Auction purchasers under statutory sale are not liable for previous owner's dues; Government dues have priority over ordinary debts only with specific statutory provisions.

Ajay Tewari, J.

1. The writ petition has been filed challenging the letters dated 31-10-2007 and 4-1- 2008 whereby respondent No. 3 asked the petitioner to pay the outstanding excise duty of Rs. 990.36 lacs of M/s. Euro Cotspin Ltd. (for short #28;ECL#29;), in terms of the provisions of Section 11 of the Central Excise Act, 1944 (for short #28;the Act#29;) read with Section 142 of the Customs Act.

2. E.C.L. was a defaulter of various financial institutions which ultimately authorized one of them i.e. Punjab National Bank to sell the secured assets of ECL under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short #28;SARFAESI Act#29;) to realize total duties running into approximately Rs. 165 crores. In response to advertisements, one M/s. A.V. Cotex Ltd. (for short #28;AVC#29;) agreed to buy the said assets for a total sale consideration of Rs. 29 crores. However, on the default of the said AVC, an agreement was entered into between it and the petitioner, as per which the petitioner made the required payment to make up 25% of the total purchase price. On the basis of this agreement, the petitioner further entered into an agreement with the Punjab National Bank which also handed over custody of the secured assets of the ECL.

3. Thereafter, by the impugned letters, respondent No. 3 directed the petitioner to clear the outstanding dues as aforesaid and it is this action which is impugned by way of the present writ petition.

4. The matter is not res integra . More than a decade ago, the Hon#25;ble Supreme Court in M/s. Isha Marbles v Bihar State Electricity Board & another , reported as JT 1995(2) SC 626, held that a bona fide auction- purchaser under a statutory sale was not liable to clear electricity dues of the previous owner by holding as follows :-

#28;What we have discussed above appears to be the law gatherable from the various provisions which we have detailed out above. It is impossible to impose on the purchasers a liability which was not incurred by them.#29;

5. Thereafter, in State of Karnatka and another v. Shreyas Papers Pvt. Ltd. & others reported as JT 2006 (1) SC 180, the Hon#25;ble Supreme Court stated the following questions :-

#28;1.1 Firstly, whether the purchaser of assets of a concerns old by a State Financial Corporation, in exercise of its powers under Section 29 of the State Financial Corporations Act, 1951 (hereinafter #28;the SFC Act) would be liable under the Karnataka Sales Tax, 1957 (hereinafter #28; the KST Act#29;), for the arrears of sales tax of the concern whose assets have been transferred? 1.2 Secondly, under what circumstances does a charge created on a property become unenforceable against a transfree of such a property?#29;

The Hon#25;ble Court held as follows :-

#28;In these circumstances, we are of the view that the first respondent was a purchaser for value without notice of the sales tax arrears of the defaulting company or the consequent charge on the property. This would, therefore, attract the principle laid down by this Court in Ahmedabad Municipal Corporation, which is also embodied in the proviso to Section 100 of the TP Act. Thus, the property in the hands of the first respondent was free of the charge and it is not open to the appellants to enforce the liabilities of the defaulting company in this manner against the first respondent.#29;

6. The third judgment on the point is the case of UTI Bank Ltd. v Deputy Commissioner of Central Excise reported as 2007 (208) E.L.T. 3 (Mad.) = AIR 2007 Madras 118 wherein the Full Bench of the Madras High Court speaking through Hon#25;ble Mr. Justice P. Sathashivam (as his Lordship then was) held as follows :

#28;All the decisions relied on by Mr. V.T. Gopalan, clearly show that the Government is entitled to claim its dues/taxes/duties in preference to other ordinary debts. In all those cases, there is no provision as found in SAFRFAESI Act or a specific provision claiming