By TIOL News Service

AHMEDABAD, NOV 04, 2015: THE Petitioner is a partnership firm engaged in the manufacture of excisable goods and they purchased a plot adjacent to their unit from another unit, namely M/s Poonam Enterprise. The plot was purchased by Poonam Enterprise from GIDC who had taken over the same from M/s Nakhua Poly Containers Pvt Ltd who is a defaulter in loan. The Central Excise Department refused the request of the Petitioner to add the premises to their registration on the ground that Central Excise duty of Rs.12 ,84,023 /- is due from M/s Nakhua Poly Containers Pvt Ltd and unless the Petitioner clears the due, and the original registrant surrenders the registration of the premises.

It is the contention of the Petitioner that they have only bought the leasehold rights which does not make it the successor in business and trade of the predecessor. It was submitted that in the facts of the present case, there is no sale of property, but only a sale of leasehold rights. It was submitted that assuming that the transaction in question is a sale, it is not a sale as contemplated under section 11 of the Act, under the circumstances, the proviso thereto is not attracted.

After hearing both sides, the High Court held:

+ The ratio of Supreme Court decision in case of Shreyas Papers Ptv Ltd (2006-TIOL-01-SC-CT) would be squarely applicable to the facts of the present case, inasmuch as, in the present case also, the transfer is only of the assets and not of a going concern. The proviso to section 11 of the Act clearly provides that the dues of the defaulter can be recovered from the person who succeeds in such business or trade of the defaulter. Evidently therefore, a pre-requisite for exercise of powers under the proviso to section 11 of the Act is that the successor should have purchased the business or trade of such person. As held by the Supreme Court in the above decision, the business is an activity, directed with a certain purpose, more often towards producing income or profit. Hence, the mere transfer of one or more species of assets does not necessarily bring about the transfer of the business. The transfer of a business requires that the business be sold as a going concern which is clearly not the position in the present case.

+ Resort cannot be made to the proviso to section 11 of the Act, inasmuch as, what has been transferred to the predecessor of the petitioner and subsequently to the petitioner are the assets of the defaulting unit and not the business or trade. The above position has been further made clear by the Supreme Court in the case of Rana Girders Limited v. Union of India and others, (2013-TIOL-39-SC-CX).

+ As to whether the Central Excise authorities have a first charge over the property in question in view of the provisions of section 11E of the Central Excise Act, 1944 , the assets of the defaulter unit first came to be sold to M/s Poonam Enterprises on 21.07.2009, albeit with the above referred condition. The defaulter unit, viz. M/s Nakhua Poly Containers P. Ltd., thereupon ceased to be the owner of the assets in question. Section 11E of the Central Excise Act, 1944 came to be inserted by the Finance Act, 2011 with effect from 8.4.2011. Once the properties are sold prior to the insertion of section 11E of the Act, the said provision would not act retrospectively to cover properties which are no longer the properties of the assessee or other person. The provisions of section 11E of the Act would, therefore, have no applicability to the facts of the present case.

(See 2015-TIOL-2542-HC-AHM-CX)