TMI Blog2015 (11) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness" is much wider than mere ownership of discrete or individual assets. In fact, "ownership of business" is wider than the sum of the ownership of a business’ constituent assets. Above all, transfer of "ownership of business" requires that the business be sold as a going concern. The court was of the view that section 15(1) was intended to operate only when there is complete transfer of "ownership of business" so as to render the transferee as a successor-in-interest of the transferor. Only in such an eventuality does section 15(1) make the transferee liable for the transferor’s sales tax liabilities. The proviso to section 11 of the Act clearly provides that the dues of the defaulter can be recovered from the person who succeeds in such business or trade of the defaulter. Evidently therefore, a pre-requisite for exercise of powers under the proviso to section 11 of the Act is that the successor should have purchased the business or trade of such person. As held by the Supreme Court in the above decision, the business is an activity, directed with a certain purpose, more often towards producing income or profit. Hence, the mere transfer of one or more species of assets does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince the properties of the defaulter unit had already been disposed of prior to the insertion of section 11E of the Act, no charge can be said to be created on the properties in question so as to enable the respondents to invoke section 11E of the Act. - Once the properties are sold prior to the insertion of section 11E of the Act, the said provision would not act retrospectively to cover properties which are no longer the properties of the assessee or other person. The provisions of section 11E of the Act would, therefore, have no applicability to the facts of the present case. Stand adopted by the respondent authorities is that unless the earlier registration is surrendered and cancelled and outstanding dues of the Government are paid, the fresh registration for the same premises cannot be issued. As held hereinabove, insofar as payment of outstanding dues of the Government is concerned, the unit has not been sold as a going concern and hence, the question of invoking the proviso to section 11 of the Act would not arise. The question as to whether fresh registration can be given to the petitioner despite the fact that the earlier registration has not been surrendered stands co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner firm to manufacture excisable goods in their factory. The Central Excise Registration Certificate has been given for plots No.4702, 4703, 4604 and 4605 of Plastic Zone in GIDC, Sarigam. The petitioner firm has been manufacturing excisable goods and removing such goods from their factory on payment of excise duties and also on following the central excise procedure prescribed under the said Act and the rules framed thereunder. The petitioner firm has purchased one more plot No.4705 at Plastic Zone, GIDC, Sarigam (hereinafter referred to as the subject plot ), from one M/s Poonam Enterprise, however, the central excise authorities are refusing to add this plot in the Central Excise Registration Certificate of the petitioner firm. Being aggrieved the petitioner has filed the present petition. 3. It is the case of the petitioners that the subject plot was leased out by Gujarat Industrial Development Corporation (GIDC), Vapi under a lease deed dated 22.01.1992 to one M/s Nakhua Poly Containers Pvt. Ltd. and M/s Nakhua was also put in possession thereof. It appears that M/s Nakhua had borrowed funds from Gujarat Industrial Investment Corporation (GIIC); however, since M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Assistant Commissioner also informed the petitioner firm that a fresh registration for the premises could not be issued unless the earlier registration was surrendered and cancelled and outstanding government dues were paid. The Assistant Commissioner, by this letter, also directed the Range Superintendent to take necessary action for recovery of government dues by way of attachment of the petitioner s properties. Upon receiving the letter, the Superintendent of Central Excise also issued a letter dated 02.03.2012 requesting the petitioner firm to pay up outstanding government dues of M/s Nakhua. 4. The petitioner firm, therefore, filed a detailed letter/representation dated 10.03.2012 before the Assistant Commissioner of Central Excise as well as the Superintendent of Central Excise, and requested these officers not to initiate any action of recovery against the petitioner firm and also to add this plot in the petitioner s registration certificate because outstanding dues of M/s Nakhua could not have been recovered from the petitioner firm in the facts of this case. The petitioner firm also referred to the facts as to how the plot was purchased by the petitioner firm and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Enterprises and not with the petitioner. It was submitted that for the purpose of seeking to recover the dues of M/s Poonam Enterprises from the petitioner, the respondents have to establish their right to recover such amount from the petitioner under section 11 of the Act. The attention of the court was invited to the order dated 22.05.1998 annexed along with the further affidavit-in-reply of the respondents No.2 and 3, to point out that the defaults of the assessee were between the period 1998 and 2005, whereas the GIIC sold the property in question in the year 2009. It was submitted that for the period between 2003 to 2009, the respondents could have taken steps to recover the outstanding amounts from M/s Nakhua Poly Containers Pvt. Ltd. and from 2009 to 2011, when M/s Poonam Enterprises was in occupation of the premises, the respondents could have taken any steps to recover the outstanding amounts of M/s Nakhua Poly Containers Pvt. Ltd from it. It was pointed out that the petitioner came into picture only in the year 2011 and it was only when the petitioner made an application for registration, that in the year 2012, the respondents wrote to the petitioner seeking to reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein the court has held that the lapse of period in seeking to recover the dues of the erstwhile unit from the auction purchaser, namely, the petitioner, is certainly not a reasonable time for exercise of powers, even if it is not hedged in by a period of limitation. Reliance was also placed upon the decision of this court in the case of Valley Velvet P. Ltd. v. Union of India, 2008 (222) ELT 352 (Guj.), wherein the court has observed that in the facts of the said case, the respondents had sought to initiate recovery of dues of erstwhile unit from the petitioners therein after a delay of ten years. The court expressed the view that the respondents cannot sit on the fence and allow equities to be created in favour of third parties and then, seek to recover excise duty liabilities of erstwhile unit from an unwary, unsuspecting buyer, as otherwise it would be putting premium on their own default. The authorities cannot be permitted to wake up from their slumber and take shelter behind the amended provisions of the Act, that too, an amendment which has been brought on statute book, several years after the assets in question have been transferred. The court had held that the action o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue in the case of M/s Manibhadra Processors (supra) or the instances we have cited above. The respondent No.3 has therefore, clearly acted without jurisdiction in refusing to grant registration on the specious plea that M/s Usha Ispat whose assets has been sold and purchased by the petitioners has not applied for deregistration. In the absence of a specific power to deny registration, the alternate would be whether there would be implied power. Neither section 6 or rule 9 or for that matter the notification confers such power. The right of revenue however, would subsist for recovery of dues both against the defaulter or the transferee if the predicates for recovery are met. An incidental aspect of the matter would be if the licence is for a particular period, on expiry of that period, the registration certificate would cease to be operative. In such cases, there would be no question of cancelling the certificate of registration. It was, accordingly, urged that the refusal to grant registration is clearly without any authority of law. In conclusion, it was submitted that the petition deserves to be allowed by granting the reliefs prayed for in the petition. 6. Opposing the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner M/s Laxmi Fab Industries, to point out that it has been specifically stated therein that the GIIC had approved of the proposal for the purchase of land and building and the plant and machinery of the loanee company on the terms and conditions stipulated in the letter dated 24.06.2008 issued to the bidder by the vendor. Reference was made to the impugned order dated 29.02.2012, to point out that the reason for declining the registration to the petitioner was that at the time of auction and handing over the possession of assets, the GIIC had imposed a condition under section 29 of the State Financial Corporation Act, 1951 vide letters dated 04.08.2007 and 05.10.2007, to the effect that the purchaser shall be liable for payment of dues, taxes etc. of the Central Government and Central Government Department and other local bodies, payable if any, in respect of the assets/properties under sale; that the purchaser will be liable to pay all dues in respect of assets/properties purchased or in respect of business, production, etc. of the unit/person whose assets/properties are under sale; and that the sale of assets/properties shall be subject to the right of the Central Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of sums due to Government, and clause (b) of sub-section (1) thereof provides that where any sum payable by any person under the Act is not paid, the Assistant Commissioner of Customs or Deputy Commissioner of Customs may recover or may require any other officer of customs to recover the amount so payable by detaining and selling any goods belonging to such person which are under the control of the Assistant Commissioner of Customs or Deputy Commissioner of Customs or such other officer of customs. It was submitted that under the agreement with GIIC, the purchaser has become liable to pay the Government dues and accordingly, it is permissible for the respondent authorities to resort to the provisions of section 142 of the Customs Act for recovery of the outstanding amounts due and payable by the petitioner in view of the fact that it has purchased the property on which the Central Government had a charge. 7. In rejoinder, Mr. Paritosh Gupta, learned advocate for Mr. Paresh Dave, learned advocate for the petitioner submitted that section 142 of the Customs Act uses the expression under the Act . Under the circumstances, what the section permits is to recover any sum payable b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs P. Ltd. had borrowed funds from GIIC and could not repay the loan and advances and consequently, GIIC took over the said plot No.4705 from M/s Nakhua Poly Containers P. Ltd. in exercise of powers under section 29 of the State Financial Corporations Act, 1951. It appears that thereafter GIIC by a letter dated 4th August, 2007 sought permission for sale of the property in question from the Central Excise authorities, pursuant to which, by a letter dated 27.08.2007, the Assistant Commissioner, Central Excise Customs informed GIIC that since Government dues of ₹ 12,84,029/- as detailed therein are pending recovery against M/s Nakhua Poly Containers P. Ltd. and GIIC has taken over possession of its unit, it may proceed for sale of the unit under section 29 of the State Financial Corporations Act, 1951 subject to realisation of the said outstanding Government dues on priority from the sale proceed of the unit. In response to the said letter GIIC by a communication dated 5th October, 2007 informed the Assistant Commissioner that the contention of the Excise Department is not tenable and that excise dues payable by the Government have been accorded no priority under the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .02.2012 the petitioner was informed that there are outstanding dues amounting to ₹ 12,84,023 plus interest against M/s Nakhua Poly Containers Pvt. Ltd. and that the unit is closed and has not surrendered its Central Excise Registration. That at the time of handing over the possession of the plot, GIIC had imposed the above referred condition under section 29 of the SEC Act, 1951. The application has, accordingly, been rejected on the above grounds. 11. Thereafter, the Superintendent, Central Excise and Customs addressed a communication dated 02.03.2012 to the petitioner requesting it to pay the outstanding Government dues of ₹ 12,84,023 plus interest failing which action would be initiated for recovery under the provisions of the Central Excise Act/Rules. In response thereto, the petitioner disputed its liability and questioned the conduct of the Department in not seeking to recover the amount from M/s Poonam Enterprise and waiting this long to recover the amount. In reply, by a communication dated 16.3.2012 the Department invited the petitioner s attention to Para-5 of Trade Notice No.45/2004 issued by Madurai-2 Commissionerate wherein it is stipulated that: I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral Board of Excise and Customs, after obtaining written approval from the 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. 13. A careful reading of the proviso to section 11 of the Act shows that the consequences contemplated therein, namely, enabling the officer so empowered by the Central Board of Excise and Customs to attach and sell the goods specified therein purchased by the transferee for recovering the duty or other sums recoverable or due from the defaulting predecessor at the time of such transfer, would come into effect only if the defaulter 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 the transferee. 14. In this regard the facts as emerging from the record reveal that GIIC had, in exercise of powers under section 29 of the State Financial Corporations Act, 1951, taken over the possession of mortgaged and hypothecated properties of M/s Nakhua Poly Containers P. Ltd. being l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncident 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 sum of the ownership of a business constituent assets. Above all, transfer of ownership of business requires that the business be sold as a going concern. The court was of the view that section 15(1) was intended to operate only when there is complete transfer of ownership of business so as to render the transferee as a successor-in-interest of the transferor. Only in such an eventuality does section 15(1) make the transferee liable for the transferor s sales tax liabilities. 16. In the opinion of this court, the above decision would be squarely applicable to the facts of the present case, inasmuch as, in the present case also, the transfer is only of the assets and not of a going concern. The proviso to section 11 of the Act clearly provides that the dues of the defaulter can be recovered from the person who succeeds in such business or trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-ininterest 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 since the appellant had not purchased the entire unit of the principal borrower, the judgement of Macson case was not applicable and that on the contrary, it is the law laid down in Union of India v. SICOM Ltd., (2009) 2 SCC 121, the ratio whereof was attracted. It was argued that Macson case was specifically distinguished by the Supreme Court in SICOM Ltd. case, holding that Macson case would be applicable only in transfer of ownership of business i.e. when there is a sale of business as an ongoing concern and not in case of mere transfer of its specified assets. The High Court after referring to the stipulations in the sale deed to the effect that the statutory liabilities arising out of the property shall be borne by the vendee, was of the view that these covenants prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in title, the sale being of the assets of the defaulter unit and not a going concern, it is not permissible for the respondents to seek to recover the outstanding dues of M/s Nakhua Poly Containers P. Ltd. from the petitioners. 19. As to whether the action of the respondents in seeking to recover the central excise dues of the erstwhile unit from the petitioner is grossly delayed, as noticed earlier, the defaults of the assessee were between 1998 and 2005, whereas GIIC sold the property in question to M/s Poonam Enterprise in the year 2009. Thus, right from 1998 to 2005 and till the year 2009, the respondents did not take any steps for recovering the outstanding dues of the defaulter unit. At the relevant time the Central Excise authorities were well aware of the sale as is apparent from the fact that GIIC had informed them as early as in August 2007 about their intention to sell the assets of the defaulter unit. However, no action was sought to be taken for recovery of the outstanding dues, either from the defaulter unit or from M/s Poonam Enterprise. M/s Poonam Enterprise continued to hold the assets for a period of about two years, during which period also no action was ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny amount of duty, penalty, interest, or any other sum payable by an assessee or any other person under the Act or the rules made thereunder, shall save as otherwise provided in section 529A of the Companies Act, 1956, the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 be the first charge on the property of the assessee or the person as the case may be. Thus, section 11E of the Act creates a charge on the property of the assessee or any other person liable to pay any sum by way of duty, penalty, interest, etc. In the present case, the recovery is sought to be made from the petitioner not in respect of any of its dues, but the dues of the erstwhile defaulter. When the assets of the defaulter unit came to be sold to M/s Poonam Enterprise by GIIC, section 11E of the Act had not been brought on the statute book and, therefore, crown debts did not have any priority over the claims of the secured creditors. The properties of the defaulter unit came to be sold to M/s Poonam Enterprise by way of auction sale in the year 2009 and accordingly ceased to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such premises; clause (4) thereof which says that where a registered person transfers his business to another person, the transferee shall get himself registered afresh as well as clauses (6) and (7) thereof which provide for de-registration and revocation or suspension of registration, to submit that on a conjoint reading of the said clauses it is apparent that unless registration in relation to the same premises granted to another person is revoked, no registration can be granted to another person in respect of the same unit as two persons cannot be simultaneously registered in respect of the same premises. In support of the said contention, the learned counsel had placed reliance upon a decision of the Bombay High Court in the case of Manibhadra Processors vs. Additional Commissioner of Central Excise (supra) wherein it has been held that one and the same premises cannot be registered in the name of two different persons. That the person holding earlier registration certificate must surrender registration certificate in respect of that premises, then only can a new person get registered in respect of that premises. However, on behalf of the petitioners, reliance had been place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 or Rule 9 or for that matter the notification confers such power. The right of revenue, however, would subsist for recovery of dues both against the defaulter or the transferee if the predicates for recovery are met. An incidental aspect of the matter would be if the licence is for a particular period, on expiry of that period, the registration certificate would cease to be operative. In such cases, there would be no question of cancelling the certificate of registration. 29. This Court is in agreement with the aforesaid view expressed by the Bombay High Court and as such, is of the opinion that merely because the defaulter unit, though it had ceased to carry on business on the premises in question, had failed to apply for deregistration, the same should not, in any manner, come in the way of the petitioners in obtaining central excise registration in respect of the premises in question. The stand adopted by the respondent authority that in respect of the same premises, two persons cannot be registered being contrary to the provisions of law, cannot be accepted. 22. As can be seen from the impugned order dated 29.02.2012, the stand adopted by the respondent authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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