Auction purchaser liability for excise duty may attach to transferred assets, but predecessor penalties remain separate

An auction purchaser of an industrial unit was treated as bound by a contractual stipulation to bear statutory liabilities arising out of the land, building, plant and machinery, so the purchaser could be proceeded against for the predecessor's unpaid central excise duty. The recovery provisions under Rule 230(2) of the Central Excise Rules, 1944 and the proviso to Section 11 of the Central Excise Act, 1944 were described as machinery provisions enabling recovery from transferred assets. Penalty liability was distinguished as a separate quasi-criminal consequence imposed after adjudication, and was not covered by the purchaser's undertaking; the purchaser was therefore not liable for the predecessor's penalties.

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Issues: Whether the petitioner, as an auction purchaser of the industrial unit, was liable to bear the predecessor's central excise duty and penalties, and whether the excise department could recover the dues from the transferred assets.

Analysis: The transfer documents executed by UPFC specifically provided that all statutory liabilities arising out of the land, building, plant and machinery would be borne by the purchaser. The Court distinguished the duty liability from penalty liability, holding that excise duty is a statutory levy arising at the stage of manufacture and the subsequent adjudication merely confirms that pre-existing liability. The recovery provisions under Rule 230(2) of the Central Excise Rules, 1944 and the later proviso to Section 11 of the Central Excise Act, 1944 were treated as machinery provisions enabling attachment and sale of the successor's assets for recovery of the predecessor's unpaid dues. However, the penalty was viewed as a distinct quasi-criminal liability imposed only after adjudication and after the petitioner had already purchased the assets; it was not covered by the contractual stipulation to bear statutory liabilities arising out of the property. The Court also noted that the facts were distinguishable from cases where the property was sold free from encumbrances, and held that the petitioner had undertaken to bear the statutory liabilities attached to the transferred assets.

Conclusion: The petitioner was held liable to pay the central excise duty recoverable from the detained goods or by sale of the plant and machinery, but was not liable for the penalties imposed on the predecessor company and its director.

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