2010 (8) TMI 951 - HC - Central Excise

Court quashes excise demand notices, rules subsequent purchaser not liable for previous owner's dues.

The court quashed the demand notices issued by the Central Excise Department in a case involving the liability of excise dues on subsequent purchasers ... Arrear of excise dues of previous owners - purchase of property by petitioner from U.P. Financial Corporation by way of public sale - case of petitioner is that they are bonafide purchasers in good faith of the property in dispute for valuable consideration and since the property has been purchased through public sale from UPFC free from all encumbrances, petitioner or its directors are not liable for payment of any excise dues which may be outstanding against the previous owner of the unit - case of Revenue is that the petitioner is a successor of the previous owners and in view of Rule 230 of the Central Excise Rules, 1944 the Excise Department is entitle to recover the dues from the assets of the previous owners which had come to the successor. Held that: - The only power given in Rule 230(2) of the Central Excise Rules, 1944 is to detain the goods which are in custody or possession of the person carrying on such trade or business. Apart from the above rule, there is 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 excise duty on top priority - No doubt sovereign dues/crown debts have a preferential rights of recovery over other ordinary and unsecured creditors but in the absence of any provision creating a 'charge or a first charge' in favour of central excise, the claim of the secured creditor would normally prevail over the crown debts also. The debt of UPFC had a priority being a secured creditor by virtue of a deed of mortgage over the dues of the Central Excise which had no 'charge' over the property in the absence of any provision creating any 'charge' over it. Thus, UPFC rightly invoked its preferential claim and transferred the property - The Central Excise having no 'charge' over the property has no right to recover such dues from subsequent purchasers, who happens to be bonafide purchasers. Petition allowed - decided in favor of petitioner. Issues:1. Liability of excise dues on subsequent purchasers after the sale of a unit.2. Interpretation of Rule 230 of the Central Excise Rules, 1944 in recovering excise dues.3. Priority of secured creditors over crown debts in the recovery of dues.Analysis:1. The case involved a dispute regarding the liability of excise dues on subsequent purchasers after the sale of a unit by a secured creditor. The petitioner, a private limited company, purchased a property free from encumbrances, unaware of the outstanding excise dues of the previous owner. The Central Excise Department issued demand notices for the excise dues, which were challenged in the writ petition.2. The Central Excise Department argued that Rule 230 of the Central Excise Rules, 1944 allowed for the recovery of excise dues from assets owned by the predecessor, even from the successor. However, a detailed analysis of the rule revealed that it authorized the detention of goods but did not create a charge over the assets. Without a provision creating a charge, the petitioner, as a subsequent purchaser, was not liable for the excise dues of the previous owner.3. The judgment referred to precedents where the Supreme Court held that secured debts have priority over crown debts in the recovery of dues. In this case, the financial corporation was a secured creditor with a preferential right over the assets of the previous owner. As the excise department had no charge over the property, the secured creditor rightfully transferred the property to the petitioner free from any encumbrances.4. The court concluded that the impugned demand notices were quashed, and a writ of certiorari was issued in favor of the petitioner. The judgment highlighted that the Central Excise Department had no right to recover dues from subsequent bonafide purchasers in the absence of a charge over the property. The decision emphasized the priority of secured creditors and the absence of a charge provision for excise dues over the property.5. The judgment clarified the interpretation of Rule 230, the precedence of secured creditors, and the lack of a charge provision for excise dues, ultimately leading to the quashing of the demand notices and ruling in favor of the petitioner.