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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  

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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.   

4. Therefore, the issue which has arisen for our consideration in  

this appeal is as to whether excise department can recover the amount  

in  question  from the  appellant.   This  issue  has  cropped up  in  the  

following factual background:

5. As already pointed out above, after taking possession of the unit  

of the borrower under Section 29 of the State Financial Corporation  

Act,  the  UPFC  issued  an  advertisement  dated  8.1.2002  in  the  

newspapers  for  public  auction  of  the said  properties.   By the  said  

advertisement, offers for sale of land and building consisting of land  

area 13390 sq. meter and covered area of 2429 sq. meter, plant and  

machinery and other fixed assets of the borrower were invited on (“as  

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is where is basis”).  This public notice also stipulated certain terms  

and conditions on which offer were invited.  First condition thereof,  

which is relevant for our purpose, is reproduced below:

“All the statutory liabilities arising out of land shall be  borne by purchaser (except electricity dues). Other terms  and conditions of sale may be sent at the office.”

6. The appellant turned out to be the successful bidder whose bid  

in the sum of Rs.43 Lakh for land and building being highest  was  

accepted  by  the  UPFC.   Sale  Deed  dated  8th March  2002  was  

executed.   In this Sale Deed it  was specifically mentioned that the  

property is free from all  encumbrances by stating that  “the vendor  

herein confirms that the property purchased through the sale deed in  

favour of vendee is free from all charges and encumbrances.......”  The  

appellant had paid a sum of Rs.21.50 Lakh at the time of registration  

of the Sale Deed and balance amount of Rs.21.50 lakh was to be paid  

by the appellant to the UPFC which was payable together with interest  

at the rate of 16% P.A. in instalments as specified in the Schedule to  

the said Sale Deed.  There is no dispute that this balance consideration  

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has been paid by the appellant to the UPFC.  Another condition in the  

Sale Deed, which was also mentioned in the public notice was that:

“All the statutory liabilities arising out of said properties  shall be borne by the vendee and vendor shall not be held  responsible.”

7. The appellant also purchased plant and machinery in the said  

auction for  a  total  consideration of  Rs.1  Crore 93 Lakh for  which  

Agreement dated 15th March 2002 was executed by the parties.  This  

Agreement also contained both the clauses, similar to the clauses in  

the Sale Deed, namely, the said plant and machinery was free from all  

encumbrances and that all the statutory liabilities arising out of the  

plant and machinery of the industrial unit  were to be borne by the  

purchaser i.e. the appellant.  

8. At  that  time,  some  demands  of  dues  on  account  of  Central  

Excise payable to respondent No.2 were pending.  It appears that the  

borrower had filed two appeals  against  the Order-in-Original  dated  

29.8.2002 in this behalf.  These two appeals were dismissed by the  

CESTAT on 30th April 2003 on account of non-compliance of the pre-

deposit  amount  directed  in  its  stay  order  dated  18th March  2003.  

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Some penalties were also imposed by the adjudicating authority, under  

the Central Excise Act which were appealed again by the borrower.  

That appeal was also dismissed on 30th April 2003 and 25th May 2004  

thereby confirming the demand of Customs and Excise.

9. After the conclusion of the aforesaid legal proceedings between  

the respondent No.2 and the borrower, following amount became due  

on  account  of  duty  and  penalty  payable  by  the  borrower  to  the  

respondent No.2:

Adj.Order No. &        Amount of confirmed demands

Date                   Duty (In Rs.)   Penalty (In Rs)   R.F.      Penalty

28/Commr/MRT/0        4298571           4298571          ----      1000000

2/dated 29.8.02

16/Jt.                               669862           669862           ----         -----

Commr/2003/

Dated 22.7.2003

82/Off/136/01/02        115576                20000           ----

Dated 22.11.02

------------------------------------------------------------------------------------

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10. Since the appellant had purchased the land and building as well  

as plant and machinery of the borrower in the auction conducted by  

the UPFC, the respondent No.2 issued notice dated 25.8.2004 to the  

appellant  stating that  the  amount  in  question had now become the  

liability of the appellant and demanded the aforesaid payment.  It was  

mentioned in the notice that this amount was payable by the appellant  

in view of the law laid down by this Court in the case of M/s. Macson  

Marbles Pvt. Ltd. Vs. Union of India2003 (158) ELT 424 SC.

11. The appellant herein initially requested the Excise Department  

to provide the copies of the adjudication orders relating to the three  

cases mentioned in the notice.  Thereafter, vide reply dated 7.12.2004,  

the appellant  disputed the liability stating that  the amount  was not  

recoverable from it  in terms of the provisions of Section 11 of the  

Central  Excise  Act  as  it  had purchased  the  aforesaid  properties  in  

auction  from  UPFC  “free  from  all  encumbrances”.   The  Central  

Excise Department, however, insisted that it had become the liability  

of the appellant and sent further communication demanding payment  

failing  with  the  threat  that  on  failure  in  making  payments  the  

properties would be attached.   

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12. At this juncture, the appellant filed the Writ Petition in the High  

Court  of  Judicature  at  Allahabad,  questioning  the  validity  of  the  

demands raised by the Revenue.  After  hearing the matter,  vide the  

impugned  judgment  dated  1st December  2011,  the  High Court  has  

been pleased to hold that in view of the covenants in the Sale Deed  

and Agreement it is the liability of the appellant to pay the excise duty.  

It is this order which is the subject matter of present appeal.

13. A perusal of the order of the High Court would demonstrate that  

the  Excise  Department  had  contested  the  petition  filed  by  the  

petitioner herein on the ground that the appellant being the successor-

in-interest which had purchased the land and building as well as plant  

and machinery, was liable to make the payment having regard to the  

judgment of this Court in M/s. Macson case.  The appellant, on the  

other hand, had argued that since the appellant had not purchased the  

entire unit  of  the principal  borrower the judgment of  M/s.  Macson  

case was not applicable.  On the contrary it is the law laid down in  

Union of India vs. SICOM Ltd.  2009 (2) SCC 121,  ratio whereof  

was  attracted.  It  was  argued  that  the  M/s.  Macson  case  was  

specifically distinguished by this Court in  SICOM  Ltd. holding that  

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the ratio of M/s. Macson case would be applicable only in transfer  of  

“ownership of business”  i.e. when there is a sale of business as an  

ongoing  concern  and  not  in  case  of  mere  transfer  of  its  specified  

assets.  Significantly, the High Court took note of this distinction by  

referring to various other judgments as well on the lines of SICOM  

Ltd.  of this Court as well as some High Courts.  However, leaving the  

discussion on this aspect inconclusive, the High Court chose to rest its  

decision on an altogether different foundation, namely stipulation in  

the Sale Deed dated 8.3.2002 to the effect that the statutory liabilities  

arising  out  of  the  property  shall  be  borne  by  the  vendee  (i.e.  the  

appellant). These clauses Sale Deed pertaining to land and building  

and Agreement of Sale qua plant and machinery have already been  

noted above. According to the High Court, these covenants provided  

clear and unambiguous stipulation as per which the appellants agreed  

to discharge the statutory liabilities and since the excise dues were  

statutory in nature, it had become the liability of the appellant to pay  

the same. However, in so far as penalty is concerned, it is held that  

such a burden cannot be fastened on to the appellant as it is in the  

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nature  of  quasi-criminal  liability  which  was  leviable  only  on  the  

defaulter viz. the borrower. The writ petition is thus, partly allowed.

14. Before us, it was strenuously argued by the learned counsel for  

the Revenue that since the excise duty is a statutory liability such a  

duty  has  to  be  paid  by the  person  who purchased  the  property  of  

borrower in default even when sold in auction under section 29 of the  

State Financial Corporation Act. He further argued that in any case the  

High Court was right in holding that by virtue of the stipulations in  

the  Sale  Deed  as  well  as  in  the  Agreement  of  Sale,  so  far  as  the  

appellant is concerned, it was liable to discharge the excise liability. In  

the circumstances, two questions arise for consideration namely (1) on  

the interpretation of stipulation contained in the Sale Deed of the land  

and building and Agreement of Sale of plant and machinery, whether  

the appellant had agreed to discharge the dues payable to the excise  

department by the borrower. (2) Whether such a liability arises in law  

(de-hors  the  stipulation  in  Sale  Deed  /Agreement  of  Sale)  having  

regard to the legal provisions contained in the Excise Act and State  

Financial Corporation Act?   

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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  in  detail  but  has  

refrained from giving its final opinion on this question.

16. Whether UPFC would have priority being a secured creditor by  

virtue of Deed of Mortgage or the Central Excise in respect of its dues  

having regard to the Rule 230(2) of the Central Excise Rules, came up  

for consideration before this Court in  State of Karnataka & Anr. Vs.  

Shreyash Papers (P) Ltd. & Ors. JT 2006 (1) SC 180.  Dealing with  

the provisions of Rule 230 of the Excise Rules, the Court held that this  

provision  authorises  detention  of  all  excisable  goods,  materials,  

preparations,  plant,  machinery,  vessels,  utensils,  implements  and  

articles, in the custody or possession of the person or persons carrying  

on such trade or business or from person succeeding the business or  

trade or  part  thereof  for  such time till  dues are  paid or  recovered.  

However, the rule does not in any way create a charge over any of the  

goods  enumerated  therein.  After  explaining  the  term  “charge”  as  

defined in Section 100 of Transfer of Property Act, it was held that  

charge would be different from the word “detained”.  As Rule 230  

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only empowers detention and there was no other provision under the  

Central Excise Act or the Rules which envisages to create any charge  

over the assets of a unit to enable the realization of the Central Excise  

Duty on top priority.  The Court held that UPFC had a priority being a  

secured  creditor  on  the  one  hand  and  Central  Excise  having  no  

“charge” over the property.  The Court specifically took note of the  

fact  that  the  petitioner  in  that  case  was  not  the  successor  of  the  

erstwhile owner in business or trade and having acquired the property  

without any charge independent of business or trade of the previous  

owner, was not a person in custody or possession of the property as a  

successor of the previous owner against whom there was a demand of  

excise duty.

17. Learned  counsel  for  the  respondents,  heavily  relied  on  the  

judgment of this Court in M/s. Macson (supra), reference to which is  

also made in the notice dated 25.02.1984 that was served upon the  

appellant by the Excise Department.  He submitted that in that case  

this  Court  had held  that  even the  successor  in  interest  is  liable  to  

discharge the liability of the Excise Department.  We may, however,  

note that this case was considered and specifically distinguished in  

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SICOM Ltd. (supra).  In that case, considering the statutory right of  

the Financial Corporation under the State Financial Corporation Act,  

1951  and  the  non-obstante  clause  occurring  therein,  it  was  

categorically  held  that  State  Financial  Corporation  shall  have  a  

preferential  claim in relation to its  secured debts.   This position is  

explained  in  paragraphs  16  and  23  of  the  said  judgment  in  the  

following manner:

“16. If  a  company had a  subsisting interest  despite  a  lawful  seizure,  there  cannot  be  any  doubt  whatsoever  that  a  charge/mortgage  over  immovable  property  will  have  the  same  consequence.  

xxxxxxxxxxxxx

23. Furthermore,  the  right  of  a  State  Financial  Corporation is a statutory one. The Act contains a  non  obstante  clause  in  Section  46-B  of  the  Act  which reads as under: “46-B.  Effect  of  Act  on  other  laws.—The  provisions  of  this  Act  and of  any rule  or  orders  made thereunder shall have effect notwithstanding  anything  inconsistent  therewith  contained  in  any  other  law  for  the  time  being  in  force  or  in  the  memorandum  or  articles  of  association  of  an  industrial  concern  or  in  any  other  instrument  having effect by virtue of any law other than this  Act,  but save as aforesaid, the provisions of this  Act shall be in addition to, and not in derogation  

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of, any other law for the time being applicable to  an industrial concern.”

18. In so far dues of the Government in the form of tax or excise  

etc.  are concerned,  the Court  was of  the opinion that  rights  of  the  

Crown to recover the dues would prevail over the right of the subject.  

Crown debt  means  the  debts  due  to  the  State  or  the  King.   Such  

creditors, however, must be held to mean unsecured creditors.  The  

principle of Crown debt pertains to the common law principle.  When  

Parliament or State Legislature makes an enactment, the same would  

prevail  over the common law and thus the common law principles  

which existed on the date of coming into force of the Constitution of  

India, must yield to a statutory provision.  A debt, which is secured or  

which by reason of the provisions of a statute becomes the first charge  

over the property must be held to prevail over the Crown debt which  

is an unsecured one. On this reasoning, the debt payable to secured  

creditor  like the Financial  Corporation was prioritised vis-a-vis  the  

Central Excise Dues.

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19. For this principle, the Court referred to its earlier judgment in  

Dena Bank v.. Bhikhabhai Prabhudas Parekh & Co. & Ors.  (2000) 5  

SCC 694 explaining the doctrine of priority to Crown Debts, thus:

“What  is  the  common  law  doctrine  of  priority  or  precedence  of  Crown  debts/  Halsbury,  dealing  with  general rights of the Crown in relation to property, states  that where the Crown’s right and that of a subject meet at  one and the same time, that of the Crown is in general  preferred,  the  rule  being  “detur  digniori  (Laws  of  England,  4th Edn.,Vol.8,  para  1076,  at  p.666).Herbert  Broom states:

“Quando jus domini regis et subditi concurrunt jus  regis praegerri debat. – Where the title of the kind and the  tile of a subject concur, the king’s title must be preferred.  In this case detur digniori is the rule. .....where the titles  of the kind and of a subject concur, the kind takes the  whole.  ....where  the  king’s  title  and  that  of  a  subject  concur,  or  are  in  conflict,  the  king’s  title  is  to  be  preferred.”(Legal maxims; 10th Edn.,pp.35-36)

This Common law doctrine of priority of  State’s  debts has been recognised by the High Courts of India as  applicable  in  British  India  before  1950  and  hence  the  doctrine  has  been treated  as  “law in force”  within  the  meaning of Article 372(1) of Constitution.”

It was, furthermore, observed :

“However,, the Crown’s preferential right to  recovery  of  debts  over  other  creditors  is  confined  to  ordinary  or  unsecured  creditors.  The  common  law  of  England or the principles of equity and good conscience  

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(as  applicable  to  India)  do  not  accord  the  Crown  a  preferential  right  for  recovery  of  its  debts  over  a  mortgagee or pledge of goods or a secured creditor. It is  only in  cases  where the Crown’s  right  and that  of  the  subject meet at one and the same time that the Crown is  in  general  preferred.  Where  the  right  of  the  subject  is  complete and perfect before that of the king commences,  the rule does not  apply, for there is no point of time at  which the two rights are at conflict, nor can there be a  question  which  of  the  two  ought  to  prevail  in  a  case  where one, that of the subject,  has prevailed already.In  Giles v.Grover it  has been held that the Crown has no  precedence over a pledge of goods. In Bnk of Bihar v.  State of Bihar the principle has been recognised by this  Court  holding  that  the  rights  of  the  pawnee  who  has  parted  with  money  in  favour  of  the  pawner  on  the  security  of  the  goods  cannot  be  extinguished  even  by  lawful seizure of  goods by making money available to  other  creditors  of  the pawnor  without  the claim of the  pawnee  being  first  fully  satisfied.Rashbehary  Ghose  states  in  Law  of  Mortgage  (TLL,7th Edn.,p.386)  –  “it  seems  a  government  debt  in  India  is  not  entitled  to  precedence over a prior 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 fastened on that person who had purchased  

the  entire  unit  as  an  ongoing  concern  and  not  a  person  who  had  

purchased  land  and  building  or  the  machinery  of  the  erstwhile  

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concern.  This distinction is brought out and explained in paragraph  

24 and 25 and it would be useful for us to reproduce herein below:

“Reliance  has  also  been  placed  by  Ms.Rao  on  Macson Marbles Pvt.Ltd. (supra) wherein the dues under  Central Excise Act was held to be recoverable from an  auction purchaser, stating:

We are not impressed with the argument that the  State  Act  is  a  special  enactment  and  the  same  would  prevail  over the Central Excise Act.  Each of them is a  special enactment and unless in the operation of the same  any conflict arises this aspect need not be examined. In  this case, no such conflict arises between the corporation  and the Excise Department. Hence it  is  unnecessary to  examine this aspect of the matter.

The Department  having initiated the proceedings  under  Section  11A of  this  Act  adjudicated  liability  of  respondent No.4 and held that respondent No.4 is also  liable to pay penalty in a sum of Rs.3 lakhs while the  Excise dues liable would be in the order of a lakh or so. It  is  difficult  to  conceive  that  the  appellant  had  any  opportunity to participate in the adjudication proceedings  and contend against the levy of the penalty. Therefore, in  the  facts  and  circumstances  of  this  case,  we  think  it  appropriate to direct that the said amount, if already paid,  shall  be  refunded  within  a  period  of  three  months.  In  other respects,  the order made by the High Court shall  remain  undisputed.  The  appeal  is  disposed  of  accordingly.”

The decision, therefore, was rendered in the facts  of  that  case.  The  issue  with  which  we  are  directly  concerned  did  not  arise  for  consideration  therein.  The  

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Court also did not notice the binding precedent of Dena  Bank as also other decisions referred to hereinbefore.”

21. A harmonious reading of the judgments in Macson and SICOM  

would tend us to conclude that it  is only in those cases where the  

buyer had purchased the entire unit i.e. the entire business itself, that  

he would be responsible to discharge the liability of Central Excise as  

well.  Otherwise, the subsequent purchaser cannot be fastened with  

the liability relating to the dues of the Government unless there is a  

specific  provision  in  the  Statute,  claiming  “first  charge  for  the  

purchaser”.  As far as Central Excise Act is concerned, there was no  

such  specific  provision  as  noticed  in  SICOM as  well.   Proviso  to  

Section 11 is now added by way of amendment in the Act only w.e.f.  

10.9.2004.  Therefore, we are eschewing our discussion regarding this  

proviso as that is not applicable in so far as present case is concerned.  

Accordingly,  we  thus,  hold  that  in  so  far  as  legal  position  is  

concerned, UPFC being a secured creditor had priority over the excise  

dues.  We further hold that since the appellant had not purchased the  

entire unit as a business, as per the statutory framework he was not  

liable for discharging the dues of the Excise Department.

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22. With this, we now revert to the first issue, namely interpretation  

of  the clause in the Sale Deed for land and building and similar clause  

in Agreement of Sale for machinery on the basis of which appellant is  

held to be liable to pay the dues.  These clauses have already been  

incorporated in the earlier portion of our judgment.  

23. 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 that “all these statutory liabilities arising out  

of the land shall be borne by purchaser in the sale deed” and “all 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  

of  Sale.”   As 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  liabilities  “arising  out  of  the  land”  or  statutory  liabilities  

“arising out of the said properties” (i.e. the machinery).  Thus, it is  

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only that statutory liability which arises out of the land and building or  

out of plant and machinery which is to be discharged by the purchaser.  

Excise dues are not the statutory liabilities which arise out of the land  

and building or the plant and machinery.  Statutory liabilities arising  

out of the land and building could be in the form of the property tax or  

other  types  of  cess  relating  to  property  etc.   Likewise,  statutory  

liability arising out of the   plant 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.  

24. We  thus  conclude  that  the  judgment  of  the  High  Court  is  

unsustainable  in  law.   Accordingly,  the  appeal  is  allowed  and  the  

impugned judgment of the High Court is set aside.   As a consequence  

the notice of the Excise Department calling upon the appellant to pay  

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the dues of the erstwhile owner of the unit  in question also stands  

quashed.  The appellant shall also be entitled to cost of this appeal.

.........................................J. [Anil R. Dave]

.........................................J. [A.K.Sikri]    

New Delhi. Dated: August 16, 2013

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