‘Other existing liability’ cannot be construed as the liability to pay excise duty also: Bombay High Court

 on 22 04 2021 on 24 04 WP 1335 2009(J).docIN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONWRIT PETITION NO. 1335 OF 2009 M s Runwal Constructions A Partnership Firm duly registered under the Indian Partnership Act 1932having its office at Runwal Chambers 1st Road Chembur Mumbai 400 071.…PetitionerVersus1) Union of India…Respondents2) The Office of the Assistant Commissionerof Central Excise Mulund Division Mumbai III Commissionerate3) M s. Bluemoon Engineers Limiteda Company incorporated under the provisionsof Indian Companies Act 1956(formerly known as HMP Engineering)Limited and having its registered officeat 5A Chowringhee Lane 1st Floor Flat No. 1A Kolkata 700 016.Mr. Vikram Nankani Sr. Adv. a w Mr. Saket Mone and Mr. SubitChakrabarti i by Vidhii Partners Advocate for the PetitionerMr. Sham Walve a w Ram Ochani Advocate for the RespondentsCORAM :SUNIL P. DESHMUKH &ABHAY AHUJA JJ.RESERVED ON : 18th MARCH 2021PRONOUNCED ON : 22nd APRIL 2021.S. R. Joshi 1 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docJUDGMENT Issue Writ of Certiorari and or any otherappropriate writ order or direction in the nature ofCertiorari calling for the papers and proceedingsrelating to the impugned notices dated 29th 30thJanuary 2008 17th October 2008 and 14th May 2009 Exhibits “G” “I” and “K” hereto and afterexamining the legality and validity thereof thisHon’ble Court be pleased to quash and set aside thesame.3Petitioner is a Partnership firm registered under theIndian Partnership Act 1932 and carries on business of constructionand development. 2nd Respondent is the office of the AssistantCommissioner of Central Excise having claim of Excise duty duesagainst Respondent No. 3 viz. M s. Bluemoon Engineers Limited( earlier known as “HMP Engineering Ltd.” ) and is now claiming thesame from the Petitioner. S. R. Joshi 2 30 on 22 04 2021 on 24 04 WP 1335 2009(J).doc4It appears that certain property admeasuring 24 280.94square meters situated at Mulund Mumbaihad been mortgaged to Indian Bankas security for certain facilities provided by the Bank toRespondent No. 3 Company. In exercise of its rights as a mortgagee the Bank intended to sell said property to recover its dues fromRespondent No. 3.5At an auction conducted by the Debt Recovery Tribunal( for short “DRT’ ) Kolkata Petitioner’s offer was accepted. Petitionerwas declared successful bidder. The same was confirmed by the DRTby an order of confirmation of sale dated 14.09.2004 and videCertificate of Sale of immovable property dated 05.11.2004 it wascertified that by aforesaid order of the DRT Petitioner was declaredpurchaser of the property for a consideration of Rs. 12 crores paid bythe Petitioner.6The certificate of the Sale dated 05.11.2004 wasstamped and subsequently registered with the office of Sub Registrarof Assurances Kurla 2 on 05.01.2005.7Petitioner submits that pursuant to the purchase it hasalso issued a public notice dated 31.03.2005 inviting claims inrespect of said property.S. R. Joshi 3 30 on 22 04 2021 on 24 04 WP 1335 2009(J).doc8By letter dated 7th April 2005 addressed to Petitioner’sAdvocate Respondent No. 2 informed that there was an amount ofmore than Rs. 1.75 crores payable by Respondent No. 3 Company tothe Respondent No. 2 as and by way of Excise Duty and therefore thePetitioner could not claim any title to the property unless said Exciseduty claim was settled.9Thereafter Petitioner received a notice dated 29th 30thJanuary 2008 from the Assistant Commissioner directing Petitionerto pay an amount of Rs. 1 41 40 767.59 and penalty of Rs.33 93 609 to the 2nd Respondent stating that Petitioner hadpurchased the property with all statutory liabilities.10It is submitted that at the time of the purchase Petitionerwas unaware of the Excise duty payable by Respondent No. 3 Company and is not liable to pay any Excise duty and or allegedarrears of Respondent No. 3 claimed by Respondent No. 2 fromPetitioner. It is with this background after receiving the noticedated 29th 30th January 2008 Petitioner by letter dated 31.01.2008 immediately informed Respondent No. 2 that the property wasacquired at an auction held by the DRT Kolkata and the same wasacquired only with workers liability which had already been paid settled that Petitioner had nothing to do with the payment of anyExcise duty or arrears thereof which is the liability of RespondentNo. 3.11Petitioner submits that the Petitioner has pursuant torequest from 2nd Respondent forwarded copies of the order of SaleS. R. Joshi 4 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docconfirmation of the DRT as well as Certificate of sale to the 2ndRespondent but despite the same the Respondent No. 2 has issuednotices dated 17th October 2008 as well as 14th May 2009 makingdemand of Excise duty dues payable by Respondent No. 3 failingwhich steps would be taken to realize the Excise duty dues under theCustoms Property Adjustment Rules and also prohibiting restrainingthe Petitioner from transferring or charging the property. Said noticesas well have been replied to by the Petitioner.12It is submitted that after the purchase Petitioner hasstarted developing the property. Petitioner’s project on said propertyconsist of 5 buildings containing 504 flats and with respect to 292flats it has entered into agreement arrangements of sale with severalflat purchasers who have availed of bank loans by mortgaging theflats to various banks financial institutions. 13It is further submitted that by virtue of order ofconfirmation of sale and certificate of sale of said property Petitionerbecame owner of the said Property and all the rights title andinterest in the property stood vested in the Petitioner on and from14.09.2004 as the property has been transferred in the name of thePetitioner and has also paid the property tax in its name.14It is submitted on behalf of the Petitioner that liability topay excise duty arises from manufacture of excisable products by themanufacturer Petitioner is not manufacturer of excisable products hence Petitioner cannot be termed and or construed as an “Assessee”S. R. Joshi 5 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docunder the Central Excise Act 1944purporting to invoke a provision under the Central ExciseAct. The attachment restraint is illegal unlawful and liable to beremoved forthwith. And despite Petitioner’s replies clarifying theabove position Respondent No.2 has issued the impugned noticeshaving serious civil consequences. It is in these circumstances thatPetitioner has approached this Court. 16Learned Senior Counsel for the Petitioner Mr. VikramNankani submits the single issue which arises in this petition is aboutthat of priority of Secured debt V s Crown debt State dues tax duesas Petitioner has stepped into the shoes of the Bank having purchasedthe property from a secured creditor. He submits that by virtue ofdecision of the Supreme Court in the case of Rana Girders Vs. UnionS. R. Joshi 6 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docof India & Ors 10 SCC 746 and the Bombay High Courtdecisions in the case of Siddhi Sugar & Allied Industries Latur Vs.State of Maharashtra & Ors.(6) Mh. L. J. 333 GharkulIndustries Pvt. Ltd. & Another v s. Superintendent Central ExciseRange & Others247 ELT 3 as well as the recent decision ofthis Court in the case of State Bank of India through its ChiefManager Mr. Jagdish Mohan Nakade Vs. State of MaharashtraSCC Online Bom 4190 the law is well settled that a securedcreditor has priority over the charge of tax VAT dues. He submitsthat since Petitioner has purchased the property which wasmortgaged to the seller bank Petitioner would also get the sametreatment as a secured creditor and therefore his right could not beinterfered with by the Excise Department for recovery of excise dutydues of the borrower Respondent No.3. 17It is also submitted on behalf of Petitioner that section 11of the Excise Act or the proviso to section 11 do not apply in thepresent case as the petitioner has not succeeded to the business ortrade of the Respondent No. 3 borrower in whole or in part. However even assuming while denying the applicability of section 11 it issubmitted that as per the proviso to section 11 Petitioner is not asuccessor in business of the borrower and assuming the sectionwould be applicable yet the proviso would exclude the petitioner. Inthis context Petitioner relies upon the decision of this court in thecase of Gharkul Industries Private Limitedwhere this courthas held that petitioner had purchased property belonging to acompany in liquidation pursuant to a public auction as purchaser ofassets and not purchaser as successor of business the proviso toS. R. Joshi 7 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docsection 11 of the Central Excise Act is not attracted.18He would also submit that in view of the decision in thecase of Rana Girdersas well as Siddhi SugarsincePetitioner has only purchased the land said property of3rd Respondent and not the business the Excise department cannotclaim arrears of respondent No. 3 from Petitioner. He submits that itwould have been another story if Petitioner had purchased the 3rdRespondent’s business or taken over the business which is whenPetitioner could have been made liable as successor in interest whichis not the case here.19Per contra Mr. Sham Walve learned Standing Counselfor the Revenue relies upon the affidavit in reply and refers to theorder of confirmation of sale of immovable property dated14.09.2004 whereby it is recorded that Petitioner has purchased thesaid property alongwith the workers liability and other existingliabilities of the owner of said property and therefore in view of theclear language of the order of the confirmation of the sale there is nodoubt that Petitioner was liable for excise duty dues of the Revenuedepartment. He further submits that Certificate of Sale of theimmovable property dated 05.11.2004 declaring Petitioner as thepurchaser also no where states that the said property was sold freefrom encumbrances.20He draws our attention to order sheet 30in respect of order dated 3rd September 2004 inS. R. Joshi 8 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docTA 7 2004 passed by the DRT Kolkata to submit that Petitioner isalso bound by said order and is required to settle not only theworkers dues but also statutory dues of the Government and otherdepartments. He refers to paragraph 4(j) of the agreed terms andconditions in the order which is quoted as under:“4: ….….….….….….….….(j): The company should ensure settlement of theissues raised by workers union statutory dues ofthe Government and other Departments as well asother parties to ensure timely sale of assets andappropriation of the proceeds and producenecessary evidence to the Bank in settlement ofsuch issues claims. It is clarified that the applicantbank shall in no way be responsible nor shall it beopen for any of the parties to Claim any precedence over the compromise dues to the Bank.The defendants and guarantors shall indemnify theapplicant bank against any such eventuality.”21Referring to said order on page 25 he submits that theintending purchaserhad come forward with anamount of Rs. 13 crores to be split up respectively into 12 crores asthe price for the Mulund property and the balance Rs. 1 crore for therelease of the Victory House property Kolkata he submits that theapplication had been made in accordance with Clause No.of theterms and conditions as stipulated in paragraph 4 cited in the order.He quotes paragraph 4(a) of the sanctioned terms and conditions isquoted as under :“The defendants shall pay Rs. 1300 lacs to theapplicant bank on or before 30th September 2004S. R. Joshi 9 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docby sale of land of Mulund unit and against beforerelease of Victory house property. Nine Quarterlyinstallments of Rs.50.00 lakhs each commencingfrom the quarter ending 31.12.2004 to QuarterEnding 31.12.2006. First of such installment willfall due for payment on 31.12.2004 and the sameshould be paid on or before that date.Subsequent installments will likewise fall due forpayment on 31st March 30th June 30thSeptember and 31st December etc. and should bepaid by the defendants before the due date.”22He submits that under this order Petitioner also handedover the demand drafts for the afore mentioned amount after whichit received possession alongwith the title deeds of the property. 23He submits that if there is priority of secured debt overexcise duty dues and since Petitioner has purchased all the securitythat was owned by borrowers there is no way the State could recoverits taxes as there is no property left with the borrower companywhich can be sold to recover the taxes and therefore that liability hasto be borne by the purchaser of the property which was earlier ownedby the company and mortgaged to the bank.24Mr Sham Valve learned Counsel for Respondentsrevenue at this stage seeks to draw our attention to a recent decisionof Nagpur bench of this court in the case of Medineutrina Privatelimited versus District Industries Centreand others dated 18February 2021 to submit that as in the facts of this case in that caseas well there was an issue with respect to the charge of VAT arrears ofS. R. Joshi 10 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docthe borrower and recovery of the same from the auction purchaser.The auction purchaser had challenged the requirement by the DIC toobtain No Objection Certificatefrom the sales tax Departmentwith respect to the arrear of sales tax VAT dues from the borrowerbefore approving the transfer to Petitioner therein submitting that theauction purchase was pursuant to the provisions of the Securitisationand Reconstruction of Financial Assets and Enforcement of SecurityInterest Act 2002and in view of the clear languageof section 26E of the SARFAESI Act section 37 of the MaharashtraValue Added Tax Act 2002would be subservient to theprovisions of section 25 E of the SARFAESI Act due to which theaction on the part of the DIC as well as the sales tax authorities of notissuing the NOC for transfer of the land in favour of Petitioner onaccount of the so called dues was illegal. He submits that afterconsidering the law on the subject though the Nagpur bench agreedthat mortgage of a secured creditor gets priority of charge over thecharge for tax VAT dues but when such mortgaged property is putto auction then the bank is required to deliver the same free fromencumbrances as per the SARFAESI Act and the Security Interest(Enforcement) Rules 2002 and for that it would be the duty of thesecured creditor to ensure that all encumbrances be known beforehand the amount to be received by auction of the property should besufficient to cover the costs charges and expenses and discharge ofthe dues of the secured creditor and also discharge of theencumbrances upon the property including the arrears of VAT salestax dues. He submits that holding that the dues of the Sales taxDepartment therein were charge on the property u s 37(1) of MVATAct and property having stood attached by the Sales tax departmentS. R. Joshi 11 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docbefore the auction petitioner would be liable to pay the same to thedepartment in order to obtain a clear and marketable title to theproperty having purchased the same on “as is where is and whateverthere is basis”. Only when Petitioner discharges the dues it wouldthen be entitled to a no dues certificatefrom the sales taxdepartment. Also in that case it was claimed that there was no noticeto the auction purchaser of the charge by the tax department but thebench has held that notice of such statutory charge is alwayspresumed in law to one an all and none can claim ignorance of thesame. Mr. Valve submits that the facts in the case at hand are nodifferent except that in the present case there are excise duty duesand the auction was pursuant to the Recovery of Debts due to Banksand Financial Institutions Act 1993and therefore theratio in the case of Medineutrinawould apply to the facts ofthis case. In that view of the matter he submits that no relief can begranted to the Petitioner until payment of the excise duty dues.25In response to aforesaid contentions a brief note hasbeen submitted on the judgment in the case of Medineutrinavis a visthe Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act 2002inS. R. Joshi 12 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docthe said Judgment held that the SARFAESI Act being a central statute any priority of claim for debts due to a secured creditorbank which is created by Section 26E of the said Act will prevail over any first charge which may be created by Section 37(1) of the MVAT Act which is state legislation in view of thelanguage used in Section 26E of the SARFAESI Act. It was further held that the priority created by virtue of Section 26E of the SARFAESI Act also takes precedence over any “crown debt” due to the the central government state government or local authority. However in a subsequent discussion as regards the liability of a successful action purchaser their Lordships held that successful auction purchaser would be liable to paythe sales tax dues of the erstwhile owner of the auctioned property to the Sales Tax Departmentto get free clear and marketable title of the said property having purchased the same on an “as is where is and whatever is” basis.B: The controversy involved in the present matter is respectof a demand raised by the Central Excise Department under the provisions of the Central Excise Act 1944vis a vis the Recovery of Debts Due to Banks and Financial Institutions Act 1993which creates a “first charge” for the liabilities under the said Act. However an express exception has been carved out under the said Section which saves “first priority charges” created under the RDDB Act or the SARFAESI Act. The aforesaid Sections and a similar claim of the Central Excise Department came up for discussion before the Aurangaband Bench of the Hon’ble Bombay High Court in Siddhi Sugar and Allied Industries Ltd. 2019Mh.L.J. wherein the Court held that even without the aid of Section 26E of the Excise Act it can be safely concluded that a secured creditor Bank would S. R. Joshi 13 30 on 22 04 2021 on 24 04 WP 1335 2009(J).dochave a priority over the claim of the Central Excise Department. In the present matter admittedly the claim of the Bank against the erstwhile owners was under the RDDB Act and thus the claims of the Bank will have precedence over the claims of the Central Excise Department.C: In any event the issue of a subsequent auction purchaserbeing liable to pay the central excise dues of the erstwhile owner has been decided by the Hon’ble Supreme Court in India in Rana Griders v s. Union of India10 SCC 746in categorical and unequivocal termsstates that if a subsequent auction purchaser on an purchased the “land” “plant” or “machinery” even if a property is purchased on an “as is where is basis” and with the stipulation that it is being purchased “with all existing statutory liabilities” such auctionpurchaser would only be liable to pay statutory dues and taxes in relation to and arising out of the “land” “plant” or “machinery”. Central excise dues not being relatable to “land” “plant” and or “machinery” the auction purchaser cannot be held liable to pay the same unless and until such auction purchaser entire has purchased the entire defaulting unit and or its business as a going concern.”26We have heard learned Counsel for the parties and withtheir able assistance have perused the papers proceedings as well asthe decisions cited during the course of arguments. 27Facts are not in dispute in the present case. The SupremeCourt on almost identical facts in the case of Rana Girdersand because of the consistent defaulton the part of the borrower in repaying the loans under Section 29 ofthe State Financial Corporations Act UPFC took possession of theS. R. Joshi 14 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docland and building of the borrower which was mortgaged kept assecurity with UPFC. Thereafter physical possession of the unit wastaken and UPFC held a public auction in which M s Sarju Steelswas declared as successful bidder of land and buildingas well as plant and machinery. Accordingly by the sale deed the landand building was transferred to the Rana Girders and by anotheragreement ownership of the plant and machinery was also conveyed.As such Rana Girders became owner of the both land and building aswell as plant and machinery.28In that case the borrower had also to discharge liabilityof the excise duty of Rs.1 00 72 442 and to recover the saidamount concerned Commissioner was seeking to do so from RanaGirders as successor in interest of the land building plant andmachinery. Rana Girders resisted the demand submitting that theproperty had been purchased in an open auction and free from allencumbrances and it was not the liability of the purchaser to makepayment of the dues of the excise duty department. The issue thatarose was whether Excise Department could recover the excise dutyfrom Rana Girders which was the purchaser in auction on “as is wereis basis” with a condition in the public notice of the auction whichstipulated that all the statutory liabilities arising out of land would beborne by the purchaser except electricity dues. Also there was acondition in the sale deed as well as in public notice which stipulatedthat all the statutory liability arising out of the properties shall beborne by the vendee and the seller would not be responsible. TheSupreme Court formulated two questions for its consideration whichS. R. Joshi 15 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docare set out in paragraph 14 of said decision: “14: ….….In the circumstances two questions arise for consideration namely:On the interpretation of stipulation contained inthe Sale Deed of the land and building andAgreement of Sale of plant and machinery whetherthe appellant had agreed to discharge the duespayable to the Excise department by the borrower.(2) Whether such a liability arises in lawhavingregard to the legal provisions contained in the ExciseAct and State Financial Corporation Act Answering the questions the Supreme Court referring to its owndecisions in the case of State of Karnataka v s. Shreyas Papers(P) Ltd. Macson MarblesLtd. v s. Union of India Union ofIndia v s. SICOM Ltd. Dena Bank v s. Bhikabhai P. Parekh &Co. held thus :“15. We shall discuss the second question in the first instance.As noted above in so far as second question is concerned though the High Court has discussed the position in law indetail but has refrained from giving its final opinion on thisquestion.16.Whether UPFC would have priority being a securedcreditor by virtue of Deed of Mortgage or the Central Excise inrespect of its dues having regard to the Rule 230(2) of theCentral Excise Rules came up for consideration before thisCourt in State of Karnataka & Anr. Vs. Shreyas PapersLtd.& Ors. JT 2006SC 180. Dealing with the provisions of Rule230 of the Excise Rules the Court held that this provisionauthorizes detention of all excisable goods materials preparations plant machinery vessels utensils implementsand articles in the custody or possession of the person orpersons carrying on such trade or business or from personS. R. Joshi 16 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docsucceeding the business or trade or part thereof for such timetill dues are paid or recovered. However the rule does not inany way create a charge over any of the goods enumeratedtherein. After explaining the term charge as defined in Section100 of Transfer of Property Act it was held that charge wouldbe different from the word detained. As Rule 230 onlyempowers detention and there was no other provision underthe Central Excise Act or the Rules which envisages to createany charge over the assets of a unit to enable the realization ofthe Central Excise Duty on top priority. The Court held thatUPFC had a priority being a secured creditor on the one handand Central Excise having no charge over the property. TheCourt specifically took note of the fact that the petitioner inthat case was not the successor of the erstwhile owner inbusiness or trade and having acquired the property without anycharge independent of business or trade of the previous owner was not a person in custody or possession of the property as asuccessor of the previous owner against whom there was ademand of excise duty.17. Learned counsel for the respondents heavily relied onthe judgment of this Court in M s. Macson MarblesLtd. Vs.Union of India15 SCC 481 reference to which is alsomade in the notice dated 25.02.1984 that was served upon theappellant by the Excise Department. He submitted that in thatcase this Court had held that even the successor in interest isliable to discharge the liability of the Excise Department. Wemay however note that this case was considered andspecifically distinguished in Union of India Vs. SICOM Ltd.(2009) 2 SCC 121. In that case considering the statutory rightof the Financial Corporation under the State FinancialCorporation Act 1951 and the non obstante clause occurringtherein it was categorically held that State FinancialCorporation shall have a preferential claim in relation to itssecured debts. This position is explained in paragraphs 16 and23 of the said judgment in the following manner:16. If a company had a subsisting interestdespite a lawful seizure there cannot be anyS. R. Joshi 17 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docdoubt whatsoever that a charge mortgageover immovable property will have the sameconsequence.23. Furthermore the right of a State FinancialCorporation is a statutory one. The Actcontains a non obstante clause in Section 46 Bof the Act which reads as under:‘46 B. Effect of Act on other laws The provisions of this Act and ofany rule or orders made thereundershall have effect notwithstandinganything inconsistent therewithcontained in any other law for thetime being in force or in thememorandum or articles ofassociation of an industrial concernor in any other instrument havingeffect by virtue of any law otherthan this Act but save as aforesaid the provisions of this Act shall be inaddition to and not in derogationof any other law for the time beingapplicable to an industrial concern.18.In so far dues of the Government in the form of tax orexcise etc. are concerned the Court in SICOM case was of theopinion that rights of the Crown to recover the dues wouldprevail over the right of the subject. The Crown debt meansthe debts due to the State or the King. Such creditors however must be held to mean unsecured creditors. Theprinciple of Crown debt pertains to the common law principle.When Parliament or the State Legislature makes anenactment the same would prevail over the common law andthus the common law principles which existed on the date ofcoming into force of the Constitution of India must yield to astatutory provision. A debt which is secured or which byreason of the provisions of a statute becomes the first chargeover the property must be held to prevail over the Crown debtwhich is an unsecured one. On this reasoning the debtS. R. Joshi 18 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docpayable to secured creditor like the Financial Corporation wasprioritized vis a vis the Central Excise Dues.19. For this principle the Court referred to its earlierjudgment in Dena Bank Vs. Bhikhabhai Prabhudas Parekh &Co. & Ors.5 SCC 694 explaining the doctrine ofpriority to Crown Debts thus:“13. ….’7. What is the common law doctrineof priority or precedence of Crown debts Halsbury dealing with general rights of theCrown in relation to property states thatwhere the Crowns right and that of a subjectmeet at one and the same time that of theCrown is in general preferred the rule beingdetur dignioriof Constitution.It was furthermore observed :‘10. However the Crown’s preferential rightS. R. Joshi 19 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docto recovery of debts over other creditors isconfined to ordinary or unsecured creditors.The common law of England or theprinciples of equity and good consciencedo not accord the Crowna preferential right for recovery of its debtsover a mortgagee or pledge of goods or asecured creditor. It is only in cases where theCrowns right and that of the subject meet atone and the same time that the Crown is ingeneral preferred. Where the right of thesubject is complete and perfect before that ofthe king commences the rule does not apply for there is no point of time at which the tworights are at conflict nor can there be aquestion which of the two ought to prevail ina case where one that of the subject hasprevailed already. In Giles Vs. Grover3 SCC 196 the principle has beenrecognised by this Court holding that therights of the pawnee who has parted withmoney in favour of the pawnor on thesecurity of the goods cannot be extinguishedeven by lawful seizure of goods by makingmoney available to other creditors of thepawnor without the claim of the pawneebeing first fully satisfied. Rashbehary Ghosestates in Law of Mortgageit seems a government debt inIndia is not entitled to precedence over aprior secured debt.20. Coming to the liability of the successor in interest the Court clarified the legal position enunciated in M s.Macson by observing that such a liability can be fastenedon that person who had purchased the entire unit as anongoing concern and not a person who had purchasedS. R. Joshi 20 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docland and building or the machinery of the erstwhileconcern. This distinction is brought out and explained inparagraph 19 and it would be useful for us to reproduceherein below:‘19. Reliance has also been placed by Ms.Rao on MacsonMarbles Pvt.Ltd. wherein the dues under Central ExciseAct were held to be recoverable from an auctionpurchaser stating:‘10. We are not impressed with the argument thatthe State Act is a special enactment and the samewould prevail over the Central Excise Act. Eachof them is a special enactment and unless in theoperation of the same any conflict arises thisaspect need not be examined. In this case nosuch conflict arises between the corporation andthe Excise Department. Hence it is unnecessaryto examine this aspect of the matter.11. The Department having initiated theproceedings under Section 11A of this Actadjudicated liability of respondent No.4 and heldthat respondent No.4 is also liable to pay penaltyin a sum of Rs.3 lakhs while the Excise duesliable would be in the order of a lakh or so. It isdifficult to conceive that the appellant had anyopportunity to participate in the adjudicationproceedings and contend against the levy of thepenalty. Therefore in the facts and circumstancesof this case we think it appropriate to direct thatthe said amount if already paid shall berefunded within a period of three months. Inother respects the order made by the High Courtshall remain undisputed. The appeal is disposedof accordingly.The decision therefore was rendered in the facts of thatcase. The issue with which we are directly concerned didnot arise for consideration therein. The Court also did notnotice the binding precedent of Dena Bank Vs. BhikhabhaiPrabhudas Paresh & Co.5 SCC 694 as also otherdecisions referred to hereinbefore.S. R. Joshi 21 30 on 22 04 2021 on 24 04 WP 1335 2009(J).doc21. A harmonious reading of the judgments in Macsonand SICOM would tend us to conclude that it is only inthose cases where the buyer had purchased the entire uniti.e. the entire business itself that he would be responsibleto discharge the liability of Central Excise as well.Otherwise the subsequent purchaser cannot be fastenedwith the liability relating to the dues of the Governmentunless there is a specific provision in the Statute claimingfirst charge for the purchaser. As far as Central Excise Actis concerned there was no such specific provision asnoticed in SICOM as well. The proviso to Section 11 is nowadded by way of amendment in the Act only w.e.f.10.9.2004. Therefore we are eschewing our discussionregarding this proviso as that is not applicable in so far aspresent case is concerned. Accordingly we thus hold thatin so far as legal position is concerned UPFC being asecured creditor had priority over the excise dues. Wefurther hold that since the appellant had not purchased theentire unit as a business as per the statutory framework hewas not liable for discharging the dues of the ExciseDepartment.23. We may notice that in the first instance it wasmentioned not only in the public notice but there is aspecific clause inserted in the Sale Deed Agreement aswell to the effect that the properties in question are beingsold free from all encumbrances. At the same time there isalso a stipulation that all these statutory liabilities arisingout of the land shall be borne by purchaser in the saledeed and all the statutory liabilities arising out of the saidproperties shall be borne by the vendee and vendor shallnot be held responsible in the Agreement of Sale. As perthe High Court these statutory liabilities would includeexcise dues. We find that the High Court has missed thetrue intent and purport of this clause. The expressions inthe Sale Deed as well as in the Agreement for purchase ofplant and machinery talks of statutory liabilities arising outof the land or statutory liabilities arising out of the saidpropertieswould be pertinent to be referred to whichcontains section 11 of the Excise Act along with its proviso: “11. Recovery of sums due to Government.—In respect of duty and any other sums of any kind payable to the Central Government under any of the provisions of this Act or of the rules made thereunder 1[including the amount required to be paid to the credit of the Central Government under section 11D] the officer empowered by the 2[Central Board of Excise and Customs constituted under the Central Boards of Revenue Act 1963to levy such duty or require the payment of such sums may deduct or require any other CentralExcise Officer or a proper officer referred to in section 142 of the Customs Act 1962to deduct the amount so payable from any money owing to the person from whom such sums may be recoverable or due which may be in his hands or under his disposal or control or may be in the hands or under disposal or control of such other officer or may recover the amount by attachment and sale of excisable goods belonging toS. R. Joshi 23 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docsuch person and if the amount payable is not so recovered he may prepare a certificate signed by him specifying the amount due from the person liable to pay the same and send it to the Collector of the district in which such person resides or conducts his business and the said Collector on receipt of such certificate shall proceed to recover from the said person the amount specified therein as if it were an arrear of land revenue]: Provided that where the personfrom whom the duty or any other sums of any kind as specified in this section is recoverable or due transfers or otherwise disposes of his business or trade in whole or in part or effects any change in the ownership thereof in consequence of which he is succeeded in such business or trade by any other person all excisable goods materials preparations plants machineries vessels utensils implements and articles in the custody or possession of the person so succeeding may also be attached and sold by such officer empowered by the Central Board of Excise and Customs after obtaining written approval from the Commissioner of Central Excise for the purposes of recovering such duty or other sums recoverable or due from such predecessor at the time of such transfer or otherwise disposal or change.]30Paragraphs 13 14 23 and 28 of the decision of thisCourt in the case of Gharkul Industries P. Ltd. are pertinentand are quoted as under: “13: Admittedly the liability of the Excise duty of the Company in Liquidation is to the tune of Rs.1 96 99 848 . Respondent 1 is relying on section 11 of the Central Excise Act 1944. This section states the manner in which the sums due tothe Central Government can be recovered under the Central Excise Act 1944. This section inter alia states that in respect of duty and any other sums of any kind payable to the Central Government under any of the provisions of the Central Excise Act 1944 the empowered officer may deduct the said amount so payable from any money owning to the person from whom S. R. Joshi 24 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docsuch sums may be recoverable or due which may be in his hands or under his disposal or control or may recover the amount by attachment and sale of excisable goods belonging tosuch person. Proviso to section11 is of relevance to the presentpetition. It reads as under: Provided that where the person(hereinafter referred to as predecessor) from whom the duty or any other sums of any kind as specified in this section is recoverable or due transfers or otherwise disposes of his business or trade in whole or in part or effects a13ny change in the ownership thereof in consequence of which he is succeeded in such business or trade by any other person all exercisable goods materials preparations plants machineries vessels utensils implements and articles in the custody or possession of the person so succeeding may also be attached and sold by such officer empowered by the Central Board of Excise and Customs after obtaining written approval from the Commissioner of Central Excise Customs for the purposes of recovering such duty or other sums recoverable or due from such predecessor at the time of such transfer or otherwise disposal or charge.”14: The proviso enables the empowered officer to attach andsell after obtaining permission from the Commissioner of Central Excise excisable goods materials preparations plants machineries vessels utensils implements and articles in the custody or possession of the successors of the person from whom Excise dues are recoverable. The proviso contemplates a situation where a person from Excise dues are recoverable transfers or otherwise disposes of his business or trade or effects a change in the ownership thereof. In such a situation the proviso enables the empowered officer to attach and sell after obtaining permission from the Commissioner of Central Excise all excisable goods materials etc in the custody or possession of the person to whom the business or trade is transferred or in whose favour a change in the ownership is effected for the purpose of recovering outstanding dues of the Excise Department as on the date of such transfer or disposal.23: We also feel that Mr. Dhond’s alternative submission deserves to be accepted. The proviso to section 11 refers to transfer or disposal of business or trade in whole or in part. It does not refer to the transfer or disposal of mere assets. It is S. R. Joshi 25 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docnot the case of the petitioners that they have purchased the business or trade of the Company in Liquidation. Neither respondent no.2 nor the Excise Department in its affidavit has stated so. Learned Company Judge in his order dated 5 12 2003 has stated that other financial institutions have communicated their consent to the sale of the assets of the Company in Liquidation. He has observed that the quality and the value of the assets of the Company in Liquidation is deteriorating. It is therefore clear that the land plant and machinery being the assets of the Company in Liquidation were brought to sell.28: Primarily considering the fact that proviso to section 11 of the Central Excise Act 1944 is not attracted to the present case and taking an overall view of the matter in our opinion the petitioners prayers deserve to be granted. Hence we pass the following order: ORDER(i)It is declared that the sale of the said property to the petitioners duly sanctioned by this Court by its order dated 23 12 2005 in Company Application No.8605 in Company Petition No. 1698 is not subject to proviso to section 11 of the Central Excise Act 1944.(ii)Upon the petitioners depositing the entire sale proceeds as directed by this Court respondent no.3 i.e. the official Liquidator shall take necessary steps as directed by this Court by its order dated 5 12 2003 in Company ApplicationNo.2803 and order dated 23 12 2005 in Company Application No.8605 in Company Petition No..1698.(iii)Needless to say that the Excise Department can also file its claim before respondent 3. If such a claim is filed respondent 3 shall adjudicate it in accordance with law. The petition is disposed of in the aforestated terms.” 31Considering the aforesaid findings of this court in thecase of Gharkul Industries Private Limitedwe are of the viewthat since in the present case as well there is only purchase of land byS. R. Joshi 26 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docPetitioner in the auction conducted by DRT Kolkata and not transferor disposal of business or trade in whole or in part but only a transferor disposal of mere landed asset the proviso to section 11 of theExcise Act would not be attracted.32The above discussion leads to that a secured creditor haspriority over crown debts excise dues. Going forward this is a casewhere petitioner has purchased land in an auction conductedpursuant to proceedings under the RDDB Act by the Debt RecoveryTribunal Kolkata of the property belonging to the Respondent No. 3company. Petitioner is not a successor of the business of the erstwhileowner in business or trade viz: of Respondent No.3 having acquiredthe property without any charge independent of business or trade ofthe previous owner nor the Petitioner is in custody or possession ofthe said property as a successor of the previous owner against whomthere was a demand of excise duty. This is also not a case where theentire unit i. e. the entire business itself was purchased by thePetitioner. It is not that Petitioner has purchased or taken over theborrower’s business or is its successor in business carrying on theborrower’s or 3rd Respondent’s manufacturing business but has onlypurchased the said land. Excise duty liability can be fastened only onthat person who had purchased the entire unit as a going concernand not on a person who had purchased land and building ormachinery of the erstwhile concern. It is only in such cases that thebuyer would be responsible to discharge the liability of CentralExcise. Otherwise the purchaser cannot be fastened on the liabilityrelating to the dues of the government unless there is a specificstatutory provision to that effect.S. R. Joshi 27 30 on 22 04 2021 on 24 04 WP 1335 2009(J).doc33Petitioner is an auction purchaser of the saidproperty and has not acquired the business of the RespondentNo.3 borrower. True also that the said purchase as per the orderof Confirmation of Sale is subject to worker’s liability and otherexisting liabilities of the owners of the said property. Admittedly the worker’s dues have been settled. Excise dues are not dueswhich arise out of land or building. Such liabilities could be inthe form of property tax municipal tax other types of cessrelating to property etc. but cannot mean excise duty dues which arise out of manufacture. In our view therefore thelanguage in the confirmation of the Sale is with reference to theliabilities relating to the said property and not with reference tothe business of the Respondent No.3 borrower we thereforehold that since Petitioner has not purchased the entire unit withbusiness it is not liable for the dues of the Excise Department.The arguments of the learned Counsel for the Revenue also donot impress us.34In view of the above discussion where we havefound that in view of the decision of the Supreme Court in thecase of Rana GirdersPetitioner would not be liable toexcise duty dues of Respondent No.3 borrower havingpurchased only the land and not the entire business of theborrower in the public auction the decision of the Nagpur benchin the case of Medineutrinawould not whelm thepresent case as the said decision has not considered the case ofS. R. Joshi 28 30 on 22 04 2021 on 24 04 WP 1335 2009(J).docRana Girdersinasmuch as that wascase after the insertion of section 11 E to the Central Excise Actwhereas the present matter as also the caseof Rana Girderspertain to a period prior to 1 April 2011 i.e.prior to the insertion of section 11 E.35As far as the reliance of the learned Counsel for thePetitioner on the decision of this Court in the case of State Bank ofIndia v s. State of Maharashtrais concerned there appears tobe no doubt about the conclusion in the said decision that if anyCentral Statute creates priority of a charge in favour of a securedcreditor the same will rank above the charge in favour of a State fora tax due thereunder. That the mortgage of the secured creditor willget prior charge over the revenue.36Apropos the above discussion and the ratio laiddown by the Supreme Court in the case of Rana Girderswe are inclinedto allow the Writ Petition in terms of prayer clauseIssue Writ of Certiorari and or any other appropriatewrit order or direction in the nature of Certiorari callingfor the papers and proceedings relating to the impugnednotices dated 29th 30th January 2008 17th October 2008 and 14th May 2009 Exhibits “G” “I” and “K”hereto and after examining the legality and validitythereof this Hon’ble Court be pleased to quash and setaside the same.S. R. Joshi 29 30 on 22 04 2021 on 24 04 WP 1335 2009(J).doc37Thus the impugned notices dated 29th 30thJanuary 2008 17th October 2008 and 14th May 2009 relating toexcise duty dues are quashed and set aside and its recovery bythe department if any from Petitioner be refunded preferablywithin a period of four weeks from the date of receipt of thisorder.(ABHAY AHUJA J.) (SUNIL. P. DESHMUKH J.)S. R. Joshi 30 30 

Summary: The words “other existing liability” can be the liabilities pertaining to the extent of the property only viz, i. e. Municipal tax, electricity and water charges, land revenue, etc. Purchase as per the order of Confirmation of Sale is subject to worker’s liability and other existing liabilities of the owners of the said property whereas excise dues are not dues that arise out of land or building. Since such liabilities could be in the form of property tax, municipal tax, other types of cess relating to a property, etc. but cannot mean excise duty dues, which arise out of manufacture. This remarkable judgment was passed by the Bombay High Court in the matter of M/S RUNWAL CONSTRUCTIONS V UNION OF INDIA [WRIT PETITION NO. 1335 OF 2009] by Honourable Justice Sunil P. Deshmukh and Justice Abhay Ahuja. By this petition filed under Article 226, the Petitioner is challenging notices dated 29th / 30th January 2008 &amp; 17th October 2008 and 14th May 2009 by which the Respondent purports to prohibit and/or restrain Petitioner from transferring or charging the property situated at Mulund, Mumbai for alleged non-payment of Excise duty. Petitioner is a Partnership firm and carries on the business of construction and development. The office of the Assistant Commissioner of Central Excise having a claim of Excise duty dues against Respondent M/s. Bluemoon Engineers Limited and is now claiming the same from the Petitioner. It appears that certain property admeasuring 24,280.94 square meters situated at Mulund, Mumbai belonging to a company known as M/s. HMP Engineering Ltd. had been mortgaged to Indian Bank as security. At an auction conducted by the Debt Recovery Tribunal Kolkata, Petitioner’s offer was accepted. Certificate of Sale of immovable property dated 05.11.2004, it was certified by the aforesaid order of the DRT, Petitioner was declared purchaser of the property for a consideration of Rs. 12 crores paid by the Petitioner. The certificate of the Sale was stamped and subsequently registered with the office of the Sub-Registrar. It is submitted that at the time of the purchase, Petitioner was unaware of the Excise duty payable and is not liable to pay any excise duty. The property was acquired at an auction held by the DRT, Kolkata and the same was acquired only with workers’ liability which had already been paid and thus Petitioner had nothing to do with the payment of any Excise duty or arrears thereof which is the liability. It was stated by HC that, “Considering the aforesaid findings of this court in the case of Gharkul Industries Private Limited, we are of the view that since in the present case as well there is only purchase of land by Petitioner in the auction conducted by DRT, Kolkata and not transfer or disposal of business or trade-in whole or in part but only a transfer or disposal of mere landed asset, the proviso to section 11 of the Excise Act would not be attracted.” Additionally, “Excise duty liability can be fastened only on that person who had purchased the entire unit as a going concern and not on a person who had purchased land and building or machinery of the erstwhile concern. It is only in such cases that the buyer would be responsible to discharge the liability of Central Excise. Otherwise, the purchaser cannot be fastened on the liability relating to the dues of the government unless there is a specific statutory provision to that effect.” In the present case, the petitioner has not acquired the property without any charge independent of business or trade of the previous owner, nor is he in custody or possession of the said property as a successor of the previous owner against whom there was a demand of excise duty. “The language in the confirmation of the Sale is with reference to the liabilities relating to the said property and not with reference to the business of the Respondent No.3- borrower; we, therefore, hold that since Petitioner has not purchased the entire unit with business, it is not liable for the dues of the Excise Department.”