand is issued. He has also relied upon judgment in Luxmi Oil Vanaspati Pvt. Ltd. vs. Commissioner, Central Excise 2010 UPTC 1327 (Alld) in which it was held that when a bonafide purchaser in good faith has not purchased the business of the previous owner and had no knowledge of the central excise dues, Rule 230 (2) of the Central Excise Act is not applicable. He submits that the ratio in Macson Marbles Private Limited v. Union of India, AIR 2004 SC 4927, is not applicable to the present case. The Rule 230 (2) of Central Excise Rules, does not create any charge. Even otherwise the charge stands on or lower pedestal than a deed of mortgage. In the absence of any provision creating a charge on the assets, in favour of the central excise department, the claim of secured creditor would prevail over the crown debts. The UPFC rightly exercised its preferential rights in acquiring the property and transferring it to the petitioner. The debt of UPFC had a priority being a secured debt by virtue of a deed of mortgage over the dues of Central Excise Department.