TMI Blog2015 (11) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... d remaining unpaid at the time of transfer. Under the said provision, the transferor is deemed to be the dealer liable to pay the tax or penalty or other amount under the Act. However, under the proviso to section 11 of the Act, in case where the person from whom the duty or any other sums of any kind 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, as a consequence of which he is succeeded in such business or trade by any other person, all excisable goods, materials, preparations, plants, machineries, vessels, utensils, implements and articles in the custody or possession of the person so succeeding may also be attached and sold for recovery of such dues. Thus, under the proviso to section 11 of the Act, it is only the specified assets that can be attached and sold for recovery of the central excise dues of the predecessor but the purchaser is not deemed to be a defaulter. It is evident that resort could not be made to the proviso to section 11 of the Act, inasmuch as, what has been transferred are the assets of the defaulting unit and not the business or trade. The above positio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not be attracted - respondents are not justified in seeking to cancel the registration granted in favour of the petitioner on the ground that in respect of the same premises two units cannot be registered. It is apparent that the proviso to section 11 of the Act could not have been invoked by the respondents in the facts of the present case. Under the circumstances, the demand raised by the respondents for the outstanding central excise dues of GSL (India) Limited being contrary to the provisions of section 11 of the Act as well as the show cause notice dated 23.02.2012 to the extent the same calls upon the petitioner to show cause as to why its central excise registration should not be suspended/revoked for non compliance of the "Terms and Conditions" of the Sale Certificate issued by ARCIL, cannot be sustained. - Decided in favour of petitioner. The respondents are not justified in seeking to cancel the registration granted in favour of the petitioner on the ground that in respect of the same premises two units cannot be registered. - There is no infirmity in the action of the respondents in issuing registration certificate in favour of the petitioner despite a subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by ARCIL and the full consideration had been paid by the petitioner and sale certificate had been issued by ARCIL. Thereafter, the petitioner had taken over the possession of the secured assets. It is the case of the petitioner that it had purchased only the secured assets of GSL (India) Limited and at the time when the petitioner purchased the secured assets of the company, there was no statutory liability upon the secured assets nor had any change been registered before any authority. The workers of GSL (India) Limited had filed Securitisation Appeal No.57 of 2011 before the Debt Recovery Tribunal under section 17 of the Securitisation Act claiming the amount of the workers dues, wherein the petitioner was also made party to the proceedings. The Debt Recovery Tribunal, after hearing the parties, refused to grant interim relief as prayed for by the workers. Being aggrieved, the workers had approached this High Court by way of a writ petition being Special Civil Application No.7652 of 2011, which was heard by a Division Bench of this court along with cognate matters and disposed of by a judgement and order dated 08.09.2011. As far as Special Civil Application No.7652 of 2011 is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondents should recover the outstanding dues from GSL (India) Limited. It is further the case of the petitioner that it has only purchased the secured assets and has not acquired the business by sale nor has it succeeded GSL (India) Limited in such business. That this is not a case of transfer of business or trade but transfer of property under compulsory sale through public auction by a financial institution in exercise of powers under the Securitisation Act and therefore, the proviso to section 11 of the Act cannot be attracted in the present case. Hence, the present petition. 4. Mr. B.T Rao, learned counsel for the petitioners assailed the impugned show cause notice whereby the respondents seek to revoke the licence issued to the petitioner, by submitting that the same is based upon the sale certificate issued by ARCIL and that the Central Excise registration of the petitioner is sought to be cancelled on the ground of breach of conditions of the sale certificate. It was submitted that once the licence has been issued, the respondents cannot cancel or revoke it when it has been issued on the application made by the petitioner in accordance with the provisions of law. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence it is not liable for any outstanding dues of GSL (I) Ltd. and that GSL (I) Ltd. has property of its own in Village Amletha from which recovery can be made by the respondents. It was submitted that the transaction in question was a transfer of assets of the company in default and not the business of the defaulter and thus cannot be brought within the purview of section 11 of the Act. It was, accordingly, contended that the impugned notice treating the petitioner as a successor of GSL (India) Limited and liable for the said Government dues is ex facie contrary to the provisions of the Act and illegal. 4.1 In support of his submissions, the learned counsel placed reliance upon the decision of this court in the case of Surat Metallics Ltd. and another v. Commissioner of Central Excise, Division-V and another, 2011 (2) GLR 1404, wherein the court had taken note of the fact that it was not the person from whom the amounts were recoverable or due, who had transferred the property in question to the petitioners therein. The property had been sold to the petitioners under the provisions of the Securitisation Act, by the Bank who was a secured creditor. Moreover, what had been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Strong reliance was placed upon the decision of the Supreme Court in the case of Rana Girders Limited v. Union of India and others, (2013) 10 SCC 746, for the proposition that liability of an auction purchaser to pay outstanding dues of Central Excise of the erstwhile owner arises only where the entire business is itself purchased as a going concern. Mere purchase of some of the properties of a person who had outstanding dues in respect of excise duty does not make the subsequent purchaser liable therefor, in the absence of specific provision in the statute creating first charge relating to the Government dues/excise dues over the said property and which charge binds the subsequent purchaser/transferee either at law or in equity. 4.5 Reliance was also placed upon the decision of this court in Kotak Mahindra Bank Ltd. v. District Magistrate, 2010 (3) GLH 472, wherein the court has observed that in the facts of the said case there was nothing on record to suggest that under the Central Excise Act, 1944 or rules framed thereunder priority of charge over the secured debt has been created. No such law had been brought on record to suggest that the Central Government has any first cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that therefore, the petitioner is liable to pay the central excise dues of GSL (India) Limited and accordingly demand notice had been issued on 09.01.2011. It was contended that as per section 11 of the Act the liabilities of the erstwhile owner are automatically transferred to the purchase and therefore, the petitioner is liable to pay the outstanding dues of GSL (India) Limited. It was submitted that the central excise registration of the erstwhile owner is still subsisting and hence, for the same premises another central excise registration cannot be granted and hence, the central excise registration granted to the petitioner is required to be cancelled. The attention of the court was drawn to paragraph 5 of the affidavit-in-reply filed on behalf of the respondents to submit that the petitioner does not comply with conditions No.1, 4 and 5 of the registration certificate as specified under rule 9 of the rules. 5.1 Referring to the decision of the Supreme Court in the case of Macson Marbles Pvt. Ltd. v. Union of India, 2003 (158) ELT 424 (SC), it was submitted that it has been held that rule 230(2) of the erstwhile Central Excise Rules, 1944 indicates that it is a mode of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, not be applicable to the facts of this case, in view of the fact that this case would be governed by the provisions of section 11E of the Act. 6. To appreciate the controversy involved in the present case, it may be germane to refer to the contents of the impugned show cause notice issued by the Assistant Commissioner, Central Excise Customs, Division-II, Ankleshwar. The notice says that the petitioner was issued Central Excise Registration Certificate by the Assistant Commissioner for operating as a manufacturer of excisable goods viz. Cotton Yarn subject to the conditions specified in the said registration certificate. The conditions have been detailed thereafter. It is further stated in paragraph 2 of the notice that the Central Excise Registration Certificate was issued to the petitioner based on facts only specified in their application and no verification of the factory premises was done before issuance of such certificate in terms of rule 9 of the Central Excise Rules 2002 and that post facto verification revealed that the petitioner had got registered with the department on the same premises on which GSL (India) Limited was already registered and that the plot ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and that as per the records available with the Department they have not filed ER-1 return from November 2011 till date and that on visit to the factory premises it was found to be closed. In paragraph 11 it has been stated that it appears that the petitioner has not complied with the Terms and Conditions annexed in Schedule-II of the Sale Certificate which strengthens the fact described by M/s GSL (I) Ltd. that sale was not held under proper environment against M/s. GSL(I) Ltd. and that M/s GSL (I) Ltd. has not surrendered their registration certificate for the premises in question and have many issues pending at different levels viz. audit, recovery and court cases as well as having balance Cenvat Credit of ₹ 1,51,41,309 in RG23A pt.II, ₹ 77,65,410/- in RG23A Pt.ii and ₹ 15,328/- in service tax credit. In paragraph 12 it is stated that the petitioner has acquired Central Excise Registration without being surrendered by M/s GSL (I) Ltd. on the same land/plot i.e. Survey No.353. As they have not started production and clearance of the goods for which they are registered with the Department and thereby contravened the provisions of Condition No.1 4 of Form RC ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be closed. Thus, it is apparent that immediately after issuance of the central excise registration certificate, action is sought to be taken on the ground of non-production and non-clearance of excisable goods, without granting any time to the petitioner to set up the establishment. The petitioner had purchased the assets of the defaulter company in the auction sale and had been issued sale certificate only on 2nd July, 2011 and central excise registration certificate on 18.10.2011. Therefore, the show cause notice insofar as the second ground is concerned appears to be rather hasty. In any case, if there is any default on the part of the petitioner insofar as compliance with the provisions of the Act and the rules framed thereunder, it is always open to the respondents to take appropriate action in that regard. Besides, from the averments made in the petition and the submissions advanced by the learned counsel for the parties, there does not appear to be any serious challenge to that part of the show cause notice. Adverting to the main ground for issuance of the show cause notice, viz. non compliance of the Terms and Conditions of Schedule II to the sale certificate issued by ARCI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of authorities and departments, statutory or otherwise, any other dues, if any, in respect of the Secured Assets/Borrower and if payable in law/attachable to the Secured Assets/sale proceeds by reason of the proposed sale of the Secured Assets, shall be the sole responsibility and to the account of the Purchaser. 9. On a plain reading of condition No.1 it is clear that what it provides is that the sale of the subject properties is along with all dues, encumbrances and liabilities. However, the same does not cast any obligation upon the petitioner to pay the outstanding dues of the erstwhile owner so as to constitute nonpayment of such dues to be a breach of such condition. Moreover, as noted hereinabove, the sale certificate constitutes a contract between ARCIL and the petitioner and does not create any right in favour of the respondents herein so as to enable them to take any action against the petitioner for breach of any condition. Condition No.7 is more in the nature of an indemnity clause, indemnifying ARCIL from any liability as enumerated therein. Therefore, it is not permissible to the respondents to resort to either of the two clauses for the purpose of suspension o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1963 ] (54 of 1963 ) to levy such duty or require the payment of such sums may deduct the amount so payable from any money owing to the person from whom such sums may be recoverable or due which may be in his hands or under his disposal or control, 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, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of recovery from the transferee such transferee shall be deemed to be the dealer liable to pay the tax or penalty or other amount under the Act. In the facts of the said case, the sale was made under section 29 of the State Financial Corporations Act, 1951. The court, on a careful reading of section 15(1) of the Karnataka Sales Tax Act, found that the consequences contemplated therein, namely, foisting of the liabilities of the defaulting transferor onto the transferee, would come into effect only if the ownership of the business is transferred. The court did not accept the contention on behalf of the revenue that business could not be separated from the assets of the business. The court held that business is an activity, directed with a certain purpose, more often towards producing income or profit. Ownership of assets is merely an incident rather than a characteristic of business. Hence, the mere transfer of one or more species of assets does not necessarily bring about the transfer of the ownership of the business for ownership of a business is much wider than mere ownership of discrete or individual assets. In fact, ownership of business is wider than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble goods, materials, preparations, plants, machineries, vessels, utensils, implements and articles in the custody or possession of the person so succeeding may also be attached and sold for recovery of such dues. Thus, under the proviso to section 11 of the Act, it is only the specified assets that can be attached and sold for recovery of the central excise dues of the predecessor but the purchaser is not deemed to be a defaulter. 18. In the aforesaid premises, it is evident that resort could not be made to the proviso to section 11 of the Act, inasmuch as, what has been transferred are the assets of the defaulting unit and not the business or trade. The above position has been further made clear by the Supreme Court in the case of Rana Girders Limited v. Union of India and others, (supra). In the facts of the said case, before the High Court, the Excise Department had contested the petition on the ground that the appellant therein being the successor-in-interest which had purchased the land and building as well as plant and machinery, was liable to make the payment having regard to the judgement of the Supreme Court in Macson's case. The appellant therein had argued that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o to section 11 of the Act is attracted, in which case the duty or other sums recoverable or due from the predecessor can be recovered from the purchaser. However, as noticed earlier, what has been purchased by the petitioner are the assets of the defaulter unit-GSL (India) Limited and not the business or trade in whole or part of the defaulter. In view of the decision of the Supreme Court in State of Karnataka v. Shreyas Papers (P) Ltd. (supra) foisting of liability of the defaulting transferor onto the transferee comes into effect only if the ownership of the business is transferred. As discussed hereinabove, the ownership of the business has not been transferred to the petitioner and consequently, pursuant to the sale of the assets of the defaulting unit, the petitioner is not rendered a successor in the business or trade in whole or in part of the defaulting unit and hence, the proviso to section 11 of the Act would not be attracted. 19.1 One of the grounds stated in the show cause notice is that GSL (India) Limited has already been granted central excise registration in respect of the same premises and hence, the petitioner could not have been granted central excise registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son get registered in respect of that premises. However, on behalf of the petitioners, reliance had been placed upon a decision of the Bombay High Court in the case of Tata Metalliks Ltd. vs. Union of India and others, 2009 (234) E.L.T. 596 (Bom.) wherein the Court after considering the provisions of section 6 of the Act, Rule 9 of the Central Excise Rules, and the notification issued thereunder, has interalia held thus: 7. A perusal of Section 6 makes it absolutely clear that who has to be registered is the prescribed person. Under the rules also, it is the person who has to get registered. The notification in Clause (2) only sets out that if such registered person has more than one premises, then each of such separate premises would require registration certificate for each of such premises. In other words, it is the person who has to obtain separate registration certificate for each of the said premises. It is open to a person who has ceased to carry on the business to apply for deregistration. Would that mean in the absence of the person who has closed or sold the business or premises, applying for deregistration, there is no jurisdiction to grant another person registrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, the said issue stands squarely covered by the aforesaid decision. Under the circumstances, for the reasons stated therein as reproduced hereinabove, the respondents are not justified in seeking to cancel the registration granted in favour of the petitioner on the ground that in respect of the same premises two units cannot be registered. 20. In the opinion of this court, there is no infirmity in the action of the respondents in issuing registration certificate in favour of the petitioner despite a subsisting registration certificate in favour of GSL (India) Limited. Consequently, the said ground stated in the show cause notice is misconceived and does not merit acceptance. 21. In the light of the above discussion, it is apparent that the proviso to section 11 of the Act could not have been invoked by the respondents in the facts of the present case. Under the circumstances, the demand raised by the respondents for the outstanding central excise dues of GSL (India) Limited being contrary to the provisions of section 11 of the Act as well as the show cause notice dated 23.02.2012 to the extent the same calls upon the petitioner to show cause as to why its central excis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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