Excise duty of the business of erstwhile owner is not the responsibility of subsquent purchaser.

Clearing excise dues is not a statutory liability to be discharged when property and not the business of the erstwhile owner is the subject matter of purchase

Sale Deeds or Agreement for sale whenever executed carries a clause to the effect that all statutory liabilities shall be borne by vendee and vendor shall have no responsibility whatsoever. Sometimes, these clauses can land you in unwarranted litigation and hence it would be worthy to get acquainted with the latest legal position or explanation pertaining to a situation where property (and not the business which was carried on in such property) was purchased.

Supreme Court in its recent decision expounded determinable factors crucial in determining the liabilities to be discharges towards government dues. In the instant case, a property (comprising of land and building including plant and machinery) was purchased in a public auction. The sale documents executed clearly stipulated that property is on as is basis, free from all encumbrances, and further that it shall be the vendee’s responsibility to discharge statutory liabilities. A notice was slapped on the vendee from the excise department that erstwhile owner had certain dues towards excise duty and now he since the successor-in-interest needs to clear the said dues.

An important point of importance that arose and clarified by the Court was whether it will be the liability of auction purchaser of property to clear the government dues (excise dues, in the instant case) otherwise due from the erstwhile owner when, the auction purchaser has only purchased the property and not his business?

It was clarified that dues, for eg. dues towards excise as in the instant case, becomes liable to be discharged by subsequent purchaser where entire business is purchased. Subsequent purchaser cannot otherwise be held liable to discharge government dues unless there is a specific provision in the Statute under which it is demanded. The statute in these circumstances must endorse “first charge for the purchaser”. The property when financed, the financer, being a secured creditor will have priority over other dues.

A sale document mentioning statutory liabilities “arising out of the land” or statutory liabilities “arising out of the said properties” (i.e. the machinery etc.) means statutory liability arising out of the land and building or out of plant and machinery. Statutory liabilities arising out of the land and building are in the form of the property tax or any other types of cess relating to property etc. and when it talks of plant and machinery, it includes dues like sales tax etc. payable on the said machinery. Excise is leviable on the manufacturing of excisable items. The purchase if excludes business, excise dues, if any, does not become payable as it was not the product vis-à-vis business that was purchased.

M/s. Rana Girders Ltd. vs. Union of India & Ors.
[16.08.2013, SC]