The issue:

Whether dues pending (in central excise) against predecessor M/s. Chokshi Tubes Company Ltd. can be recovered from its successor i.e. M/s. Sandvik Chokshi Limited?

Relevant Provisions

Section 11 of the Central Excise Act, 1944 (the Act) permit deduction of the amount payable to a person from whom certain sums of duty are required to be recovered.

Decision of the Tribunal:

The Tribunal has found that the joint venture company is a new company different from the Tubes Company and merely because the Tubes Company was initially instrumental in formation of the respondent-assessee company it was not permissible to the revenue to recover the dues of the Tubes Company from the monies due and payable to the respondent-assessee as both are different legal entities.

Decision of the HC

Section 11 of the Act can have no application in the facts of the case. Merely because the Tubes Company was initially 49% shareholder in the joint venture company it cannot be stated that the sums due to the joint venture company are the sums due to the Tubes Company. Section 11 in fact permits such adjustment only when in hands of the same person the monies are recoverable on the one hand and monies are also payable on the other hand to the same person. Therefore, if any monies were payable to the Tubes Company it would be open to the revenue to effect recovery by adjusting such payable amount.

See; full text of judgment:

COMMISSIONER OF C. EX., AHMEDABAD-III Versus SANDVIK ASIA LTD. [2009 -TMI - 32925 - GUJARAT HIGH COURT]

 

Another case on Section 11 of Central Excise Act, 1944

Another recent case on applicability of section 11 of central excise act, 1944 went into against the revenue.

In this case, the company was in liquidation. The lenders have taken over the company. They have sold the property / assets of the company in an auction.

It is learned that there were Excise dues pending against the Company in Liquidation, the total outstanding dues of Central Excise duty, penalty and interest amounting to Rs.1,96,99,848/-.

Revenue tried to recover the amount from the lenders who have sold the assets and from the purchasers

The honorable high court has ordered as follows

 (i) It is declared that the sale of the said property to the petitioners duly sanctioned by this court by its order dated 23/12/2005 in Company Application No.866 of 2005 in Company Petition No.163 of 1998 is not subject to proviso to Section 11 of the Central Excise Act, 1944.

(ii) Upon the petitioners depositing the entire sale proceeds as directed by this court, respondent 3 i.e. the Official Liquidator shall take necessary steps as directed by this court by its order dated 5/12/2003 in Company Application (L) No.282 of 2003 and order dated 23/12/2005 in Company Application No.866 of 2005 in Company Petition No.163 of 1998.

(iii) Needless to say that the Excise Department can also file its claim before respondent 3. If such a claim is filed, respondent 3 shall adjudicate it in accordance with law. The petition is disposed of in the aforestated terms.

For full text of judgment - visit:

Gharkul Industries Pvt. Ltd. Versus The Superintendent, Central Excise Range, Amravati and others [2009 -TMI - 32679 - BOMBAY HIGH COURT]

 

Recovery of excise dues: distinct legal entities bar recovering predecessor liabilities from successor; Section 11 requires same-person offset. A successor company is a distinct legal entity and Section 11 of the Central Excise Act permits adjustment only when the same person is both liable and payable; therefore dues of a predecessor cannot be recovered from amounts payable to the successor. In liquidation-related asset sales, proceeds should be deposited and the Official Liquidator will adjudicate claims, with the excise department entitled to file a claim for determination under law.