M/S Shree Sai Processors vs. Union Of INDIA

Held

The Court held that the petitioner could not be held liable for the excise dues of the erstwhile owner. The Court found that the entire exercise by the revenue was based on an incorrect premise. It was noted that the affidavit-in-reply filed by the respondent did not plead any fraudulent transfer of business to avoid payment of dues by the erstwhile owner. The Court emphasized the distinction between the transfer of property and the transfer of business, stating that a mere transfer of property with machinery does not constitute a transfer of business as envisaged under Section 11 proviso. The Court found that Section 11 of the Act and its invocation could not justify any demand from the petitioner for the dues of the erstwhile owner, especially as there was no attachment, restriction, or charge placed by the department on the property at the time of its change of hands. The Court directed that the petitioner should be open to seek appropriate mutation from the revenue authorities, and the revenue entry concerning encumbrances would not be justified. The Court clarified that this observation would not preclude the respondent from recovering their dues from the erstwhile owner strictly in accordance with law. The petition was partly allowed.

Facts

The petitioner, M/s. Shree Sai Processors, purchased an industrial shed in 2007 from Shri Ganesh Mahadev Dyeing and Printing Mills. The petitioner's name was entered in revenue records in 2008. In 2014, the Central Excise Department informed the petitioner that it was liable for outstanding excise dues, interest, and penalties amounting to Rs. 9,59,820/- plus interest and a personal penalty of Rs. 96,000/-, from the erstwhile owner, citing Section 11 of the Central Excise Act, 1944. The petitioner contested this, stating they were not successors in business. In 2017, a lien was marked on the petitioner's property. In May 2018, a certificate letter from the Superintendent of CGST and Central Excise indicated a balance interest amount of Rs. 15,10,321/- was outstanding. The petitioner's bank then informed them of the lien on their hypothecated property, leading to the petitioner opening a fixed deposit account of Rs. 15.25 lakhs, which was marked with a lien.

Key Issues

1. Whether the petitioner, as a subsequent purchaser of an industrial plot/shed, can be held liable for the excise dues of the erstwhile owner under Section 11 of the Central Excise Act, 1944, when the transfer was of property and not business, and there was no fraudulent transfer or existing charge at the time of purchase? Petitioner's arguments: The petitioner contended that they were merely purchasers of the industrial plot/shed in 2007 and not successors in business or trade of the erstwhile owner. They argued that the dues were adjudicated against the seller in 2010, and therefore, no Central Excise dues of the seller could be recovered from the petitioner, nor could their property be subject to a lien. They asserted that the attempt to recover dues and mark a lien was contrary to law, lacking jurisdiction, and an abuse of statutory provisions. Revenue's arguments: The revenue argued that the petitioner could not have purchased the property without awareness of outstanding dues. They relied on a statement in the Sale Deed that the property had no dues, which was incorrect, justifying the department's perception of the petitioner's liability under Section 11 of the Act. The revenue also submitted that the averments in the Sale Deed, read with Section 11, should persuade the Court to appreciate the department's view and action, which was bonafidely taken for recovering government dues.