2014 (11) TMI 700 - HC - Central Excise

Court quashes recovery proceedings after 10-year delay, emphasizes rights of subsequent purchasers

JAGDISH ENTERPRISE PVT. LTD. Versus UNION OF INDIA

The court ruled in favor of the petitioners, quashing the recovery proceedings for Central Excise dues due to an unreasonable delay of almost 10 years. ... Denial of Excise registration - Initiation of proceedings for recovery of Central Excise dues from erstwhile owner - Held that:- As the Central Excise dues of the erstwhile owner of the year 1996 and 2000, respectively have been sought to be recovered from the petitioner Nos. 1 and 2 who have purchased the property of the erstwhile owner - M/s. Jem Ispat Ltd. in a public auction in the year 2000, i.e. after unreasonable period of 10 years, the impugned action of the respondents in initiating recovery proceedings against the petitioner Nos. 1 and 2 - subsequent purchasers, to recover Central Excise dues of the erstwhile owners - M/s. Jem Ispat Ltd., cannot be sustained and the same deserves to be quashed and set aside. Considering Section 6 of the Central Excise Act and Rule 9 of the Central Excise Rules, we are in complete agreement with the view taken by the Bombay High Court in the case of TATA Metalinks Ltd. (2008 (2) TMI 13 - BOMBAY HIGH COURT) and view taken by the Division Bench in the case of Surat Metallics Ltd. as well as in the case of M/s. Jahaan Steel Ltd. (2014 (11) TMI 427 - GUJARAT HIGH COURT) and we are also of the view/opinion that merely because erstwhile owner though it had ceased to carry on business on the premises in question, had failed to apply for de-registration and/or cancellation of the Registration Certificate and/or the department has not de-registered and/or cancelled the Registration Certificate issued in favour of the erstwhile owner, the same is no ground to deny Central Excise Registration to the subsequent purchaser-lessees in respect of premises in question as neither under Section 6 of the Act nor under Rule 9 of the Rules nor under any Notification, Central Excise Registration cannot be refused on the aforesaid ground. Under the circumstances, the action of the respondents-authority in refusing to grant Central Excise Registration in favour of the petitioner No. 3 on the aforesaid ground, cannot be sustained and the same deserves to be quashed and set aside - Decided in favour of assessee. Issues Involved:1. Recovery of Central Excise dues from subsequent purchasers.2. Denial of Central Excise Registration Certificate to the subsequent purchaser.Detailed Analysis:1. Recovery of Central Excise Dues from Subsequent Purchasers:The petitioners sought to quash the recovery proceedings initiated against them for the Central Excise dues of the erstwhile owner, M/s. Jem Ispat Ltd. They argued that they purchased the property in a public auction held by GIDC under Section 29 of the State Financial Corporations Act, 1951, and hence, are not liable for the previous owner's dues. They cited the Supreme Court decisions in Union of India v. Sicom Ltd. and M/s. Rana Girders Ltd. v. Union of India, which emphasized that Central Excise dues do not have priority over other debts.The respondents argued that the sale was subject to the terms and conditions that included the payment of due taxes and that the sale was on an 'as is where is' basis. They contended that the petitioners were contractually obligated to pay the outstanding dues. The respondents also highlighted that the recovery proceedings were initiated after a significant delay, which the petitioners argued was unreasonable and beyond a reasonable period.The court, considering the delay of almost 10 years in initiating recovery proceedings, ruled in favor of the petitioners. It referenced the Division Bench's decisions in Valley Valvet P. Ltd. v. Union of India and Ani Elastic Industries v. Union of India, which held that recovery proceedings initiated after such a long delay are not permissible. The court decided not to delve into the larger question of contractual obligations due to the recovery's unreasonable delay.2. Denial of Central Excise Registration Certificate to the Subsequent Purchaser:The petitioners also challenged the denial of a Central Excise Registration Certificate to M/s. Ratnaveer Stainless Products Pvt. Ltd. (petitioner No. 3). The respondents denied the registration on the grounds that the previous registration for M/s. Jem Ispat Ltd. had not been canceled or de-registered due to outstanding dues.The petitioners relied on the Bombay High Court's decision in TATA Metaliks Ltd. v. Union of India, which held that the authority cannot refuse to issue a registration certificate to a subsequent purchaser solely because the previous owner had not applied for de-registration or had defaulted in payment of excise duty.The court agreed with the petitioners, referencing the decisions in Surat Metallics Ltd. v. Commissioner of Central Excise and M/s. Jahaan Steel Ltd. v. Union of India, which supported the issuance of a registration certificate to subsequent purchasers regardless of the previous owner's registration status. The court ruled that the respondents' refusal to issue the registration certificate was unjustified and directed them to issue the certificate to petitioner No. 3.Conclusion:The court allowed the petition, quashing the recovery proceedings against the petitioners due to the unreasonable delay and directing the respondents to issue the Central Excise Registration Certificate to petitioner No. 3. The court emphasized the importance of timely action in recovery proceedings and upheld the rights of subsequent purchasers to obtain necessary registrations without being hindered by the previous owner's defaults.