Case: M/S Rana Girders Ltd Vs. Union Of India

One M/s. P.J. Steels Pvt. Ltd. (borrower) had taken loans/financial accommodation from the Uttar Pradesh Financial Corporation (UPFC). Because of the consistent default on the part of the said borrower in re-paying the loans, the UPFC took possession of the land and building of the borrower which were mortgaged/kept as security with the UPFC. This action was taken under Section 29 of the State Financial Corporation Act. After taking physical possession of the unit, the UPFC held public auction on pursuant to advertisement which was issued on 8th January 2002. In the said public auction conducted by UPFC, the appellant herein (appellant which was known as M/s. Sarju Steels Pvt.Ltd. at that time and has now converted into a Public Limited Company known as M/s. Rana Girders Pvt. Ltd. Dated 20th March 2002 was the highest and thus, successful bidder in respect of land and building as well as plant and machinery. Sale Deed dated 8.3.2002 was executed in favour of the appellant qua the land and building. Likewise, Agreement dated 14.3.2002 was executed in favour of the appellant conveying the ownership of the plant and machinery.3. With the aforesaid Sale Deed and Agreement, the appellant has become the owner, both of the land and building and also plant and machinery. The borrower has not questioned the validity of the said auction which has attained finality. It appears that the borrower had also to discharge the liability qua excise duty which had amounted to Rs.1,00,72,442/-. To recover that amount, the Commissioner of Customs and Central Excise, Meerut-I (respondent No.2 herein) is now pressing the appellant to discharge this liability as purchaser and successor-in-interest of the land and building plus plant and machinery of the borrower. The appellant is resisting the demand with the posture that since the aforesaid properties have been purchased by the appellant in an open auction from the UPFC, free from all encumbrances, it is not the liability of the purchaser to make payment of the dues of excise department.

Court's reasoning:
We may notice that in the first instance it was mentioned not only in the public notice but there is a specific clause inserted in the Sale Deed/Agreement as well, to the effect that the properties in question are being sold free from all encumbrances. At the same time, there is also a stipulation thatthese statutory liabilities arising out of the land shall be borne by purchaser in the salell these statutory liabilities arising out of the said properties shall be borne by the vendee and vendor shall not be held responsible in the Agreement ofAs per the High Court, these statutory liabilities would include excise dues. We find that the High Court has missed the true intent and purport of this clause. The expressions in the Sale Deed as well as in the Agreement for purchase of plant and machinery talks of statutory liabilitiesout of theor statutory liabilitiesout of thee. the machinery). Thus, it is only that statutory liability which arisesout of theland and building or out of plant and machinery which is to be discharged by the purchaser. Excise dues are not the statutory liabilities which ariseout of theland and building or the plant and machinery. Statutory liabilities arisingout of theland and building could be in the form of the property tax or other types of cess relating to property etc. Likewise, statutory liability arisingout of theplant and machinery could be the sales tax etc. payable on the said machinery. As far as dues of the Central Excise are concerned, they were not related to the said plant and machinery or the land and building and thus did not arise out of those properties. Dues of the Excise Department became payable on the manufacturing of excisable items by the erstwhile owner, therefore, these statutory dues are in respect of those items produced and not the plant and machinery which was used for the purposes of manufacture. This fine distinction is not taken note at all by the High Court.