CX - Since petitioner had only purchased assets of Corp in pursuance of winding up order passed by HC and had not taken over a running business, liability of past CE dues payable by Corporation cannot be fastened nor recovered from petitioner: HC
By TIOL News Service
ALLAHABAD, SEPT 02, 2015: U.P. State Cement Corporation Limited suffered heavy losses and upon erosion of its net worth, fell within the ambit of the provisions of Sick Industrial Companies (Special Provisions) Act, 1985. The BIFR declared this company as a sick industrial company in 1992 and, subsequently, recommended its winding up. Upon receipt of the recommendation from the BIFR, the High Court passed an order dated 08.12.1999 for winding up the Corporation and appointed the Official Liquidator.
The Official Liquidator issued an advertisement in August 2005 for sale of the cement plant and other assets of the Corporation.
Based on this advertisement, the petitioner gave his bid of Rs.459 crores, which was found to be the highest and was accepted. The petitioner, accordingly, paid the amount to the Official Liquidator.
The CE Department issued a notice dated 26.08.2010 contending that central excise dues amounting to Rs. 15.97 crores was due and payable by the erstwhile corporation and since the petitioner has purchased a running business of the Corporation, the liability of the Corporation towards the central excise dues has to be cleared by the petitioner and, accordingly, directed the petitioner to deposit the arrears within a month.
Being aggrieved by the issuance of this notice, the petitioner has filed the present petition contending that it had only purchased the assets of the Corporation pursuant to the winding up order of the Corporation and that the petitioner cannot be saddled with the past liability of the Corporation. It was further contended that there was no stipulation in the advertisement that the liability of the Corporation would fall upon the petitioner.
In its counter affidavit, the department submits that since the petitioner has taken over the running business of the Corporation the arrears of the CE dues can be recovered u/s 11 of the CEA, 1944.
The Official Liquidator has also filed a counter affidavit contending that the assets of the Corporation were sold pursuant to the winding up of the Corporation by an order of the High Court. It was further stated that the Department filed a claim application on 27.12.2006, which was decided by the Claim Committee on 29.12.2006 and against which the Department has filed a Company Appeal under Rule 164 of the Company (Court) Rules, 1959 before the Company Judge and which is pending consideration. Furthermore, the claim of the Central Excise Department towards excise dues would be considered in accordance with the provisions of Sections 529, 529A and 530 of the Companies Act.
The High Court extracted the provisions of section 11 of the CEA, 1944 and observed -
+ The proviso to the aforesaid section indicates that where a person from whom duty or a sum of any kind is recoverable or due, and transfers or otherwise disposes of his business or trade in whole or in part, or effects any change in the ownership thereof, the excise dues could be recovered from the successor.
+ In our view the said proviso will not be applicable in the present case. The proviso contemplates that where a person transfers or disposes of his business, which results in change of ownership, in that scenario, the successor would be liable. In the instant case, the Corporation has not transferred or disposed of its business or trade. The Corporation has been wound up by an order of the Court and its assets have been sold off. A running business has not been sold. It has come on record that production activity is not being carried out since 1997. The Counter Affidavit of the Central Excise Department is silent as to how they have asserted that a running business of the Corporation has been purchased by the petitioner. In the absence of any proof of this nature coupled with the fact the Official Liquidator issued an advertisement for sale of the assets of the Corporation after a winding up order was passed by the High Court, we are of the opinion that the past dues of the Central Excise Department cannot be recovered from the petitioner under Section 11 of the Act.
+ We also find that a similar notice was issued by the Central Excise Department demanding duty of finished goods lying in stock, which was received by the petitioner from the Official Liquidator pursuant to their highest bid being accepted. The Commissioner, Central Excise Department after considering the matter passed an order dated 28.07.2011 holding that the petitioner was not the manufacturer of goods and, therefore, was not liable to pay central excise duty quite apart from the fact that the petitioner had purchased the property in auction, which was free from all encumbrances and, consequently, dropped the proceedings.
Held: Since the petitioner had only purchased the assets of the Corporation in pursuance of the winding up order passed by the High Court and had not taken over a running business of the Corporation, the liability of past central excise dues payable by the Corporation cannot be fastened nor recovered from the petitioner.
The demand notice dated 26.08.2010 was quashed and the Writ Petition was allowed.
(See 2015-TIOL-2013-HC-ALL-CX)
