CX - Merely by sale of immovable assets, recovery of arrears cannot be made from buyer of assets - If any property is sold under auction, buyer cannot be held liable for payment of arrears of previous owner of property: CESTAT
By TIOL News Service
MUMBAI, SEPT 11, 2015: M/S Sumit Rerolling Mills Pvt. Ltd. was taken over by the bank for non-payment of dues and the unit was later auctioned and in such auction, one, Zia Iron Stores purchased the property. Thereafter, the present appellant purchased the unit from Zia Iron Stores.
The appellant was issued letters in July and October 2008 by the Superintendent, Range Nagpur for payment of government dues of Rs. 5,06,189/- outstanding against M/s. Sumit Rerolling Mills Pvt. Ltd. (predecessor company), citing section 11 of the CEA, 1944. For the record, the said outstanding dues were confirmed against M/s. Sumit Rerolling Mills Pvt Ltd. as per o-in-o dated 20/10/1995 & 02/11/1999.
Aggrieved by the said demand, the appellant had filed an appeal before the Commissioner (Appeals), who vide the impugned order directed the appellant to pay the dues and rejected the appeal.
Before the CESTAT, against this order, the appellant inter alia submitted that they have purchased the immovable assets not from M/s Sumit Rerolling Mills Pvt. Ltd but from Zia Iron Stores. Inasmuch as they have not succeeded the business of M/s. Sumit Rerolling Mills Pvt. Ltd. but have only purchased the factory premises and not the business and, therefore, the appellant is not liable to pay the dues of M/s. Sumit Rerolling Mills Pvt.Ltd. Reliance is placed on the decisions in Rana Girders Ltd. - 2013-TIOL-39-SC-CX, Himgiri Ispat Pvt. Ltd. - 2014-TIOL-320-HC-UKHAND-CX, Krishna Lifestyle Technologies Ltd. - 2008-TIOL-86-HC-MUM-CX forsupport.
The AR reiterated the findings of the lower authorities and submitted that since the assets which was purchased by the appellant was originally owned by M/s. Sumit Rerolling Mills Pvt.Ltd., therefore, arrears of Central Excise dues are liable to be paid by the appellant as they have succeeded in the purchase of M/s. Sumit Rerolling Mills Pvt. Ltd. Furthermore, as per the assignment deed the dues of Central Excise are supposed to be paid by the first purchaser, therefore, the appellant is liable to pay arrears; that the appellant has given an undertaking while obtaining Central Excise registration to pay the arrears which is pending against M/s. Sumit Rerolling Mills Pvt. Ltd. and for this reason also the demand made is legal and proper.
The Bench extracted the provisions of section 11 of the CEA, 1944 and observed -
+ I find that, proviso provides that where person against whom duty is recoverable transfers or otherwise, disposes of his business or trade in whole or any part or effect any change in ownership thereto in consequence of which he is succeeding in such business or trade by any other person, recovery of the pending dues against the person who is succeeded can be made from the person so succeeding.
+ In the present case it is not under dispute that firstly the duty is recoverable from M/s. Sumit Rerolling Mills Pvt. Ltd but the assets was purchased by the appellant, not from M/s. Sumit Rerolling Mills Pvt. Ltd but from Zia Iron Stores. As per the provisions, if the asset is sold by M/s. Sumit Rerolling Mills Pvt. Ltd to the appellant then only proviso to provisions of Section 11 will attract.
+ The asset was neither sold by M/s. Sumit Rerolling Mills Pvt. Ltd nor it was purchased by appellant from M/s. Sumit Rerolling Mills Pvt. Ltd, for this reason the proviso to Section 11 shall not attract. I also observed that in the whole chain of transaction of the immovable assets M/s. Sumit Rerolling Mills Pvt. Ltd has no locus standi because the assets was not sold by M/s. Sumit Rerolling Mills Pvt. Ltd whereas it was first acquired by the bank, who under auction sold the asset not to the appellant but to Zia Iron S tores and subsequently the appellant has purchased the assets from M/s. Zia Iron Stores.
+ In this transaction, neither M/s. Sumit Rerolling Mills Pvt. Ltd is the predecessor nor the appellant is successor. With regard to the proviso to Section 11, recovery under Section 11 and proviso thereto cannot be made from appellant.
+ I also observe that in the proviso to Section 11 it is clearly provided that the recovery of arrears pending against predecessor can be made from the successor only in case when there is transfer of business or trade either in whole or in part, the proviso to Section 11 does not stipulates applicability in case of sale of assets of the predecessor to successor. In the present case, it is undisputed fact that firstly appellant has not taken over the business or trade which was being run by M/s. Sumit Rerolling Mills Pvt. Ltd. For this reason also proviso Section to 11 is not applicable.
+ I am in agreement with the submission of the Ld. Counsel that in view of the Krishna Lifestyle Technologies Ltd (supra) case the recovery from the successor can only be made when the business or trade is transferred either in whole or in part from the predecessor to the successor.
+ In view of the above judgment, it has been clearly settled that only when business or trade is transferred in part or whole and merely by sale of immovable assets, recovery of arrears cannot be made from the buyer of the assets.
+ In the present case, it is undisputed that the immovable assets were first sold in auction by the bank to Zia Iron Stores and thereafter the appellant has purchased the property from Zia Iron Stores. It has been held in the numerous judgments that if any property is sold under auction, buyer cannot be held liable for payment of the arrears of the previous owner of the property.
Extracting liberally from the decisions cited by the appellant, the Bench observed that it is settled that wherever the property was sold under auction by secured creditors such as banks, financial institutions, recovery of government dues cannot be made from buyer of the property.
Opining that the sale certificate of the bank, assignment deed between bank and Zia Iron Stores and assignment deed between Zia Iron Stores and the appellant have no relevance to the case on hand and that even if any such clause exists the same cannot be used for making recovery, the Bench held that Revenue was in error to confirm demand amount on the appellant.
As for the undertaking given by the appellant while obtaining registration regarding the payment of arrears, the CESTAT observed that the same was given without prejudice to the legal rights of the appellant and, therefore,the same was not sufficient for enforcing the recovery of arrears as the appellant is not legally liable for payment of arrears of M/s. Sumit Rerolling Mills Pvt. Ltd.
The order was set aside and the appeal was allowed with consequential relief.
(See 2015-TIOL-1917-CESTAT-MUM)
