M/S.Sri Vishnu Educational Society, ... vs The Commissioner Of Customs And Central ...

Telangana High Court

M/S.Sri Vishnu Educational Society, ... vs The Commissioner Of Customs And Central ... on 22 January, 2024

Author: P.Sam Koshy

Bench: P.Sam Koshy, N.Tukaramji

      THE HONOURABLE SRI JUSTICE P.SAM KOSHY
                       AND
      THE HONOURABLE SRI JUSTICE N. TUKARAMJI

                  Writ Petition No.12713 of 2006

ORDER:

(per Hon'ble Sri Justice P.SAM KOSHY)

This Writ Petition is filed by the petitioner herein under

Article 226 of the Constitution of India praying this Court for

issuance of an appropriate writ, order or direction particularly

one in the name of Writ of Mandamus by declaring the demand

Notice vide C.No.HQ/TRC/18/2006, dated 20.04.2006, issued

by the 3rd respondent (for short, 'the impugned notice') as illegal,

arbitrary, unconstitutional, without jurisdiction, void ab initio,

and violative of petitioner's fundamental rights guaranteed

under Articles 14 & 21 of the Constitution of India; and to set

aside the same.

2. Heard Mr.D. Seshasayana Reddy, learned counsel for the

petitioner and Mr.Dominic Fernandes, learned Senior Standing

Counsel for Central Board of Indirect Taxes, for the respondents.

3. Learned counsel for the petitioner contended that the 3rd

respondent herein has issued the impugned notice claiming for

the pending of arrears as against M/s.Deccan Foam Plastics

Private Limited, which was subsequently purchased by the 2

petitioner Society herein, for the purpose of establishing a

society for education. The said M/s.Deccan Foam Plastics

Private Limited committed default in repayment of the dues

payable to respondent No.4 herein. The respondent No.4, on the

default on the part of M/s.Deccan Foam Plastics Private Limited,

took over the land, building and assets that stood in the name of

M/s.Deccan Foam Plastics Private Limited. When the entire

premises got put to open auction conducted by respondent

No.4, the petitioner was the successful bidder and purchased

the land, building along with plant and machinery belonging to

M/s.Deccan Foam Plastics Private Limited. Since then, it is

operated by the petitioner-Society.

4. Learned counsel for the petitioner further submitted that

the impugned demand notice came to be issued by the 3rd

respondent directing the petitioner herein to clear of all the dues

payable by M/s.Deccan Foam Plastics Private Limited.

5. Aggrieved, the present writ petition is filed by the

petitioner.

6. Learned counsel for the petitioner submitted that the issue

involved in the present writ petition is squarely covered by a

judgment rendered by a Division Bench of this Court in a batch 3

of Writ Petitions, viz., Writ Petition Nos.3428 of 2007, 5247 of

2006, 6180 of 2007 & 18108 of 2007, dated 15.11.2022,

wherein the Division Bench, by relying upon a series of

decisions, has in very categorical terms held that a demand

notice against the subsequent purchasers who had purchased

the property by way of an open auction cannot be held to be

sustainable qua the attachment of the previous owner of the

establishment who was the original defaulter.

7. On the other hand, learned Standing Counsel for the

respondent-Department, referring to the counter-affidavit,

submitted that the impugned demand notice was in terms of

proviso to Section 11 of the Central Excise Act, 1944.

8. However, when we look into the judgment rendered by the

learned Division Bench of this Court in the aforesaid batch of

matters, we find that this aspect has also been considered by the

Hon'ble Apex Court in Rana Girders Limited vs. Union of

India 1, Macson Marbles (P) Ltd. vs. Union of India 2 and Union

of India vs. SICOM Limited 3. For ready reference,

1 (2013) 10 S.C.C. 746 2 (2008) 15 S.C.C. 481 3 (2009) 2 S.C.C. 121 4

paragraph Nos.10 and 11 of the aforesaid judgment is extracted

as under :

"10. In the course of the hearing today, we find that issue raised in this batch of writ petitions has been answered by the Supreme Court in Rana Girders Limited v. Union of India. 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. Supreme Court considered two earlier decisions in Macson Marbles (P) Ltd. v. Union of India as well as Union of India v. SICOM Limited 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 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 5

unit as a business, as per the statutory framework he was not liable for discharging the dues of the Excise Department."

11. 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 building or out of plant and machinery which is to be 6

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."

9. In view of the aforesaid categorical decision of the Division

Bench of this Court and also series of decisions rendered by the

Hon'ble Apex Court (supra), we are of the considered opinion

that the demand notice issued by the 3rd respondent to the

petitioner in the instant case also would not be sustainable and

the same therefore deserves to be and is accordingly set aside.

The Writ Petition is allowed. No costs.

10. However, it would be open for the respondent No.4 to take

such steps as may be permissible in law for recovery of 7

the outstanding dues from M/s.Deccan Foam Plastics Private

Limited.

11. Consequently, miscellaneous petitions pending, if any,