TaxTMI 
TaxTMI 
2020 (11) TMI 283
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....6.2010 by the fourth respondent under the provision of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [SARFAESI Act]. A sale certificate was issued, confirmed and duly registered in favour of the petitioner. After taking over of possession and commencement of business, a demand was made by the respondents 1 to 3 that in view of cancellation of concession benefits on 20.04.2010, duty foregone at the time of purchase of machineries under the EOU Scheme to the tune of Rs. 12,50,577/- plus interest be recovered from the petitioner. The petitioner has sent a reply on 28.04.2011 and 10.05.2011. Despite the same, the officials of respondents 1 to 3 visited the petitioner premises for inspection and sent a letter dated 24.02.2011 to the petitioner's address in the name of M/s.Rajam Mills Spinning Company Limited, marking a copy to the petitioner demanding payment of Rs. 12,50,577/- failing which recovery action will follow. Immediately, the petitioner wrote a letter to the fourth respondent on 10.05.2011, who in turn by reply dated 18.05.2011 directed the petitioner to deal with respondents 1 to 3 directly. In reply to its letter da....
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....THERS VS. THE TAX RECOVERY OFFICER - IV AND OTHERS [WP NOS.40656 OF 2015, 34703 OF 2016 AND 3572 OF 2017 DECIDED ON 18.07.2017] [Madras High Court]. (ix) MAHARASHTRA TUBES LTD. VS. STATE INDUSTRIAL & INVESTMENT CORPORATION OF MAHARASHTRA LTD. AND ANOTHER [1993 (2) SCC 144] (x) SOLIDAIRE INDIA LTD., VS. FAIRGROWTH FINANCIAL SERVICES LTD., AND OTHERS [2001 (3) SCC 71]. 3. Countering the submissions, respondents 1 to 3 would contend that M/s.Rajam Mills Spinning Company Limited were granted an industrial license under 100% Export Oriented Unit (EOU) Scheme for manufacture and export of cotton vide LOP No. PERA / 2000/202/EOU/TN/2360 dated 06.11.2000 and Green Card No. 833/MEPZ, dated 07.11.2000 was issued by the Development Commissioner, MEPZ, Chennai, subject to terms and conditions. Private Bonded Warehouse License No.01/2001 dated 15.02.2001 by Assistant Commissioner of Central Excise, Dindigul - I Division was issued and renewed upto 13.04.2010. The Licensee had executed B-17 Bond on 22.02.2011 and another on 21.03.2005, binding themselves for discharge of obligations under Central Excise Act, 1944, and Customs Act, 1962. The manufacturer commenced production ....
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....the notice issued, the petitioner has a remedy of appeal. Non-exhaustion of alternative remedy disentitles the petitioner to maintain the writ petition. Public interest shall not be prejudiced and the Government money shall be safeguarded from the fraudulent transfers. Therefore, a prayer is made to dismiss the writ petition. 4. Fourth respondent has taken a dual defense to disown its liability relying on the judgment of the Full Bench of this Court that Crown debt will not prevail over the secured debt. Even if it prevails over, in the publication calling for bids, it is specifically disclosed that a demand of central excise arrears to the tune of Rs. 12,50,577/- made by respondents 1 - 3. The purchaser, with open eyes, had purchased the property. Hence, they are not liable to make any payment. 5. I have considered the submissions. 6. The facts are not disputed. According to the petitioner, they purchased the property in a public auction conducted on 19.06.2010 by the 4th respondent under the provisions of the SARFAESI Act. The purchase made by the petitioner is an absolute purchase and the same has been registered, possession delivered, free of encumbrance. According to ....
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....d. The continuance of the same business involves the same employees, the same plant and machinery, the benefits of the tax exemption or concession, goodwill and also the old and new customers. In such cases, by transfer or revival or taking over, the business as such is continued and the advantage or disadvantage, profit and liabilities also go along with it. When the benefits and goodwill of the business is taken over or revived, automatically the liability also goes along with that. The relationship between the parties as Licensor - Licensee, Assignor - Assignee, Creditor - Borrower continues. In such cases, the right to recover continues, along with the business. But, on the contrary to the same, when the properties alone are sold, without taking over or continuing the business, the right to recover the liabilities of the business is restricted. In sale of the property without ongoing business of later type, it is only the land, building, plant and machinery or whatsoever are sold, without venturing into the business activity of the defaulter or erstwhile establishment or company or factory. The purchase is only with respect to the properties and not that of the business. The pu....
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....and State Bank of Mysore, the respondents 1 to 3 have requested to include the excess duty payable by the defaulter also the recovery amount and to remit the same into Central Excise Department. It is also noted that the fourth respondent by his reply dated 11.06.2010 informed the respondents 1 to 3 that the defaulted company owes a huge amount to the consortium of banks and if any surplus amount is left after Bank's dues are met from and out of the sale or properties of the defaulter company, they will make the payment towards Central Excise arrears. After the receipt of the reply, the respondents 1 to 3 kept quite. Even though the Customs and Central Excise Act, confers power for confiscation, seizure and attachment of properties of the defaulting company, they have not taken any action. It means that the respondents 1 to 3 accepted the priority right of the financial institution under the provisions of SARFAESI Act and that they do not have any charge or hold over the sale. 12. As per Section 111(j) of Customs Act, 1962, any dutiable or prohibited goods removed or attempted to be removed from customs area or warehouse without permission of the proper officer or contrary t....
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....ether the appellant had agreed to discharge the dues payable to the excise department by the borrower? (2) Whether such a liability arises in law (de-hors the stipulation in Sale Deed /Agreement of Sale) having regard to the legal provisions contained in the Excise Act and State Financial Corporation Act? 15. .... 16. Whether UPFC would have priority being a secured creditor by virtue of Deed of Mortgage or the Central Excise in respect of its dues having regard to the Rule 230(2) of the Central Excise Rules, came up for consideration before this Court in State of Karnataka & Anr. Vs. Shreyash Papers (P) Ltd. & Ors. JT 2006 (1) SC 180. Dealing with the provisions of Rule 230 of the Excise Rules, the Court held that this provision authorises detention of all excisable goods, materials, preparations, plant, machinery, vessels, utensils, implements and articles, in the custody or possession of the person or persons carrying on such trade or business or from person succeeding the business or trade or part thereof for such time till dues are paid or recovered. However, the rule does not in any way create a charge over any of the goods enumerated therein. After....
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....own is in general preferred, the rule being "detur digniori (Laws of England, 4th Edn.,Vol.8, para 1076, at p.666).Herbert Broom states: "Quando jus domini regis et subditi concurrunt jus regis praegerri debat. - Where the title of the kind and the tile of a subject concur, the king's title must be preferred. In this case detur digniori is the rule. .....where the titles of the kind and of a subject concur, the kind takes the whole. ....where the king's title and that of a subject concur, or are in conflict, the king's title is to be preferred."(Legal maxims; 10th Edn.,pp.35-36) This Common law doctrine of priority of State's debts has been recognised by the High Courts of India as applicable in British India before 1950 and hence the doctrine has been treated as "law in force" within the meaning of Article 372(1) of Constitution." It was, furthermore, observed : "However,, the Crown's preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over....
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....to pay penalty in a sum of Rs. 3 lakhs while the Excise dues liable would be in the order of a lakh or so. It is difficult to conceive that the appellant had any opportunity to participate in the adjudication proceedings and contend against the levy of the penalty. Therefore, in the facts and circumstances of this case, we think it appropriate to direct that the said amount, if already paid, shall be refunded within a period of three months. In other respects, the order made by the High Court shall remain undisputed. The appeal is disposed of accordingly." The decision, therefore, was rendered in the facts of that case. The issue with which we are directly concerned did not arise for consideration therein. The Court also did not notice the binding precedent of Dena Bank as also other decisions referred to hereinbefore." 21. A harmonious reading of the judgments in Macson and SICOM would tend us to conclude that it is only in those cases where the buyer had purchased the entire unit i.e. the entire business itself, that he would be responsible to discharge the liability of Central Excise as well. Otherwise, the subsequent purchaser cannot be fastened with the liabi....
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....nclusion, the petitioner UTI Bank, being a secured creditor is entitled to have preference over the claim of the Deputy Commissioner of Central Excise, first respondent herein." 20. The Hon'ble Full Bench of this Court in THE ASSISTANT COMMISSIONER (CT) VS. THE INDIAN OVERSEAS BANK [2016 (6) CTC 769] has observed as under: "3. There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with ''notwithstanding'' clause and has come into force from 01.09.2016. 4. The law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending. 5. The aforesaid would, thus, answer question (a) in favour of the financial institution, which is a secured creditor having the benefit of the mortgaged property. 6. In so far as question (b) is concerned, the same is stated to relate on....
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....vernment and other creditors, priority will depend upon precedence of such loan, it is thus clear that security of the Corporation being prior in point of time, it being in the nature of mortgage of priority, the dues claimed by Corporation will have priority over the dues of Customs." 9. Generally, the rights of the crown to recover the debt would prevail over the right of a subject. Crown debt means the debts due to the State or the king; debts which a prerogative entitles the Crown to claim priority for before all other creditors. [See Advanced Law Lexicon by P. Ramanatha Aiyear (3rd Edn.) p. 1147]. Such creditors, however, must be held to mean unsecured creditors. Principle of Crown debt as such pertains to the common law principle. A common law which is a law within the meaning of Article 13 of the Constitution is saved in terms of Article 372 thereof. Those principles of common law, thus, which were existing at the time of coming into force of the Constitution of India are saved by reason of the aforementioned provision. A debt which is secured or which by reason of the provisions of a statute becomes the first charge over the property having regard to the plain mean....
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....inciples of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor. It is only in cases where the Crown's right and that of the subject meet at one and the same time that the Crown is in general preferred. Where the right of the subject is complete and perfect before that of the King commences, the rule does not apply, for there is no point of time at which the two rights are at conflict, nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already. In Giles v. Grover it has been held that the Crown has no precedence over a pledgee of goods. In Bank of Bihar v. State of Bihar the principle has been recognised by this Court holding that the rights of the pawnee who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. Rashbehary Ghose states in Law of Mortgage (TLL, 7th Edn., p. 386) -- "It seems a....
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....spite noticing Dena Bank (supra) as also other decisions, relying on Section 11 of the Central Excise Act and Rule 230(2) of the Central Excise Rules held as under : "The rule is prima facie wide in its operation. There is no challenge to the validity of the rule in this proceeding. Going by Sub-Rule (2) of Rule 230, it appears to us that a change in ownership of the undertaking would not in any manner effect the obligation of the person liable to pay excise duty and authority concerned has the right to proceed against the successor in business or transferee even though the duty is assessed subsequently but the liability had arisen before such transfer. In other words, the right is given to the department to proceed against the Undertaking or its products or machinery even though it may be in the hands of the transferee. On a plain reading of the rule, it appears to us that if the defaulter had sold the Undertaking, the transferee would be liable for the excise duty that remained outstanding as on the date of transfer in its favour." The High Court, with utmost respect, proceeded on a wrong premise that only in terms of sub-section (4) of Section 29, proceeds of t....
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....attachment of the subject properties and also seeking for a direction to raise the attachment. The short ground, on which the impugned order have been challenged, is by placing reliance on the decision of the Hon'ble Full Bench in the case of Assistant Commissioner (CT), Anna Salai-III Assesment Circle Vs. The Indian Overseas Bank in W.P.No.2675 of 2011 etc. dated 10.11.2016. The issue, which was referred to Hon'ble Full Bench, for decision is as follows: a) As to whether the Financial Institution, which is a secured creditor, or the department of the government concerned, would have the 'Priority of charge' over the mortgaged property in question, with regard to the tax and other dues. b) As to the status and the rights of a third party purchaser of the mortgaged property in question. 3. The Full Bench after taking note of the Enforcement of Security interest and Recovery of Debts and Laws and Miscellaneous Provisions (Amendment) Act, 2016, held that there is no doubt that the rights of the a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all de....
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....d debts due and payable to them by sale of assets over which security interest is created. 7.we, thus, answer the aforesaid reference accordingly." 5. The answer to the two submissions raised by the revenue lies in the decision of the Full Bench referred supra. That apart the interpretation given by the Income Tax Department to the Assignment Agreement dated 07.12.2017, stating that it should be treated as a sale transaction is not tenable. This is so because, the terms and conditions of the agreement clearly shows it is an assignment of security interest created in favour of the Indian Bank and by that the Indian Bank had transferred in favour of the petitioner, the loans disbursed under the financing documents together with all its rights, title and interest in the financing documents and any underlying Security Interests, Pledges and/or guarantees in respect of such loans. 9. Thus, for the above reasons, it is held that the petitioner would have priority over all other debts and Government dues including taxes, cesses, etc., due to the Income Tax Department, Central Government, State Government or Local Authority. Therefore, the impugned orders of atta....
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....d in section 46B of the 1951 Act unless it is found that the 1985 Act is a general statute and the 1951 Act is a special one. In that event the maxim generalia specialibus non derogant would apply. But in the present case on a consideration the relevant provisions of the two statutes we have come to the conclusion that the 1951 Act deals with pre-sickness situation whereas the 1985 Act deals with the post-sickness situation. It is, therefore, not possible to agree that the 1951 act is a special statute vis-a-vis the 1985 Act which is at general statute. Both are special statutes dealing with different situations notwithstanding a slight overlap here and there, for example, both of them provide for grant of financial assistance though in different situations. We must, therefore, hold that in cases of sick industrial undertakings the provisions contained in the 1985 Act would ordinarily prevail and govern."" 24. The Hon'ble Supreme Court in SOLIDAIRE INDIA LIMITED VS. FAIRGROWTH FINANCIAL SERVICES LTD. AND OTHERS [2001 (3) SCC 71] has held as under: "7. Coming to the second question, there is no doubt that the 1985 Act is a special Act. Section 32(1) of the said Act r....
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....here are two special statutes which contain non-obstante clauses the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non-obstante clause. If the Legislature still confers the later enactment with a non-obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply. The Special Court (Trial of Offences Relating to Transactions and Securities) Act, 1992, provides in Section 13, that its provisions are to prevail over any other Act. Being a later enactment, it would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had the Legislature wanted to exclude the provisions of the Sick Companies Act from the ambit of the said Act, the Legislature would have specifically so provided. The fact that the Legislature did not specifically so provide necessarily means that the Legislature intended that the provisions of the said Act were to prevail even over ....
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.... recovered first even from sick companies. Provided the sick company was in a position to first pay back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction against considering a scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed by the Special Court. The Special Court can, if it is convinced grant time or instalments. There can, therefore, be no stay of any proceedings for recovery against a sick company so far as the Special Court under the 1992 Act is concerned." 11.We are in agreement with the aforesaid decision or the case, more so when we find that whenever the Legislature wishes to do so it makes appropriate provisions in the Act in that behalf. Mrs. Shiraz Rustomjee has drawn our attention to Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 wherein after giving an overriding effect to the 1993 Act it is specifically provided that the said Act will be in addition to and not in derogation of a number of other Acts including the 1985 Act. Similarly under Section 32 of the 1985 Act the applicability of the Foreign E....
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....as that is not applicable in so far as present case is concerned. Accordingly, we thus, hold that in so far as legal position is concerned, UPFC being a secured creditor had priority over the excise dues. We further hold that since the appellant had not purchased the entire unit as a business, as per the statutory framework he was not liable for discharging the dues of the Excise Department." 28. The Hon'ble Supreme Court in AHMEDABAD ELECTRICITY CO. LTD. VS. GUJARAT INNS PVT. LTD. AND OTHERS [2004 (3) SCC 587] has held as under: "3. In our opinion, the present two cases are the cases of fresh respondents (auction purchasers) connections and they have no objection in as fresh connections given on the dates on which the supply of electricity was restored to the premises. We are clearly of the opinion that in case of a fresh connection though the premises are the same, the auction purchasers cannot be held liable to clear the arrears incurred by the previous owners in respect of power supply to the premises in the absence of there being a specific statutory provision in that regard. Though we find some merit in the submission of the learned counsel for the appellant c....
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....Tripathy, learned counsel for the appellant, undoubtedly, Respondent 1, purchaser of the premises is liable to pay entire arrears or outstanding of power dues. However, as pointed out by Mr.P.P.Rao, learned Senior Counsel, Respondent 1 is not a party to the contract with the supplier i.e. NESCO. We have already quoted the relevant clauses, particularly, sub-clause 10(b) of Regulation 13 of the Electricity Supply Code, which is not applicable to Respondent 1 herein. In other words, as mentioned in the earlier paras, in the case on hand, Respondent 1 has not applied for transfer of service connection from the name of the erstwhile company to its name but applied for a fresh connection to its unit after purchasing the same from the Official Liquidator. 19.It is also relevant to refer a decision of a three - Judge Bench of this Court reported in Ahmedabad Electricity Co. Ltd., v. Gujarat Inns (P) Ltd. This Court, after finding that the cases are of fresh connection, in para 3 held as under: "3.... We are clearly of the opinion that in case of a fresh connection though the premises are the same, the auction - purchasers cannot be held liable to clear the arrears incurr....
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....itted by the previous owner from the petitioner / auction purchaser is without jurisdiction. The auction purchaser need not file an appeal against the notice or demand or order passed by the respondents. Since the notice is without jurisdiction, the writ petition is maintainable without any exhaustion of alternative remedy. It is always open to the respondents 1 to 3 to claim or demand the arrears of duty from the licensee or the beneficiary of the license and not from the writ petitioner who is a third party to that license. In such circumstances, the impugned demand notices dated 24.02.2011 and 24.05.2011 of the first respondent are quashed. WP (MD) NOS.2747/2013 & 20355/2014: 33. In the above writ petitions, the demand notices dated 29.01.2013, 21.11.2014 and 05.12.2014 respectively, of the first respondent Employees' State Insurance Corporation have been impugned. 34. For better appreciation, the contents of the impugned orders are quoted below for ready reference: "Impugned order dated 29.01.2013 "Whereas M/s.Rajam Mills Spinning Co. Ltd., S.F.No.440, V.Pudukkottai Village, Vedasanthur Taluk, Dindigul being the defaulter - Principal empl....
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....tion 39 and Section 45 to 45(I) of the ESI Act. (b)All costs, charges and expenses incurred in respect of the service of this notice and of warrants and other processes and all other proceedings taken for realizing the arrears." Impugned order dated 05.12.2014 As directed by the Recovery Officer, I visited your factory or establishment or residence a defaulter and demanded immediate payment of the produce EVIDENCE OF PAYMENT OF ALREADY MADE. against recovery notices under reference. But no payment was made not on evidence of payment shown. You are requested to remit the dues mentioned above in ESI Fund Account No.1, with designated branches of State Bank of India produce challan after payment within 7 days thereof. It may please be noted that if you fail to earlier made within this period recovery same will be effected resorting to any one or more of the following modes of recovery without after notice:- 1. Attachment and sale of movable or immovable properties. 2. By appointing receiver to manage the business assets defaulter. 3. Arrest of defaulter and his detentions in civil prison observing the due procedure." 35....