Liability of a person for purchasing property under SAFARAEISI Act from a bank under auction

[CLARENCE PEREIRA]

This is with reference to property with land,building,machinery,stores etc purchased from the Bank under SAFARAEISI Act. We have disposed the machinery.Central Excise authorities are demanding Central Excise Duty on the grounds that the previous owner may have taken modvat Credit.Under SAFARAEISI Act only the assets are transfered & not the liabilities.We have not purchased from the previous owner nor is it a take over of the previous business.The previous business is part of the old owner and we only have bought the assets.Hence the question of paying ED does not arize,nor reversal of MODVAT as we have no info as to whether MODVAT was taken at all.The Central Excise authorities should make a claim on the previous ownner.It is OK if we had taken over the business lock,stock&barrel from the previous owners. Kindly let us know if our stand is correct and any case law to support our claim.

[Surender Gupta]

I think the action of the department appears to be not correct. Section 11 of the central excise act, 1944 is applicable in case of succession of business. Whatever the case may be, section 11 is applicable for making recovery only. The provisions of section 11 can not be used to deny the Cenvat / Modvat credit merely saying that previous owner was in default.

[Surender Gupta]

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) empowers Banks / Financial Institutions to recover their non-performing assets without the intervention of the Court. Therefore, purchase of an asset under SARFAESI Act should be liable under section 11 of the CE Act, 1944.

[Surender Gupta]

You may also refer to decision of Punjab and Haryana High Court as reported in T.C. SPINNERS PVT. LIMITED Versus UNION OF INDIA - 2010 TMI - 75132 - PUNJAB AND HARYANA HIGH COURT]

AI Summary

Successor liability under central excise: asset purchases under SARFAESI may trigger recovery only if business succession is established. Purchasers of assets acquired under SARFAESI assert they are not successors to the prior owner's business and therefore should not be liable for reversal of Cenvat/Modvat credit or central excise dues; Section 11 of the Central Excise Act, 1944 operates as a recovery provision applicable where succession of business is found and should not be used simply to deny entitlement to credit. SARFAESI's non judicial asset transfer powers have led authorities to seek recovery from auction purchasers by treating such acquisitions as succession, raising the legal question whether the sale was of assets only or of an ongoing business.