2010 (12) TMI 349 - HC - Central Excise

Purchaser not liable for sick company's excise duty arrears; court rules on asset acquisition vs. business transfer.

The court held that the petitioner, as the purchaser of properties of a sick company through amalgamation, was not liable to pay arrears of excise duty ... Sick company - Demand of duty as well as interest and penalty - M/s.Balaramaverma Textile Mills Ltd. was a company - Company became sick, and therefore, a reference was made to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 198 - On the orders of the BIFR, the said company was amalgamated with the fourth respondent - National Textile Corporation Limited, which floated a tender to sell some of the properties originally belonged to M/s.Balaramaverma Textile Mills Limited - The petitioner participated in the tender and emerged with successful bidder - Accordingly, a sale deed was executed in favour of the petitioner - company by the fourth respondent - National Textile Corporation Limited - In pursuance of the same, the petitioner has become the absolute owner of the said properties - As per the Full Bench of this Court in B.Suresh Chand vs. State of Tamil Nadu , wherein, while dealing with a similar provision in Tamil Nadu General Sales Tax Act, the Full Bench has also taken the similar view falling in line with the view taken by the Division Bench in R.K.Steels' Company's case as well as the Judgment of the Hon'ble Supreme Court , held that the petitioner has not got the business or trade of either M/s.Balaramaverma Textile Mills Limited or the fourth respondent transferred and since the petitioner has got by transfer by sale only of the properties belonging to the said fourth respondent - National Textile Corporation Limited, the amount due towards Central Excise as well as towards interest under the Central Excise Act, 1944, from M/s.Balaramaverma Textile Mills Limited, cannot be recovered from the petitioner at all and thus, the petitioner is not liable to pay the same - Thus,the impugned order passed by the second respondent is set aside and the Writ Petition is allowed Issues:Recovery of excise duty and penalty from a company after amalgamation with another company. Interpretation of liability under the proviso to Section 11 of the Central Excise Act, 1944.Analysis:The case involved a company that became sick and was amalgamated with another company under the BIFR orders. The petitioner emerged as the successful bidder in a tender to purchase properties of the sick company. Subsequently, the petitioner was asked to pay arrears of excise duty and penalty owed by the sick company, which was challenged in a Writ Petition.The primary contention was whether the petitioner, as the purchaser of properties, was liable to pay the dues of the sick company under the proviso to Section 11 of the Central Excise Act, 1944. The respondents argued that the petitioner was liable under the said provision, while the petitioner contended that there was no transfer of the business or trade of the sick company to them.The court analyzed the proviso to Section 11, which states that liability arises when there is a transfer of the business or trade resulting in a change of ownership. The court noted that the petitioner only acquired properties and not the business or trade of the sick company. The court referred to a Supreme Court judgment to emphasize that the transfer of business requires a complete transfer of ownership, not just assets.The court further cited previous judgments to establish the distinction between business and ownership of assets. It was concluded that since the petitioner did not acquire the business or trade of the sick company, they were not liable to pay the dues under the Central Excise Act. Therefore, the impugned order demanding payment from the petitioner was set aside, and the Writ Petition was allowed with no costs.This detailed analysis clarifies the legal interpretation of liability under the Central Excise Act concerning the transfer of business or trade, emphasizing the necessity of a complete transfer of ownership to establish liability for dues.