THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
AND
THE HON'BLE SRI JUSTICE C.V.BHASKAR REDDY
W.P.No.23660 of 2004
ORDER: (Per the Hon'ble the Chief Justice Ujjal Bhuyan)
Heard Mr. P.Chakravarthy, learned counsel for the petitioners
and Mr. A.Ramakrishna Reddy, learned counsel for respondents
No.1 to 3.
2. Challenge made in this writ petition is to the notice of demand dated 02.11.2004 issued by respondent No.3 to the petitioners for recovery of central excise duty amounting to Rs.43,81,475.00 and penalty of Rs.49,81,475.00 plus interest which was due to be paid by respondent No.4 (M/s.Chemo Steels Private Limited).
3. The land admeasuring Acs.3.00 situated in Survey No.10 of Gaddapotharam Village, Jinnaram Mandal, Medak District (briefly 'the subject land' hereinafter) and the plant and machinery on the said land belonged to respondent No.4. In the course of manufacture of the excisable goods, the duty was required to be paid. For non-payment of such excise duty comprising of the duty, penalty and interest, impugned notice came to be issued to the petitioners as ::2::
in the interregnum, petitioners had purchased the subject land from respondent No.4 through a registered sale deed dated 26.05.2003.
4. Though the petitioners became owners of the subject land, they cannot be construed as manufacturers of the excisable goods in the plant and machinery which belonged to respondent No.4 out of which the excise duty arose. This issue is squarely covered by the decision of the Supreme Court in Rana Girders Ltd. v. Union of India.1 That was a case where land belonging to the manufacturer was purchased in auction sale. When similar demand notice was issued, the same came to be challenged by the auction purchaser. Notice was issued to the auction purchaser because the borrower had failed to discharge the excise duty liability. In Rana Girders Ltd. (1 supra), Supreme Court had considered two earlier decisions in Macson Marbles (P) Ltd. v. Union of India2 and Union of India vs. SICOM Limited3 and thereafter held as follows:
"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 1 (2013) 10 SCC 746 2 (2008) 15 SCC 481 3 ( 2009) 2 SCC 121 ::3::
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 liability relating to the dues of the Government unless there is a specific provision in the statute, claiming "first charge for the purchaser". As far as the Central Excise Act is concerned, there was no such specific provision as noticed in SICOM as well. The proviso to Section 11 is now added by way of amendment in the Act only w.e.f. 10-9-2004. Therefore, we are eschewing our discussion regarding this proviso as that is not applicable insofar as present case is concerned. Accordingly, we thus, hold that insofar 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."
5. Thus, Supreme Court held that as far as dues of central excise are concerned, those are neither related to the plant and machinery nor to the land and building. Thus, they did not arise out of such property. Dues of central excise became payable on the manufacturing of excisable items by the erstwhile owner. Therefore, the excise duty was in respect of those items which were produced and not the plant and machinery which were used for the purpose of manufacturing. It has been held as follows:
::4::
We may notice that in the first instance it was mentioned not only in the public notice but there is a specific clause inserted in the sale deed/agreement as well, to the effect that the properties in question are being sold free from all encumbrances. At the same time, there is also a stipulation that "all the statutory liabilities arising out of the land shall be borne by the purchaser in the sale deed" and "all the statutory liabilities arising out of the said properties shall be borne by the vendee and the vendor shall not be held responsible in the agreement of sale". As per the High Court, these statutory liabilities would include excise dues. We find that the High Court has missed the true intent and purport of this clause. The expressions in the sale deed as well as in the agreement for purchase of plant and machinery talk of statutory liabilities "arising out of the land" or statutory liabilities "arising out of the said properties" (i.e. the machinery). Thus, it is only that statutory liability which arises out of the land and building or out of plant and machinery which is to be discharged by the purchaser. Excise dues are not the statutory liabilities which arise out of the land and building or the plant and machinery. Statutory liabilities arising out of the land and building could be in the form of the property tax or other types of cess relating to property, etc. Likewise, statutory liability arising out of the plant and machinery could be the sales tax, etc. payable on the said machinery. As far as dues of the Central Excise are concerned, they were not related to the said plant and machinery or the land and building and thus did not arise out of those properties. Dues of the Excise Department became payable on the manufacturing of excisable items by the ::5::
erstwhile owner, therefore, these statutory dues are in respect of those items produced and not the plant and machinery which was used for the purposes of manufacture. This fine distinction is not taken note of at all by the High Court.
6. This decision of the Supreme Court was followed by this Court in Gopal Agarwal v. Commissioner of Customs and Central Excise4. While setting aside a similar notice, this Court however left it open to the Central Excise authority to take any other steps permissible in law for recovery of the arrears of excise duty.
7. Following the decision of the Supreme Court in Rana Girders Limited (1 supra) as well as of this Court in Gopal Agarwal (4 supra), impugned notice dated 02.11.2004 issued by respondent No.3 is hereby set aside. However, it would be open to respondents No.1, 2 and 3 to take such steps as may be permissible in law for recovery of outstanding excise duty from respondent No.4 (M/s. Chemo Steels Private Limited).
8. Writ Petition is accordingly allowed. No costs. 4 W.P.No.5340 of 2007 decided on 29.12.2014 ::6::
As a sequel, miscellaneous petitions, pending if any, stand closed.
__________________ UJJAL BHUYAN, CJ _______________________ C.V.BHASKAR REDDY, J Date: 26.12.2022 LUR