Telangana High Court
M/S. Cosmo Cans Pvt. Ltd., vs The Dy. Commissioner Arc And 6 Others on 14 February, 2024
Author: P.Sam Koshy
Bench: P.Sam Koshy, N.Tukaramji
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE N.TUKARAMJI
W.P. No. 2297 of 2006
ORDER:
(per Hon'ble Sri Justice P.SAM KOSHY) Heard Mr. M.V.J.K. Kumar, learned counsel for the petitioner; Mr.Dominic Fernandez, learned Standing Counsel for CBIC appearing for respondent Nos.1 to 3 and L. Prabhakar Reddy, learned Standing Counsel for TSIIC appearing for respondent No.7. Perused the record.
2. By filing this petition under Article 226 of the Constitution of India, petitioner seeks quashing of notice dated 15.12.2005 issued by respondent No.1 - the Deputy Commissioner, Customs and Central Excise, Hyderabad for recovery of dues claiming to be due from respondent No.5 - M/s. Indo Hacks Ltd.
3. Case of the petitioner is that they had purchased the property that situates at Plot No.4/B, Phase I, IDA, Patancheru, Medak District from one Sri Natwarlal Agarwal vide the registered sale deed executed on 23.07.1999. The said Sri Natwarlal Agarwal, in turn, had purchased the property from an auction that was conducted by respondent No.7 - M/s. Andhra Pradesh Industrial Infrastructure Corporation Limited. The said property was sold to Sri Natwarlal Agarwal, free from all encumbrances. 2
4. Later on, it is learnt that M/s. Indo Hacks Ltd., in fact had taken certain loan from respondent No.7 for the establishment of the plant in the aforesaid property i.e., Plot No.4/B, Phase I, IDA, Patancheru, Medak District. But for default in repayment of the loan, respondent No.7 seized the entire assets of M/s. Indo Hacks Ltd. Subsequently, the said property was put to open auction free from all encumbrances and respondent No.6 - Sri Natwarlal Agarwal, being successful purchased the property. In the year 1999, Sri Natwarlal Agarwal, again, for certain personal reasons, sold the whole property free from all encumbrances to the petitioner herein who is in possession of the said property since then.
5. Contending that the impugned notice is wholly unsustainable in law as excise duty payable by M/s. Indo Hacks Ltd., could not be fastened on to the petitioner, the present writ petition has been filed.
6. It is further learned that by M/s. Indo Hacks Ltd., is liable to pay an amount of Rs.5,62,083/- towards central excise duty and penalty as per the Notice of Demand dated 15.12.2005.
7. From the aforesaid factual matrix narrated, what is clearly evident is that the petitioner herein is in fact the second purchaser 3 from respondent No.7 and both these purchases were made by respondent No.7 in favour of respondent No.6. Thereafter, respondent No.6 in turn selling it to the petitioner was absolutely free from all encumbrances.
8. The issue raised in this writ petition has been answered by the Hon'ble Supreme Court in Rana Girders Limited v. Union of India 1. That was also a case where similar notice was challenged by the auction purchaser. The notice was issued to the auction purchaser because the borrower had failed to discharge the excise duty liability. The Hon'ble Supreme Court considered two earlier decisions in Macson Marbles (P) Ltd. v. Union of India 2 as well as Union of India v. SICOM Limited 3 and thereafter held as follows:
"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 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 1 (2013) 10 Supreme Court Cases 746 2 (2008) 15 SCC 481 3 (2009) 2 SCC 121 4 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."
9. The Hon'ble Supreme Court thereafter held that as far as dues of central excise are concerned, those are neither related to plant and machinery nor to the land and building. Thus, it did not arise out of the said properties. Dues of central excise became payable on the manufacturing of excisable items by the erstwhile owner. Therefore, the excise duties were 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:
"23. 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 5 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 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."
10. This decision has been followed by this Court in W.P.No.5340 of 2007, Gopal Agarwal v. Commissioner of Customs and Central Excise, Hyderabad, decided on 29.12.2014. While setting aside similar notice, this Court had however left it open to the excise authorities to take any other steps permissible in law for recovery of the arrears of excise duty.
11. That being the position and following the decision of the Hon'ble Supreme Court in Rana Girders Limited (supra) as well as of this Court in Gopal Agarwal (supra), the impugned notice dated 15.12.2005 is hereby set aside. However, it would be open to respondent Nos.1 to 3 to take such steps as may be permissible in 6 law for recovery of outstanding excise duty from M/s. Indo Hacks Pvt. Ltd.
12. Accordingly, the Writ Petition stands allowed. No costs.
Miscellaneous applications pending, if any, in this Writ petition shall stand closed.
___________________ P.SAM KOSHY, J __________________ N.TUKARAMJI, J Dated: 14.02.2024 Pvt