P.K. Jaiswal, J.
1. By this writ petition under Article 226 of the Constitution of India, the petitioner is praying for quashment of demand notice dated 31-1-2017(Exhibit-1) and order of Attachment dated 4-3-2017 (Exhibit-2) issued by respondent Nos. 2 and 1, respectively.
2. Brief facts of the case are that the respondent No. 4 M/s. Ujjain Treasure Bazar Ltd. Indore is a Company duly incorporated under the provisions of Companies Act, 1956 and is duly registered with the Service Tax Department.
3. The respondent No. 5 SIMCOM Ltd., is established by the Government of Maharashtra, is a deemed State Financial Corporation under Section 46 of the State Financial Corporation Act, 1951, by virtue of notification dated 11-12-1986, issued by the Government of India.
4. By lease deeds dated 19-1-2007 and 30-11-2007, the Ujjain Development Authority had allotted two plots of land admeasuring 11,156.93 Sq. Mtrs, situated at Plot No. D9, Ujjain to respondent No. 4 on which the respondent No. 4 constructed a shopping mall including the multiplex theatre. For the purposes of construction and development of the mall, the respondent No. 4 had taken certain financial assistance from the respondent No. 5 and created a first charge by way of mortgage of respondent No. 4's rights and title to the said land and the Mall constructed thereon.
5. On 24-9-2012, an amount of Rs. 50,87,50,703/- (Rs. Fifty Crores, Eighty-seven Lacs, Fifty Thousand and Seven Hundred Three) was due and payable by the respondent No. 4 to respondent No. 5. Accordingly, the respondent No. 5 exercised its right under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (SARFAESI Act, 2002) and submitted an application before the Debts Recovery Tribunal, Mumbai, for recovery of the amounts due to it. The respondent No. 4 also exercised its right under the security document under Section 29 of the State Financial Corporation Act, 1951 and took over the possession of the said land and mall on 15-11-2013, which then stood vested in respondent No. 5. Before the DRT, the respondents Nos. 4 and 5 arrived at One Time Settlement (OTS) for a total amount of Rs. 47,51,00,000/- (Rs. Forty Seven Crores, Fifty One Lacs). Out of the said sum Rs. 47.51 Crores an amount of Rs. 10.00 Crores were to be paid by the respondent No. 4 directly to the respondent No. 5. Further a sum of Rs. 37.51 Crores were to be realised by sale of secured assets, i.e., the land and building known as "Ujjain Treasure Bazar Mall", situated at Ujjain. This property was agreed to be sold by the respondent No. 5 as mortgagee in possession to the petitioner for Rs. 37.51 Crores.
6. In furtherance of the above, the respondent No. 5 executed a Deed of Assignment in favour of the petitioner on 8-2-2016 which was duly stamped and registered before the Sub-Registrar of Documents and Assurances, Ujjain under the Deed of Assignment, in consideration for discharging the debt owed to respondent No. 5, the petitioner acquired the rights to the said land and the Mall.
7. After acquisition of the mall, the petitioner has become the absolute owner of the mall and is in possession of the same. Much prior to that the business of the Company had been taken over by the petitioner - M/s. Future Market Networks Ltd. Mumbai through a Tri-Party Settlement Order issued by DRT, Mumbai vide order dated 30-7-2014.
8. The amount of Rs. 1,22,21,493/- as Service Tax, Rs. 2,70,58,942/- as inadmissible Cenvat Credit and Penalty of Rs. 3,86,99,736/- totally amounting to Rs. 7,79,80,171/- is recoverable from M/s. Ujjain Treasure Bazaar Pvt. Ltd., Indore, which was confirmed against them vide orders dated 18-12-2014 and 17-3-2016, respectively.
9. On 20-10-2015 a show cause notice was issued by Joint Commissioner, Central Excise Head Quarters, Indore for disallowing inadmissible Cenvat credit of Rs. 3,82,435/- under Rule 14 of Cenvat Credit Rules, 2004 and Service Tax including arrears amounting to Rs. 31,34,213/-.
10. A substantial amount is due from M/s. Ujjain Treasure Bazaar Pvt. Ltd., Indore and is a "Preferential Payment" within the ambit of Section 530(1)(a) of the Companies Act, 1956 and is the first charge on the properties of the Company under liquidation, as contemplated in Section 88 of the Finance Act, 1944.
11. As per amendment made in Section 88 of Finance Act, 1994 on 8-4-2011, the liability under the Service tax Act to be the First Charge and the same is recoverable from the present petitioner.
12. Accordingly, out of Rs. 7,79,80,171/-(inclusive of penalty), which is recoverable from respondent No. 4 - M/s. Ujjain Treasure Bazaar Pvt. Ltd., Indore being confirmed demand, recovery proceedings for Rs. 6,83,99,472/-(inclusive of penalty) shall be initiated in the event of dismissal of appeals already preferred by M/s. Ujjain Treasure Bazaar Pvt. Ltd., Indore against order in Original No. 15/Commr/ST/IND/2014, dated 1812-2014 and requested to pay an amount of Rs. 95,80,699/- (inclusive of penalty), failing which, action under the provisions of Section 87 of the Finance Act, 1994 may be initiated for recovery of Government dues.
13. It is this action which has been impugned in this writ petition on the ground that the present petitioner has purchased the asset of respondent No. 4 from respondent No. 5 -SICOM Ltd. which is established by Government of Maharashtra and is a deemed State Financial Corporation as per Section 46 of the State Financial Corporation Act, 1951.
14. The impugned demand notices states that an amount of Rs. 1,22,21,493/- as Service Tax.
15. The impugned notices further state that out of total recoverable amount of Rs. 7,79,80,171/-, a sum of Rs. 95,80,699/- is recoverable immediately as no stay has been granted in respect thereof by the appellate authority. In respect of the balance amount of Rs. 6,83,99,472/-, the impugned notice states that recovery proceedings would be initiated in the event of dismissal of the appeal preferred by the respondent No. 4. Accordingly, the petitioner was called upon to pay the amount of Rs. 95,80,699/- to the Principal Commissioner, Customs, Central Excise and Service Tax, Headquarter, Indore on a priority basis. The stand of the petitioner is that it had not taken over any of the respondent No. 4's liabilities and that therefore, no amounts were due to be paid by the petitioner. Section 87(c) of the Finance Act, has no application to the petitioner.
16. It is submitted that the respondent No. 1 has without affording any opportunity of hearing issued order of attachment dated 4-3-2017 pursuant to the Certificate issued by respondent No. 2 Assistant Commissioner and endorsed by respondent No. 3 - Principal Commissioner exercising powers under Section 87(c) of the Finance Act, 1994. He submitted that the respondents No. 1 to 3 have no authority to attach the same under Section 87(c) of the Finance Act, 1994 and prayed for its quashment.
17. He has also drawn our attention to the decision of the Apex Court in the case of Rana Girders Ltd. v. Union of India & Ors. reported in (2013) 10 SCC 746 : 2013 (295) E.L.T. 12 (S.C.) particularly Paras 18 and 21 and Full Bench decision of Madras High Court in the case of Assistant Commissioner (CT) Anna Salai-III Assessment Circle, Chennai v. Indian Overseas Bank, Chennai & Anr. reported in AIR 2017 MADRAS 67, and submitted that the actual demands raised pertain to the period upto 2012 before the petitioner had acquired the said properties or had even entered into any Memorandum of Understanding and by reason of provisions of Section 87(c) of Finance Act, the action is illegal and prayed that the writ petition be allowed.
18. Shri Bharat A. Chitle, Learned Counsel who is appearing on behalf of respondent No. 5 - SICOM Ltd. has drawn our attention to the proviso to Section 87(c) and Section 88 of Finance Act, 1994 and submitted that the power to distrain property under the aforesaid provision could only have been exercised by the respondents Nos. 1 to 3 in respect of "any movable or immovable property belonging to or under the control of" the respondent No. 4 on the date of the order of distraint, viz. the order of attachment dated 4-3-2017 issued by the respondent No. 2. In the present case, on 4-3-2017, the date of the attachment order, the respondent No. 4 was neither the owner, nor did it have control over the property comprising the mall.
19. He further submitted that in the present case, since the transfer of the asset to the petitioner was made in terms of the order of Debts Recovery Tribunal, Mumbai passed under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993, the operation of Section 88 of the Finance Act, 1994 creating a first charge in favour of the respondent Nos. 1 to 3 is specifically excluded. He has also drawn our attention to the date of events and submitted that the respondent No. 5 had taken symbolic possession of mortgaged asset on 10-8-2012 and physical/actual possession on 15-11-2013 and the transfer of the property was made in favour of the petitioner on 8-2-2016 without the business and trade and, therefore, the action of respondents Nos. 1 to 3 are illegal and respondent No. 5 - SICOM Ltd. has no objection if the writ petition is allowed.
20. Shri Sumit Nema, Learned Senior Counsel appearing on behalf of respondent No. 4 has raised preliminary objection on the ground that the appeal filed by the respondent No. 4 vide ST. No. 5085-2015 is pending and the outcome of the aforesaid appeal will decide the date of demand and if credit is held to be correctly taken the demand of subsequent period would automatically become nil and supported the case of the petitioner and prayed that the writ petition be allowed.
21. Shri Prasanna Prasad, Learned Counsel appearing on behalf of respondents Nos. 1 to 3 has raised a preliminary objection regarding maintainability of writ petition against Exhibit-1 and Exhibit-2 and submitted that as per Section 85(1) of the Finance Act any person aggrieved by any decision or order passed by an adjudicating authority subordinate to the Principal Commissioner of Central Excise or Commissioner of Central Excise may appeal to the Commissioner and submitted that the respondent No. 4 borrowed some amount of money from respondent No. 5 and being a defaulter, the matter landed with DRT and business of respondent No. 4 was handed over to the petitioner way back in the Year 2013. Since in the Year 2013 the entire business of respondent No. 4 was under the control and possession of the petitioner. After sale the property which was subject to mortgage has been transferred in favour of petitioner by a consent decree. He has drawn our attention to Clause - 1(d) and 1(k) of Memorandum of Understanding dated 1-7-2013 and submitted that the petitioner has virtually taken over the entire business which they are running since year 2013 and, therefore, Section 87(c) applies with full force.
22. In view of the statutory remedy of appeal available to the writ petitioner, he prays for dismissal of the writ petition.
23. We have heard the Learned Counsel for the parties at length and perused the record of the case.
24. Proviso to Section 87(c) of the Finance Act, 1994 reads as under :-
87. Recovery of any amount due to Central Government.
Where any amount payable by a person to the credit of the Central Government under any of the provisions of this Chapter or of the rules made thereunder is not paid, the Central Excise Officer shall proceed to recover the amount by one or more of the modes mentioned below :-
(c) the Central Excise Officer may, on an authorisation by the [Principal Commissioner of Central Excise or] Commissioner of Central Excise, in accordance with the rules made in this behalf, distrain any movable or immovable property belonging to or under the control of such person, and detain the same until the amount payable is paid; and in case, any part of the said amount payable or of the cost of the distress or keeping of the property, remains unpaid for a period of thirty days next after any such distress, may cause the said property to be sold and with the proceeds of such sale, may satisfy the amount payable and the costs including cost of sale remaining unpaid and shall render the surplus amount, if any, to such person;
[Provided that where the person (hereinafter referred to as predecessor) from whom the service tax 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 goods, 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 the written approval of the 3[Principal Commissioner of Central Excise or] Commissioner of Central Excise, for the purposes of recovering such service tax or other sums recoverable or due from such predecessor at the time of such transfer or otherwise disposal or change.]
25. Section 88 of the Finance Act, 1994 is reproduced as under :-
"88. Liability under Act to be first charge. -
88. Liability under Act to be first charge. - Notwithstanding anything to the contrary contained in any Central Act or State Act, any amount of 2[tax], penalty, interest, or any other sum payable by an assessee or any other person under this Chapter, shall, save as otherwise provided in Section 529A of the Companies Act, 1956 (1 of 1956) and the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 (51 of 1993) and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 (54 of 2002), be the first charge on the property of the assessee or the person as the case may be."
26. Clauses 1(d) and 1(k) of Memorandum of Understanding dated 1-7-2013 reads as under :-
"D. SICOM, as a part of its business activities extended certain financial assistance to the BORROWER herein, against a first charge by way of mortgage of the rights and title of the BORROWER in respect of the land together with the said Mall and against a charge by way of hypothecation of all present and future movable assets in the form of furniture, and fixtures including but not limited to Chiller Plant, AHU, escalators, lifts etc. in or for the use of Said Mall (the land and the said mall along with the aforesaid movable assets are described in Schedule 1 hereunder written and collectively hereinafter referred to as the "said property"). A list reflecting details of shops/units located in the said Mall along with details of present owners/occupiers of such shops/units annexed and marked as annexure A".
K. SICOM being a financial institution, with the objective of realizing the best value from the said property and for recovering the amounts of financial assistance extended to the borrower, has appointed the PURCHASER to undertake the day to day management of the said property and also to assist SICOM in achieving an expeditious leas/sale of the said property and/or units/shops therein in whole or in part vide agreement dated December 24, 2013 on such terms and conditions more particularly contained therein."
27. It is not in dispute that the business of the respondent No. 4 M/s. Ujjain Treasure Bazar Ltd. Indore had been taken over by the petitioner - M/s. Future Market Networks Ltd. Mumbai on "as is where is and what is" basis according to the Tri-Party Settlement Order issued by DRT, Mumbai vide order dated 30-7-2014. In these circumstances, the acquisition by the petitioner is not limited to immovable property only but they also acquired entire running business of the respondent No. 4 and, therefore the plea of petitioner that they had not taken over the business/liabilities of the respondent No. 4 does not appear to be correct.
28. It is an admitted fact that entire business of the respondent No. 4 has been transferred to the petitioner and Ujjain Treasure Bazar Mall was under the control and possession of the petitioner. The properties, which were subject to mortgage has been transferred in favour of the petitioner by a consent decree. As per Clause 1(d) and 1(k), the petitioner has virtually taken over the entire business, which they are running since 2013 and, therefore, Section 87(c) applies with full force.
29. The scheme of Service Tax Act, provides for statutory appeal under Section 85 of the Service Tax Act. The respondent No. 1 vide letters dated 17-2-2017 and 22-2-2017, had served a "notice of demand to defaulter", to the respondent No. 4. They were further informed that in case of default, steps would be taken to realise the amount in accordance with the provisions of Section 87(c) of the Finance Act, 1994. Thus, the contention of the petitioner that without giving the petitioner or respondent No. 4 opportunity of hearing or without taking into account the representations mad
Please Login To View The Full Judgment!
e by the petitioner and the respondent No. 4 is incorrect because number of opportunities were given to them prior to initiating action under Section 87(c) of the Finance Act. 30. The Finance Act and Clause 1(d) and 1(k) Memorandum of Understanding (MoU) are very clear and specific. The transactions so been entered between the parties is covered by Section 87(c) of the Service Tax Act. 31. In the case of Assistant Commissioner (CT) Anna Salai-III Assessment Circle, Chennai v. Indian Overseas Bank, Chennai & Anr. (supra), the Full Bench of the Madras High Court, after appreciating the provisions of Section 31B of the Enforcement and Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, has held that the rights of a secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority. 32. In the case in hand, as per proviso to Section 87(c) of the Finance Act and Clauses (d) and (k) of MoU dated 1-7-2013, the Department is empowered to recover the dues of Service Tax of respondent No. 4 from the present petitioner, who had purchased the mortgaged property of the respondent No. 4 from respondent No. 5 by a consent decree. 33. The decision of the Hon'ble Supreme Court in the case of M. Nagabhushana v. State of Karnataka & Others, reported as 2011 (3) SCC 408 : 2012 (27) S.T.R. 81 (S.C.) is distinguishable on facts. 34. For the aforenoted reasons, the writ petition filed by the petitioner against the demand notices and order of attachment passed by the respondents Nos. 2 and 1, has no merit and is, accordingly, dismissed, without any orders as to costs.