2018 (2) TMI 276 - AT - Central Excise

Auction purchaser not liable for original owner's dues. Appeal allowed with consequential reliefs.

The Tribunal held that the auction purchaser was not liable for the dues of the original owner as they were not considered a successor to the business. ... Restoration of appeal - recovery of dues - appellant has taken the plea that since they are not successor to the business of M/s Raj & Yash Alloys therefore they are not liable for payment of dues of said concern - Do tax dues recoverable under the provisions of the Central Excise Act, have priority of claim over the claim of secured creditors under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2005? - Held that: - the Government dues do not have priority of claim over that of the secured creditors. However, if the Legislature makes those dues as having priority of claims. What is the effect of a prior attachment by revenue of the property excisable goods of tax defaulter under the provisions of the Central Excise Act before it is sold by a secured creditor under the provisions of the SARFAESI Act? - Held that: - the issue as framed there would not arise here as there was no previous attachment before the sale under the SARFAESI Act. Can a transfer be said to be a voluntary transfer by 'the person' when the transfer takes place under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002? - Held that: - considering the language of the proviso to Section 14 2 of Customs Act and relying on the judgment of Macson Marbles Pvt. Ltd. v. Union of India, [2003 (11) TMI 71 - SUPREME COURT OF INDIA] the transfer can be said to be transfer which is voluntary. Does the mere purchase of the immovable/movable assets of a tax defaulter amount to transfer or disposal of business or trade in whole or in part or result in effecting change in ownership thereof in such business or trade by any other person, consequence of which such person is succeeded in such business or trade by any other person? - Held that: - considering the provisions of the SARFAESI Act, the provisions of the said Act will prevail over the provisions of the Customs Act and Central Excise Act. Once the Petitioner had purchased the assets in an auction held under the SARFAESI Act, they will hold the assets free from any encumbrances - demand is without jurisdiction. Demand set aside - appeal allowed. Issues Involved:1. Liability of auction purchaser for the dues of the original owner.2. Determination of whether the appellant is a successor to the business.3. Priority of government dues over secured creditors.4. Applicability of Section 11A of the Central Excise Act and Rule 96ZO (3).Detailed Analysis:1. Liability of Auction Purchaser for the Dues of the Original Owner:The appellant, an auction purchaser, bought the assets of M/s Raj & Yash Alloys Pvt. Ltd. from M/s EDC Ltd. after the latter took possession under Section 29 of the State Financial Corporation Act, 1951, due to loan default. The appellant argued that being merely an auction purchaser of assets, they should not be liable for the dues of M/s Raj & Yash Alloys. The Commissioner (Appeals) held that under Section 11A, the dues of the predecessor could be recovered from the successor, relying on the Supreme Court judgment in Macson Marbles Pvt. Ltd. vs. UOI. However, the Tribunal found that the appellant is not a successor to the business and cited the High Court ruling in Tata Metaliks Ltd. vs. UOI, which held that government dues do not have priority over secured creditors and cannot be recovered from auction purchasers.2. Determination of Whether the Appellant is a Successor to the Business:The appellant contended that they did not take over the business of M/s Raj & Yash Alloys but only purchased its assets in an auction. The Tribunal agreed, noting that there was no transfer of the business or ownership, and the appellant was not a successor to M/s Raj & Yash Alloys. This aligns with the High Court's judgment in Tata Metaliks, which emphasized that auction purchasers do not inherit the liabilities of the original business owner.3. Priority of Government Dues Over Secured Creditors:The Tribunal referenced the High Court's decision in Tata Metaliks, which held that government dues do not have priority over the claims of secured creditors. This principle was affirmed by the Supreme Court, indicating that the appellant, as an auction purchaser, is not liable for the excise dues of the original owner, M/s Raj & Yash Alloys.4. Applicability of Section 11A of the Central Excise Act and Rule 96ZO (3):The appellant argued that the demand for duty under Rule 96ZO (3) was incorrect due to the absence of electricity and the factory's closure. They also contended that the annual capacity of production was not determined, making the demand invalid. The Commissioner (Appeals) dismissed these arguments, stating that M/s Raj & Yash Alloys had opted to pay duty under Rule 96ZO (3), and concessions under Section 3A (4) were not applicable. However, the Tribunal did not delve into the merits of these arguments, as it had already determined that the appellant was not liable for the dues.Conclusion:The Tribunal concluded that the appellant, being an auction purchaser and not a successor to the business, is not liable for the dues of M/s Raj & Yash Alloys. The demand against the appellant was set aside, and the appeal was allowed with consequential reliefs. This decision was pronounced in court on 29/12/2017.