Navjeevan Industries V. Union of India & Others

CW/9905/2007

AI Insights

M/s. Navjeevan Industries filed a writ petition challenging the recovery notices issued for excise dues of M/s. Pinkcity Leminart (P) Ltd., which the petitioner had acquired through an auction. The petitioner argued that the recovery notices were not sustainable as they did not succeed to the business or trade of the predecessor but only purchased the assets. The respondents contended that under Section 11 of the Central Excise Act, 1944, the successor is liable for the dues of the predecessor. The court examined the applicability of Section 11 and relevant case law, ultimately deciding in favor of the respondents.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 811979 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 07-12-2011
• Assessment Year: misc
• Other Referred Cases: M/s. Mascon Marbles P. Ltd. Vs. Union of India, Dena Bank Vs. Bhikabhai Prabhudas Parekh & Co. and Others, State of Karnataka and Another Vs. Shreyas Papers(P) Ltd. and Others, Macson Marbles Pvt. Ltd. Vs. Union of India, Bank of Bihar v. State of Bihar, Collector of Aurangabad v. Central Bank of India
• Laws Referred To: Central Excise Act, 1944, SFC Act, 1951, Karnataka Sales Act, 1957
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: AJAY SHUKLA; SONAL SINGH
• Assessee Lawyers: AMIT JINDAL
• Keywords: Auction purchase; Central Excise Duty; Indemnity; Recovery notices; Successor Liability
• Section: 11; 29; 230(2)

Judgement Text

"1 D.B. CIVIL WRIT PETITION NO. 9905/2007 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN JAIPUR BENCH, JAIPUR D.B. CIVIL WRIT PETITION NO. 9905/2007 M/S. NAVJEEVAN INDUSTRIES VS. UNION OF INDIA & OTHERS. DATE: 07.12.2011 HON'BLE THE CHIEF JUSTICE MR. ARUN MISHRA HON'BLE MR. JUSTICE NARENDRA KUMAR JAIN-I Mr. Amit Jindal on behalf of Mr. S.K. Jindal, for the petitioner. Mr. Ajay Shukla, for Respondent Nos. 1 to 3. Ms. Sonal Singh on behalf of Mr. G.C. Garg, for Respondent No. 4 and 5. BY THE COURT The writ petition has been filed by the petitioner, M/s. Navjeevan Industries praying for the relief to quash impugned recovery notices dated 17.03.2006, 12.05.2006, 01.08.2006, 23.08.2006 and 10.04.2007. 2. Petitioner has submitted that recovery notices issued are not sustainable; provisions of Section 11 of the Central Excise Act, 1944(hereinafter referred to as 'the Act of 1944') are not attracted in the case of the petitioner, as the petitioner had not succeeded to the business or trade of M/s. Pinkcity Leminart(P) Ltd. within the meaning of Section 11 of the Act of 1944. Inasmuch as, the petitioner had purchased the land and building of M/s. Pinkcity Leminart(P) Ltd. in auction from Rajasthan Financial Corporation. Rajasthan Financial Corporation cannot be regarded as person succeeding the business or trade of predecessor. He further submitted 2 D.B. CIVIL WRIT PETITION NO. 9905/2007 that it is only in the case of transfer of ownership of running business, all existing liability of the predecessor could have been fastened upon the purchaser, not otherwise. 3. It is further averred that the petitioner purchased the property of M/s. Pinkcity Leminart (P) Ltd. in pursuance of advertisement issued for auction of property of M/s. Pinkcity Leminart(P) Ltd., which was conducted on 21.02.2005. The petitioner was the highest bidder and paid sale consideration of Rs. 34,51,000/- to Rajasthan Financial Corporation on 28.03.2005; Deed of Conveyance was registered at the office of Sub-Registrar, Kekri, District Ajmer. Respondent No. 3 issued recovery notice dated 17.03.2006 in which it was mentioned that a sum of Rs. 4,60,000/- along with interest was due from M/s. Pinkcity Leminart and as per decisions rendered by Hon’ble Apex Court in M/s. Mascon Marbles P. Ltd. Vs. Union of India, [2003(158) ELT424(NULL)] and Dena Bank Vs. Bhikabhai Prabhudas Parekh & Co. and Others, [(2000) 5 SCC 694], the successor is liable to pay the dues of the predecessor. Repeatedly, recovery notices had been issued. The petitioner served a notice for demand of justice. Having failed to secure the relief, present writ petition has been preferred. 4. In the reply filed by Respondent Nos. 1 to 3, it is contended that the successor is liable to deposit the dues in view of the provisions of Section 11 of the Act of 1944 and the rules framed thereunder. The petitioner has rightly been 3 D.B. CIVIL WRIT PETITION NO. 9905/2007 issued notices to deposit the amount due on account of Central Excise duty. The action of the respondents is in accordance with law and as per the proviso, which has been added to Section 11 of the Act of 1944 vide Finance Act, 2004. 5. In the reply filed by Respondent Nos. 4 and 5 it is contended that fixed assets i.e. land, building, plant, machinery and furniture of M/s. Pinkcity Leminart(P) Ltd. were sold on “as is where is” basis; the petitioner had agreed to keep indemnified the Corporation from and against the payment of the said rent dues and observance and performance of the said covenants and conditions and all actions, claims and demands whatsoever for or on account of the same raised by the lessor in respect of the said lease hold land or in any way relating thereto. The Rajasthan Financial Corporation had only transferred by way of sale assets of M/s. Pinkcity Leminart under the provisions of Section 29 of the SFC Act, 1951 and it, being a secured creditor, has the right to recover its dues by auction of the property of the mortgagor. 6. Mr. Amit Jindal, counsel appearing on behalf of the petitioner has submitted that only in case of transfer of ownership of business, the liability to pay the dues of predecessor is attracted. Since in the instant case, running business has not been purchased by the petitioner and the sale of removable assets has only been made by Rajasthan Financial Corporation, the liability could not have been fastened upon the petitioner. He has placed reliance on decision of the 4 D.B. CIVIL WRIT PETITION NO. 9905/2007 Hon’ble Apex Court rendered in the case of State of Karnataka and Another Vs. Shreyas Papers(P) Ltd. and Others, reported in (2006) 1 SCC 615, which is in context of Karnataka Sales Act, 1957. 7. Per contra, Mr. Ajay Shukla, counsel appearing on behalf of Respondent Nos. 1 to 3 submitted that action is in accordance with law. He has relied upon decisions rendered by the Hon’ble Apex Court in the cases of Macson Marbles Pvt. Ltd. Vs. Union of India(UOI), 2003(158) ELT424(NULL) and Dena Bank Vs. Bhikhabhai Prabhudas Parekh & Co. and Others, (2000) 5 SCC 694. 8. Section 11 of the Act of 1944 provides for recovery of sums due to Government by attachment and sale of excisable goods belonging to such person; and if the amount payable is not so recovered, the concerned officer 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. In case a person, from whom duty or any other amount is due, transfers or otherwise disposes of his business or trade in whole or in part, or effects any change in the ownership thereof, the proviso added to Section 11 of the Act of 1944 makes it clear that 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 by such officer empowered by the Central Board of Excise and 5 D.B. CIVIL WRIT PETITION NO. 9905/2007 Customs. 9. Provisions of Section 11 of the Act of 1944 and Rule 230(2) of the Central Excise Rules clearly provide for mode of recovery of the excise dues, have been considered by the Hon’ble Apex Court in Macson Marbles Pvt. Ltd.’s case (supra). The arguments advanced by the appellant in that case, that sale having taken place under the State Act free of encumbrances and the transferor's rights or liabilities cannot be that of transferee, has not been accepted by the Hon'ble Apex Court and it has been laid down that Section 29(2) of the State Act makes it clear that the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation can be brought to sale and such a sale, if resulted in transfer of property, shall vest in the successor all rights in the property transferred, as if the transfer has been made by the 'owner' of the property. The Hon'ble Apex Court further held that when sale made by the Corporation is deemed to be a sale made by the owner of the property, provisions of Rule 230(2) of the Central Excise Rules would be attracted and recovery of dues can be made even from the successor. The argument, that State Act being special enactment would prevail over the Central Excise Act, was also not accepted. Hon'ble Apex Court in Para Nos. 5, 6 and 7 considered the provisions of Section 11 of the Act of 1944 and Rule 230(2) of the Central Excise Rules thus: “5. In this case the liability arises under the Central Excise Act and Rule 230(2) of the Central Excise Rules. The said Rule clearly indicates that it is a mode of recovery of the 6 D.B. CIVIL WRIT PETITION NO. 9905/2007 excise dues from the assets owned by a predecessor and on his liabilities being assessed could be recovered even from the successor. 6. The argument advanced by the appellant that sale having taken place under the State Act free of encumbrances and the transferor’s rights or liabilities cannot be that of transferee does not hold good. Section 29(2) of the State Act makes it clear that the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation can be brought to sale and such a sale if resulted in transfer of property shall vest in the successor all rights in the property transferred as if the transfer has been made by the owner of the property. When sale made by the corporation is deemed to be a sale made by the owner of the property, necessarily Rule 230(2) of the Central Excise Rules would be attracted. 7. We are not impressed with the argument that the State Act is a special enactment and the same would prevail over the Central Excise Act. Each of them is a special enactment and unless in the operation of the same any conflict arises this aspect need not be examined. In this case no such conflict arises between the corporation and the Excise Department. Hence it is unnecessary to examine this aspect of the matter.” 10. In Dena Bank’s case(supra), Hon'ble Apex Court held that Crown's preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors. The scope of Karnataka Sales Tax Act, 1957 was also considered by the Hon'ble Apex Court in Para Nos. 10, 15 and 19, which read thus: “10. However, the Crown’s preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience(as applicable to India) do not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor. It is only in cases where the Crown’s 7 D.B. CIVIL WRIT PETITION NO. 9905/2007 right and that of the subject meet at one and the same time that the Crown is in general preferred. Where the right of the subject is complete and perfect before that of the King commences, the rule does not apply, for there is no point of time at which the two rights are at conflict, nor can there be a question which of the two ought to prevail in a case where one, that of the subject, has prevailed already. In Giles v. Grover (1832) 131 ER 563 it has been held that the Crown has no precedence over a pledgee of goods. In Bank of Bihar v. State of Bihar (1972) 3 SCC 196 the principle has been recognised by this Court holding that the rights of the pawnee who has parted with money in favour of the pawnor on the security of the goods cannot be extinguished even by lawful seizure of goods by making money available to other creditors of the pawnor without the claim of the pawnee being first fully satisfied. Rashbehary Ghose states in Law of Mortgage(TLL, 7th Edn., p. 386)-“It seems a government debt in India is not entitled to precedence over a prior secured debt.” 15. We have seen that the common law doctrine of priority of Crown debts would not extend to providing preference to Crown debts over secured private debts. It was submitted by the learned counsel for the appellant that under the Karnataka Land Revenue Act as also under the Karnataka Sales Act the arrears of sales tax do not become arrears of land revenue; they have been declared merely to be recoverable as arrears of land revenue. Relying on the observations of this Court in Builders Supply Corpn. Case vide para 28, the learned counsel for the appellant submitted that the appellant being a secured creditor the arrears of sales tax could not have preference over the rights of the appellant. It is true that the Constitution Bench has in Builders Supply Corpn. Case observed by reference to Section 46(2) of the Income Tax Act, 1922 that that provision does not deal with the doctrine of the priority of Crown debts at all; it merely provides for the recovery of the arrears of tax due from an assessee as if it were an arrear of land revenue which provision cannot be said to convert arrears of tax into arrears of land revenue either. The submission so made by the learned counsel omits to take into consideration the impact of Section 158(1) of the Karnataka Land Revenue Act which 8 D.B. CIVIL WRIT PETITION NO. 9905/2007 specifically provides that the claim of the State Government to any moneys recoverable under the provisions of Chapter XIV shall have precedence over any other debt, demand or claim whatsoever including in respect of mortgage. Section 158 of the Karnataka Land Revenue Act not only gives a statutory recognition to the doctrine of the State’s priority for recovery of debts but also extends its applicability over private debts forming the subject-matter of mortgage, judgment-decree, execution or attachment and the like. In Collector of Aurangabad v. Central Bank of India the provisions of the Hyderabad Land Revenue Act and the Hyderabad General Sales Tax Act had come up for consideration of this Court. This Court had refused to grant primacy to the dues on account of sales tax over secured debt in favour of the Bank. A perusal of the relevant statutory provisions quoted in the judgment goes to show that any provision pari materia with the one contained in Section 158 of the Karnataka Land Revenue Act was not to be found in any of the local Acts under consideration of this Court in Collector of Auragabad v. Central Bank of India. The effect of Section 190 is to make the procedure for recovery of arrears of land revenue applicable for recovery of sales tax arrears. The effect of Section 158 is to accord a primacy to all the moneys recoverable under Chapter XIV, which will include sales tax arrears. 19. However, this principle would have no applicability if there be a statutory provision to the contrary. In the case of Radhakrishan (1979) 2 SCC 249 vide para 7 itself, this Court observed:(SCC p. 253) “It may be noted that Section 276(d) of the Income Tax Act specifically includes all partners within the definition of the word ‘firm’ and a company includes directors. In Bombay Sales Tax Act, 1959 under Section 18 it is specifically provided that where any firm is liable to pay tax under the Act, the firm and each of the partners of the firm shall be jointly and severally liable for such payment. In the absence of a specific provision as found in Section 18 of the Bombay Act the partners of the firm cannot be held liable for the tax assessed on the firm.” 11. Coming to auction notice, subject to which the 9 D.B. CIVIL WRIT PETITION NO. 9905/2007 tenders were invited, Clause 18 of the conditions of auction provides that all the dues relating to State Electricity Board, State Commercial Taxes Department, State Excise etc. are not to be paid by the purchaser. It has not been mentioned that the liability to pay the outstanding dues of Central Excise is also exempted. Even terms of the notice inviting tenders goes against the petitioner. Therefore, it is to be held that dues of the Central Excise have to be paid by the purchaser and they were not excluded in the conditions subject to which auction was held. In the conveyance deed also, no provision could be pointed out by the counsel appearing on behalf of the petitioner indicating that the dues of Central Excise, if existing against the predecessor, the same would not be recovered from the successor. 12. In view of the aforesaid discussion, we find no ground to quash the impugned demand notices, which have been issued, they are found to be justified. Resultantly, writ petition, being devoid of merits, deserves dismissal and the same is, hereby, dismissed with cost of Rs. 10,000/-(Rupees Ten Thousands). (NARENDRA KUMAR JAIN-I),J. (ARUN MISHRA),CJ. Manoj “All corrections made in the judgment/order have been incorporated in the judgment/order being emailed.” MANOJ NARWANI JUNIOR PERSONAL ASSISTANT. "