M/s Shree Sidhbali Sugar Ltd vs Deputy Commissioner, Central Excise, Dehradun And Others

Sudhanshu Dhulia, J

The petitioner before this Court is a company which is engaged in the manufacturing of steel ingots. It is aggrieved by the notice dated 02.03.2005 issued by the Central Excise Department for recovery of dues which are admittedly of one M/s Devki Steels. The case of the Excise Department is that the petitioner has succeeded the business of M/s Devki Steels and therefore is liable to pay the excise dues to the Department under Section 11 of the Central Excise Act.

The facts of the case are that the petitioner factory is presently situated in Kotdwar, District Pauri Garhwal, Uttarakhand, which is an industrial area. The unit was initially established by M/s Devki Steels for manufacture of Steel ingots. It was M/s Devki Steel who had taken the loan from Uttar Pradesh Financial Corporation by mortgaging the property to the Finance Corporation. Since the loan could not be paid, the Finance Corporation initiated proceedings under Section 29 of the State Financial Corporation Act and in that proceeding the possession of the factory premises i.e. land and building was taken over and the property was sold in auction by means of sale deed dated 01.04.2000 to one M/s Prahlad Steels. M/s Prahlad Steel in turn made an agreement with the present petitioner on 21.09.2002 for sale of the land on which the factory is raised. Since the original owner of the land was Uttar Pradesh State Industrial Development Corporation (from hereinafter referred to as UPSIDC) and the land was leased out to M/s Prahlad Steel, a request was made by M/s Prahlad Steel to the Corporation, that the property be given to the present petitioner. Subsequently, the property was leased out to the present petitioner by lease deed dated 24.10.2002. The petitioner thereafter applied for new registration of his factory which was granted on 16.09.2002. On 2.3.2005, the petitioner received a notice from the Central Excise Department under Section 11 of the Central Excise Act. In the notice, it was stated that the excise dues of M/s Devki Steels are pending with the Department which are to the tune of Rs. 18,22,223/- along with interest, which are liable to be paid by the petitioner, as the petitioner has succeeded the business of M/s Devki Steels.

The notice was challenged by the petitioner before this Court, and the Division Bench of this Court dismissed the petition vide order dated 18.12.2006 holding that the petitioner could not place the sale deed by which the land was transferred from M/s Prahlad Steels to the petitioner and therefore the excise dues are liable to be recovered from the petitioner. This order dated 18.12.2006 was challenged by the petitioner before the Hon'ble Apex Court in Civil Appeal No. 5739 of 2007. The Hon'ble Apex Court disposed of the appeal vide order dated observations:- 07.12.2007 with the following

"In our view, question of ownership was not in dispute. The pure question of law basically is whether the Department was entitled to proceed against the land and building purchased by the present appellant from the auction purchaser-M/s Prahlad Steels (P) Ltd. in respect of the dues of M/s Devki Steel (P) Ltd. One of the points which may also arise for determination is whether excise duty would be a charge on the property. That question, of course, was not raised before the High Court. However, we grant liberty to the Department to raise the said question also before the High Court subject to the Department making proper averments in that regard.

For the afore-stated reasons, the impugned judgment of the High Court is set aside. We remit the matter back to the High Court by restoring Writ Petition No. 434/2005 on the file of the High Court for its disposal on merits. Since the matter is regarding the demand under the Excise Act, we expedite the hearing of the writ petition. We request the High Court to decide the writ petition preferably within six months from today. Parties to complete their pleadings within four weeks from today. In the meantime, the Department will not take any coercive action to recover the dues from the present appellant till the hearing and disposal of the writ petition by the High Court in accordance with law.

Civil Appeal is disposed of accordingly."

The matter has been pending before this Court since then.

Heard learned counsels for both the parties.

Although in the notice it has not been specifically stated that for which period the excise dues are to be paid, learned counsel for the Excise Department says that since the earlier order was of 30.07.2002 which was passed in the case of M/s Devki Steels, the dues are prior to July, 2002 and after 1997 i.e. between 1997 to 2002.

Admittedly the petitioner was nowhere in picture, at the relevant point of time, as he has purchased the property in an auction not from M/s Devki Steels but from M/s Prahlad Steels on 24.10.2002 through lease deed. The department, however, vide notice dated 02.03.2005 has relied upon the amended provision of Section 11, whereby these dues are also liable to be recovered from the person, who succeeds the business or trade of a person who was initially liable to pay the excise dues. Reliance is placed on the proviso to Section 11. For ready reference, proviso to Section 11 is being reproduced below:

"Section 11. Recovery of sums due to Government.- In respect of duty and any other sums of any kind payable to the Central Government under any of the provisions of this Act or of the rules made thereunder, including the amount required to be paid to the credit of the Central Government under Section 11D the officer empowered by the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) to levy such duty or require the payment of such sums may deduct or require any other Central Excise Officer or a proper officer referred to in section 142 of the Customs Act, 1962 (52 of 1962) to deduct the amount so payable from any money owing to the persons from whom such sums may be recoverable or due which may be in his hands or under his disposal or control or may be in the hands or under disposal or control of such officer, or may recover the amount by attachment and sale of excisable goods belonging to such person; and if the amount payable is not so recovered he may prepare a certificate signed by him specifying the amount due from the person liable to pay the same and send it to the Collector of the district in which such person resides or conducts his business and the said Collector, on receipt of such certificate, shall proceed to recover from the said person the amount specified therein as if it were an arrear of land revenue.

Provided that where the person (hereinafter referred to as predecessor) from whom the duty or any other sums of any kind, as specified in this section, is recoverable or due, transfers or otherwise disposes of his business or trade in whole or in part, or effects any change in the ownership thereof, in consequence of which he is succeeded in such business or trade by any other person, all excisable goods, materials, preparations, plants and machineries, vessels, utensils, implements and articles in the custody or possession of the person so succeeding may also be attached and sold by such officer empowered by the Central Board of Excise and Customs, after obtaining written approval from the Principal Commissioner of Central Excise or Commissioner of Central Excise, for the purposes of recovering such duty or other sums recoverable or due from such predecessor at the time of such transfer or otherwise disposal or change."

(Emphasis provided)

The primary question here is whether the excise dues of M/s Devki Steels are liable to be recovered from the petitioner by attachment of plants, machinery and land of the factory premises, as is being sought by the Excise Department.

The learned counsel for the petitioner relies upon the decision of the Hon'ble Apex Court in the case of Rana Girders Limited v. Union of India and others reported in (2013) 10 SCC 746. The facts of the said case were that one M/s P.J. Steels (P) Ltd. had taken a loan from Uttar Pradesh Financial Corporation (from hereinafter referred to as UPFC). Due to the default made by the borrower, UPFC took possession of the land of the borrower, which was mortgaged, under Section 29 of the State Financial Corporations Act. Rana Girders (which was the appellant before the Hon'ble Apex Court) being the highest bidder had purchased the property vide sale deed dated 08.03.2002 and by the said sale deed the land and the building of the said factory were given in favour of Rana Girders. On 14.03.2002, an agreement was executed in favour of the appellant conveying the ownership of the plant and machinery as well. Subsequently, a demand of Rs. 1,00,72,442/- was raised against Rana Girders for the excise duty which was initially liable to be paid by his predecessor i.e. M/s P.J. Steels (P) Ltd. Rana Girders raised an objection on ground that he had purchased the property in an open auction from UPFC, which was free from all encumbrances and therefore he was not liable to pay any dues to the Excise Department. In short, the question before the Hon'ble Apex Court in the above case was whether the Excise Department can recover the amount in question from the appellant.

The two questions which were formulated by the Hon'ble Apex Court under the facts and circumstances of the case were as follows:

"(1) On the interpretation of stipulation contained in the sale deed of the land and building and agreement of sale of plant and machinery, whether the appellant had agreed to discharge the dues payable to the Excise Department by the borrower?

(2) Whether such a liability arises in law (dehors the stipulation in the sale deed/agreement of sale) having regard to the legal provisions contained in the Excise Act and the State Financial Corporations Act?"

Regarding the second question, which was replied first, the Hon'ble Apex Court, after taking into consideration two earlier cases relating to the same issue i.e. Macson Marbles (P) Ltd. v. Union of India (2008) 15 SCC 481 and Union of India v. SICOM Ltd., (2009) 2 SCC 121, held that the liability to pay excise due can be fastened on a person only if he has purchased the entire unit as an ongoing concern and not to a person who has only purchased the land and building or plant and machinery of the erstwhile concern. It was held that since the appellant in that case has 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.

As regarding the first question which was framed by the Hon'ble Apex Court, it was held that the subsequent purchaser is only liable to discharge the statutory duty which arises out of the land and building or out of the plant and machinery which has been purchased and "excise dues are not statutory liability which arise out of the land and building or the plant and machinery".

In this case we are only concerned with the agreement executed between the present petitioner and M/s Prahlad Steels. All it states is that the land is being purchased by the petitioner. What worth this agreement is another question, inasmuch as at the relevant time M/s Prahlad Steel itself was having the land on lease. Therefore ultimately it was the UPSIDC which executed the lease deed in favour of the present petitioner on 24.10.2002. Both the agreement between the petitioner and M/s Prahlad Steels and the petitioner and the UPSIDC nowhere state that he had succeeded the business of M/s Prahlad Steels. All it states is that the land was given to the petitioner on lease. Consequently, the case of the petitioner is squarely covered by the ratio laid down by the Hon'ble Apex Court in the case of Rana Girders Limited v. Union of India and others reported in (2013) 10 SCC 746.

In view thereof, the recovery being made from the petitioner is not sustainable in law. Consequently, writ petition succeeds and is hereby allowed.