M/S Mahalakshmi Industries vs. State Of U P And 3 Others

Facts

The petitioner, M/s Mahalakshmi Industries, was the successful bidder in an auction for Industrial Plot No. 13A/17, U.P.S.I.D.C., Ghaziabad. After depositing the full payment, the Bank issued a sale certificate and deed stating the plot was free from encumbrances. The petitioner took possession on September 7, 2018. They applied for the transfer of the plot on October 11, 2018. However, respondents 2 and 3 (Assistant Commissioner, CGST, Ghaziabad and UPSIDC) did not transfer the plot. UPSIDC wrote to the Assistant Commissioner, CGST, on October 14, 2019, inquiring about outstanding government dues from the erstwhile owner, M/s Sarthak Aqua Private Limited. To expedite the transfer, the petitioner deposited Rs. 33,59,276/- under protest, which they claim was not their liability.

Held

The Court held in favour of the petitioner on both issues. Firstly, regarding the liability for outstanding government dues, the Court relied on the Supreme Court's decision in Rana Girders Limited vs. Union of India. It was held that Central Excise dues are not a charge on the land and building or plant and machinery. Such dues arise from the manufacturing of excisable items by the erstwhile owner and are in respect of those products, not the assets used for manufacturing. The Court reiterated that an auction purchaser is not liable for such dues unless they purchase the entire unit as an ongoing concern, which was not the case here. The Court also interpreted the clause in the sale deed regarding statutory liabilities arising 'out of the land' or 'out of the said properties' to mean liabilities directly related to the property itself, such as property tax, and not excise dues. Secondly, concerning the refund of the amount deposited under protest, the Court found that the respondent CGST could not justify retaining the amount. Citing various Supreme Court judgments, the Court emphasized that no amount can be withheld or charged without proper legislative sanction or authority of law, as mandated by Article 265 of the Constitution. Therefore, the respondent no. 4 was directed to refund the amount.

Key Issues

1. Whether the petitioner, as an auction purchaser of an industrial plot, is liable to pay outstanding government dues (specifically Central Excise dues) of the erstwhile owner, M/s Sarthak Aqua Private Limited, when the sale deed explicitly stated the plot was free from all encumbrances and the dues did not arise from the plot itself? This issue turns on the interpretation of the sale deed and the applicability of statutory provisions concerning recovery of government dues from auction purchasers. Petitioner's arguments: The petitioner argued that the sale deed clearly stated the plot was free from encumbrances. They also relied on the Supreme Court judgment in Rana Girders Limited vs. Union of India, which held that Central Excise dues are not a charge on the land and machinery and cannot be recovered from an auction purchaser unless the entire unit is purchased as an ongoing concern. They further contended that the deposit of Rs. 33,59,276/- was made under protest and without legal authority, violating Article 265 of the Constitution. Revenue's arguments: The respondent CGST (respondent no. 4) argued that outstanding dues were pending against the erstwhile owner, M/s Sarthak Aqua Private Limited, which were recoverable from the plot in question. They relied on instructions dated January 6, 2021, to justify their request to UPSIDC not to transfer the plot.