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2015 (9) TMI 1594 - HC - CustomsDetention of property - property in the nature of a factory with plant and machinery - order of attachment - recovery of outstanding dues of the Customs Department - liability of last owner - The main grounds raised in the petition are that the authorities have no power under Section 142(1) of the Customs Act to take any such action. The action is otherwise arbitrary and violative of Articles 14 and 19(1)(g) of the Constitution. The property was purchased by the petitioner by paying full sale consideration which was executed by the receiver appointed by DRT. The petitioner is therefore not liable to discharge any liabilities of the past owner. Held that - there is fair amount of commonality in the persons representing the erstwhile owner company and the present petitioner company. We may recall that the present sale deed was executed between the said two entities. One Shri Suresh Ramnani is shown to be an additional Director of the erstwhile company who of course ceased to be as such w.e.f. 30-3-2011. Ms. Kajal Suresh Ramnani wife of Suresh Ramani is one of the subscriber of the petitioner company. Mr. Suresh Ramnani himself is also one of the subscribers. It is also pointed out that one Mr. Prem V. Ramnani was the Director of the erstwhile company as well as the subscriber of the present company. Another person Mr. Vishandas Ramnani who is also the subscriber of the petitioner company has shown the same address as Mr. Suresh Ramnani Additional Director of the erstwhile company. Even though therefore being legal entities we may not employ the principle of lifting of the veil and treat both the companies as a clock of each other their transaction must be seen with the degree of circumspection. There cannot be prospective dues of the outstanding taxes. It must refer to the period anterior to the date of execution of the sale deed. Even on this count the petitioner cannot escape the liability to be answerable to the Customs Department for the past dues of the erstwhile owner. The contention of the petitioner that the petitioner agreed to discharge only the liabilities arising after the date of the sale deed is not in consonance with the language used in Clause 3 of Para 15 of the sale deed. Before Section 11E was added to the Central Excise Act the view prevailing as propounded by the Supreme Court was that in absence of any statutory recognition of a prior charge dues of the Customs or the Central Excise Department would not prevail over the dues of the secured creditors. Section 11E of the Central Excise Act now provided that the dues of the department will have priority over the case of the secured creditors. Departmental dues would not have priority over the dues of the secured creditor. The question of applicability of Section 11E in the present case certainly would have been one of the issues to be tackled. In this context the question would immediately arise whether in view of Rule 9 of the Customs (Attachment) Rules in face of the attachment imposed by the Customs Department the property could have been sold at all - However when purchaser itself as noted agreed to discharge such dues this question bales into insignificance. There was no serious delay on part of the department so as to defeat public deeds. The subsequent owner had agreed to discharge the dues of the erstwhile owner the question whether it was the property of the business which was sold need not be gone into - petition dismissed - decided against petitioner.
Issues Involved:
1. Validity of Customs Department's action under Section 142(1) of the Customs Act. 2. Allegation of delay in initiating action by the Customs Department. 3. Arbitrary targeting of the petitioner's property by the Customs Department. 4. Legality of detaining movable and immovable property under Section 142(1)(b) and (c) of the Customs Act. 5. Priority of customs dues over secured creditors' dues. Issue-wise Detailed Analysis: 1. Validity of Customs Department's action under Section 142(1) of the Customs Act: The petitioner challenged the action taken by the Assistant Commissioner of Customs, Bhuj, recorded in the panchnama dated 26-7-2012, which placed a factory with plant and machinery under detention for outstanding customs dues. The petitioner argued that the authorities had no power under Section 142(1) of the Customs Act to take such action and that the action was arbitrary and violative of Articles 14 and 19(1)(g) of the Constitution. The Customs Department contended that the sale deed contained a clause that the purchaser would discharge the outstanding liabilities, and the property was under attachment since 2008. 2. Allegation of delay in initiating action by the Customs Department: The petitioner argued that there was a gross delay in initiating action, as the dues were pending since 2007, and the action was taken only in 2012. The Customs Department countered that there was no delay, as the attachment order was passed in 2008, and the property was sold privately despite the attachment. The Department had filed an application before the Debt Recovery Tribunal (DRT) to be joined as a party to raise objections. 3. Arbitrary targeting of the petitioner's property by the Customs Department: The petitioner contended that no steps were taken against the principal defaulter or other properties of the company, and selectively targeting the petitioner's property was arbitrary. The Customs Department argued that the sale was not executed under the Securitization Act or by the Court but was a private sale, and the question of priority of secured creditors did not arise. 4. Legality of detaining movable and immovable property under Section 142(1)(b) and (c) of the Customs Act: The petitioner contended that under Section 142(1)(b) of the Customs Act, there was no power to detain the movable and immovable property. The Customs Department argued that the sale was void under Rule 9 of the Customs (Attachment) Rules, and the property was under attachment since 2008. The petitioner had agreed to discharge all outstanding liabilities, including government dues, as per the sale deed. 5. Priority of customs dues over secured creditors' dues: The petitioner argued that customs dues could not have an overriding effect over the dues of secured creditors, relying on previous court decisions. The Customs Department countered that Section 11E of the Central Excise Act, applicable to customs dues by virtue of Section 129E of the Customs Act, provided that the Department's dues had priority over secured creditors' dues. Conclusion: The Court found that the sale deed executed between the entities had a clause where the purchaser agreed to discharge all outstanding liabilities, including government dues. The Court noted the commonality between the persons representing the erstwhile owner company and the present petitioner company, raising suspicion about the transaction. The Court dismissed the petition, holding that the Customs Department's action was lawful, and the petitioner was liable to discharge the outstanding dues of the erstwhile owner. The Court also held that there was no significant delay on the part of the Department, and the sale was not executed through a public auction or a formal decree of the Tribunal. The petition was dismissed, and interim relief was vacated.
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