2015 (2) TMI 607 - HC - Central Excise

Property purchaser in loan recovery auction not liable for previous owner's duty arrears

The court held that a property purchaser in a loan recovery auction cannot be held liable for the excise duty arrears of the previous owner. The ... Attachment of property - Arrear of excise duty of sick company - Petitioner purchaser of sick company - Held that:- Industry, which fell sick, was in arrears of excise duty and respondents 1 and 2 were entitled to take steps for recovery of the same. In a given case, the Central Excise Department is entitled to proceed against the movable or immovable property of the manufacturer for recovery of the arrears of duty. In the instant case, however, the only basis on which respondents 1 and 2 sought to proceed against the petitioner was that it purchased the property of the industry. The purchase was not the result of a voluntary transfer by the industry. It was in the course of recovery of loan, that the property came to be sold and it was rather incidental, that the petitioner emerged as the highest bidder. Things would have been different altogether, had the sale in favour of the petitioner taken place after the department has attached that very property for recovery of arrears of duty. That, however, is not the case. It is only after the sale in favour of the petitioner became the absolute and the property vested in them free from any encumbrances, that respondents 1 and 2 initiated proceedings for recovery of arrears of duty and sought to attach the property. In respect of the very property purchased by the petitioner, steps were initiated by the electricity supplier for recovery of arrears of the electricity charges. It is stated that the previous order was affirmed by a Division Bench in the writ appeal. Viewed from any angle, we do not find any basis for the respondents to proceed against the petitioner. - Decided in favour of petitioner. Issues:1. Liability of a property purchaser for arrears of excise duty.2. Validity of proceedings initiated against the petitioner for arrears of excise duty.3. Legal principles governing the liability of a property purchaser for debts of the previous owner.Analysis:1. Liability of a property purchaser for arrears of excise duty:The case involved the question of whether a property purchaser could be held liable for the arrears of excise duty of the previous owner. The court examined the circumstances under which the property was purchased and the legal basis for imposing such liability. It was established that a purchaser in an auction conducted for loan recovery cannot be burdened with the duty arrears of the previous owner, as held in Sitani Textiles and Fabrics (P) Ltd. v. Asst. Collector of Customs and Central Excise. This principle was further affirmed by the Supreme Court in Union of India v. Sicom Limited and Ranga Girders Limited v. Union of India.2. Validity of proceedings initiated against the petitioner:The court considered the specific case where the petitioner purchased a property through a loan recovery auction and was later pursued for the arrears of excise duty by the Central Excise Department. The court noted that the petitioner's purchase was not a voluntary transfer by the industry but a result of the loan recovery process. It was emphasized that the petitioner acquired the property free from any encumbrances, and the proceedings for duty arrears were initiated only after the sale was completed. The court found no legal basis for the department to attach the property in this scenario.3. Legal principles governing liability of a property purchaser:The judgment highlighted the legal precedent that a property purchaser in a loan recovery auction cannot be held liable for the debts of the previous owner. The court referenced past cases and the decisions of higher courts to establish this principle. Additionally, the court mentioned a separate case where the petitioner successfully challenged proceedings initiated by an electricity supplier for arrears of electricity charges on the same property. Overall, the judgment emphasized the need for a clear legal basis to impose liability on a property purchaser for the debts of the previous owner.In conclusion, the court allowed the writ petition, setting aside the proceedings initiated against the petitioner regarding the arrears of excise duty. However, it left open the possibility for the respondents to pursue other lawful steps for recovery. The judgment provided a comprehensive analysis of the legal principles governing the liability of a property purchaser in such cases, emphasizing the need for a solid legal basis to impose such liabilities.