Case Law Details

Case Name : Vandana Bidyut Chaterjee Vs Union of India (Bombay High Court)
Appeal Number : Writ Petition No. 165 of 2012
Date of Judgement/Order : 13/02/2012
Related Assessment Year :
Courts : All High Courts (6006) Bombay High Court (1059)

JUDGMENT

M.S. Sanklecha, J.

Rule, with the consent of counsel for the parties returnable forthwith. With the consent of counsel and at their request the petition is taken up for hearing and final disposal.

2. By this petition under article 226 of the Constitution of India the petitioner is challenging the following:

(a)  A notice of demand dated May 9, 2011, in pro forma Appendix II of the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995, to the late father of the petitioner, Balram P. Mukherjee issued by the Assistant Commissioner of Central Excise;

(b)  A communication dated May 26, 2011, issued by the Deputy Commissioner of Central Excise directing the petitioner to pay the dues of M/s. Verma Mukherjee P. Ltd., along with interest in view of a notice of demand to the defaulter dated May 9, 2011 ;

(c)  A Certificate No. 01/2011-12 dated May 2, 2011, forwarded by the Deputy Commissioner of Central Excise, Kurla Division, Mumbai II to the Deputy Commissioner of Central Excise, Chembur II, Mumbai II ;

(d)  A communication dated June 7, 2011, from the Deputy Commissioner of Central Excise seeking information from the petitioner about herself and her late father;

(e)  A notice of attachment dated July 1, 2011, issued to the petitioner and her late father Balram P. Mukherjee in pro forma Appendix IV of the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995, by the Deputy Commissioner of Central Excise attaching his property ; and

(f)  A notice of attachment dated December 14, 2011, issued to the petitioner in pro forma Appendix IV of the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995, attaching the property at Plot No. 113, at village Vadhavali, Chembur by the Assistant Commissioner of Central Excise.

3. The brief facts leading to the present petition are as follows :

(a)  The father of the petitioner, late Balram Priyanath Mukherjee, was during his lifetime a director of Verma Mukherjee P. Ltd. (“the company”). The company was engaged in the business of processing grey fabrics on job work basis, and had obtained registration as manufacturer under the Central Excise Act, 1944 (“the Act”). Balram P. Mukherjee died on September 4, 2011.

(b)  The deceased also at one time owned a property situated at 3/4 Union Park, S. T. Park, Chembur, Mumbai-400 071, described as at Plot No. 113, at village Vadhavali, Chembur in the attachment notice dated December 14, 2011. On September 20, 2009, Balram P. Mukherjee during his lifetime had by a deed of gift dated September 20, 2009, gifted the said property to his daughter, the petitioner herein.

(c)  On May 9, 2011, a notice of demand was addressed to the petitioner’s father, being a notice to defaulter in form Appendix II by the Assistant Commissioner of Central Excise. The aforesaid notice of demand was in terms of section 142(1)(c)(ii) of the Customs Act, 1962, read with rule 4 of the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995 (“the Recovery Rules, 1995”) calling upon the petitioner’s father to pay Central excise duty amounting to Rs. 71,68,243 and penalty of Rs. 2,5000 on the basis of a Certificate No. 1/2011-12 dated May 2, 2011. The aforesaid notice called upon the petitioner’s father to pay duty along with interest thereon and penalty within seven days from the date of service of the notice, failing which recovery proceedings under the Recovery Rules, 1995, were threatened.

(d)  Thereafter, on May 26, 2011, the Deputy Commissioner of Central Excise issued a notice to the petitioner informing the petitioner that there were arrears of Rs. 71,68,243 as duty and Rs. 25,000 as penalty payable by the said company of which the petitioner’s father was a director. By the aforesaid notice, the petitioner was informed that arrears of duty and penalty are recoverable from the company ; in the Municipal record the property stands in the name of the petitioner’s father and as she was in occupation of the said property, a notice of demand dated May 9, 2010, was enclosed to a letter dated May 26, 2000. The above communication further directed the petitioner to pay dues along with interest failing which, it was stated, the procedure for attachment under the Recovery Rules, 1995 would follow. On June 4, 2011, the petitioner by a letter addressed to the Deputy Commissioner of Central Excise pointed out that she is the daughter of Balram P. Mukherjee and presently owned the said property. The petitioner further pointed out that neither she nor her father was a defaulter of Excise duty under section 142(1) of the said Act or under the Recovery Rules, 1995, as is evident form the notice itself which very clearly states that the arrears of duty and penalty are recoverable from the company. In the circumstances, the respondents were requested to refrain from taking coercive measures for recovery of duty and penalty from the petitioner.

(e)  Thereafter, on July 1, 2011, the Deputy Commissioner of Central Excise served a notice of attachment under the Recovery Rules, 1995, at the petitioner’s address to the petitioner’s father and the petitioner. By the notice, the petitioner was informed that property has been attached and in terms of rules 9 and 10 of the Recovery Rules, 1995, the petitioner was prohibited from in any manner dealing with and/or transferring her interest in the property. Thereafter, on December 27, 2011, a notice of attachment dated December 14, 2011, was addressed to the petitioner as daughter of the late Balram Mukherjee to prohibit the petitioner from in any manner dealing with and/or transferring her interest in the said property without the permission of the Excise Department.

(f)  It is on the aforesaid facts that the petitioner has come to court seeking to quash the recovery proceedings against her under the Recovery Rules, 1995.

4. The respondents have filed an affidavit in reply dated February 2, 2011, of the Assistant Commissioner of Central Excise to the present petition in this court. The respondents have stated that the amounts of Rs. 71,68,243 as duty and Rs. 25,000 as penalty are arrears of the company. The affidavit also points out that by an agreement dated March 21, 2000, entered into between Mukherjee brothers and Kapoor family who together controlled the said company, the shares of the Kapoor family were transferred to Mukherjee brothers. The aforesaid agreement also provided that the Mukherjee family would be responsible to discharge the excise duty liabilities of the said company and therefore justifies the present proceeding against the petitioner and her late father Balram P. Mukherjee. The affidavit also stated that a notice of attachment was served upon the late Balram P. Mukherjee under the Recovery Rules, 1995, on December 6, 2005 and therefore the gift deed dated September 20, 2009, was void in law. However, the alleged notice of demand served on December 6, 2005, was not produced before the court.

5. On the aforesaid facts, it was submitted by learned senior counsel appearing for the petitioner that the action of the respondents in seeking to attach the said property now belonging to the petitioner and formerly belonging to her father the late Balram P. Mukherjee to recover the dues of the company is without jurisdiction. This was so as the liability to pay the excise duty is on the manufacturer of goods who alone can be a defaulter in payment of excise duty. In support of his submission, counsel invited our attention to rule 4 of the Central Excise Rules, 2002, which provides that a person who manufactures excisable goods is obliged to pay duty leviable on the said goods at the time of removal from the place where they are manufactured. Even earlier, under rule 7 of the Central Excise Rules, 1944, it was the person who manufacturers excisable goods who was liable to pay excise duty on manufacture of goods. It was submitted by the petitioner, that neither the petitioner nor her father were at any time manufacturers of goods and/or registered under the said Act as manufacturers to become liable to pay excise duty. That the arrears of duty and penalty were that of the company is an admitted position as accepted in the affidavit in reply dated February 2, 2012, of the respondent. It was submitted that it is also evident from the notice/communication dated May 26, 2011, that the arrears of excise duty and penalty were payable by the said company of which the petitioner’s father was a director. Counsel further submitted that there is no provision under the said Act to recover the dues of excise from the directors of a limited company in case of default on payment of duty by the limited company as in the present case. This was in contrast to section 179 of the Income-tax Act, 1961, which provides that a director of the private limited company which is in liquidation, shall be jointly and severally liable for payment of income-tax dues of the company unless he proves that non-payment of income-tax by the company cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. Similar provision is also found under section 18 of the Central Sales Tax Act, 1956, according to counsel. Further counsel invited our attention to the Recovery Rules, 1995 and in particular to the definition of defaulter given in rule 2(vi) which reads as under :

“2. Definition.-In these rules, unless the context otherwise requires- . . .

(vi) ‘Defaulter’ means any person from whom Government dues are recoverable under the Act.”

6. On the basis of the above definition, counsel submitted that in this case neither the petitioner nor her father who was a director of the company, were defaulters in paying Government dues. In this case, the defaulter, if any, was the said company and the proceedings under the Recovery Rules, 1995, could only be taken against the said company. The proceedings for recovery of Excise and Customs dues under the Recovery Rules, 1995, is to recover duty from the defaulter. It was on the basis of the aforesaid provisions of law that he contended that the proceedings against the petitioner are without jurisdiction as neither she nor her predecessor-in-title to the said property, namely, her late father could be considered defaulters under the Recovery Rules, 1995. In support of his case counsel has relied upon two decisions of this court in Sunil Parmeshwar Mittal v. Dy. Commissioner (Recovery Cell), Central Excise 2005 (188) ELT 268 (Bom.) and of Satish D. Sanghavi v. Union of India [2012] 171 Comp. Cas. 309 (Bom.), where this court has taken a view that a director of the company which has failed to pay excise duty could not be held responsible and liable to discharge the liabilities of a defaulting company.

7. Mr. Pradeep Jetly, counsel appearing for the respondents submitted that the duty of Rs. 71,68,743 and penalty of Rs. 25,000 was arrears of the said company. However he contended that as far back as on March 21, 2000, by an agreement the interest of Kapoor family in the said company was transferred to the late Balram P. Mukherjee and his brother Suraj Mukherjeee, i.e., Mukherjee brothers. Further the aforesaid agreement between the Kapoors and the Mukherjees provided that the discharge of Central Excise duties would be the responsibility of the Mukherjee Brothers. Therefore Mr. Jelty stressed that as a consequence of the transfer of shareholding on March 21, 2000, between the Kapoor family and Mukherjee family the entire shareholding was transferred to Mukherjee family, who, inter alia, accepted their responsibility to discharge the Central excise duty payable by the said company. It was thereafter submitted that a notice of attachment under rule 4 of the Recovery Rules, 1995, was served on Balram P. Mukherjee on December 6, 1995 and therefore any transfer thereafter was a fraudulent transfer of the said property. Consequently, it was submitted by Mr. Jetly that the attachment proceedings were in order and once notice under rule 4 of the Recovery Rules, 1995, has been served, then any further transfer of the said property either by way of gift, sale, etc., was a fraudulent transfer done only with an intent to deprive the Revenue of its dues. In view of the above, it was submitted by Mr. Jetly that the court should not issue a writ in the present proceeding as the respondents were completely within jurisdiction in seeking to recover the dues and penalty of the said company from its erstwhile director late Balram P. Mukherjee and his successor-in-title to the said property, i.e., the petitioner.

8. In the rejoinder, Mr. Sridharan, senior counsel for the petitioner submitted that the respondents have not brought on record the alleged attachment notice dated December 6, 1995, served upon the late Balram P. Mukherjee and therefore the same should not be believed. Without prejudice to the above he submitted that any recovery proceeding against the late Balram P. Mukherjee is without jurisdiction as he cannot be liable for Excise dues/arrears of the said company in his capacity as a director thereof. Counsel further submitted that the statutory dues cannot be contracted away without the State being a party to it. In support of the above submission he placed reliance upon the decision of the Supreme Court in the matter of Deputy CTO v. Sha Sukraj Peerajee [1968] 21 STC 5.

9. We have considered the submissions. It is an undisputed position that duty and penalty are arrears of the company. It was the company that was the person engaged in manufacture of goods and registered as manufacturer under section 6 of the said Act and therefore obliged to pay excise duty. Further under the Act and the Rules, the person liable to pay duty is the person who manufactures the goods in terms of rule 7 of the erstwhile Central Excise Rules, 1944 and rule 4 of the Central Excise Rules, 2002, as now existing. Therefore the obligation to pay duty is on the company. The affidavit in reply dated February 2, 2011, filed by the respondents states that the arrears being Rs. 71,68,243 as excise duty and Rs. 25,000 as penalty are dues of the company. Therefore in terms of section 142 of the Customs Act, 1962, as made applicable to the Central Excise Act, 1944, by virtue of a notification issued under section 12 of the Central Excise Act, 1944, the Central Government can recover sums due to it from the person who has not paid its dues. It is under section 142 read with section 156 of the Customs Act, 1962, that the Recovery Rules, 1995, have been framed. In terms of the Recovery Rules, 1995, the amounts which can be recovered are only those belonging to a defaulter. A defaulter is defined under the Recovery Rules, 1995, as any person from whom Government dues are recoverable. It is an undisputed position that in this case that the dues/arrears of excise duty and penalty are that of the company. Therefore the recovery proceedings under the Recovery Rules, 1995, can be taken only against the company, as it alone is the defaulter. There is no provision to recover the arrears of the company from its directors and/or shareholders under the said Act. The arrears of dues belonging to a limited company are recoverable only from the limited company concerned which is an independent entity in law, particularly so, as it obtains a separate registration under the Act. Therefore in terms of the Recovery Rules, 1995, the dues can be recovered only from the limited company. There is no provision in the said Act as is found under section 179 of the Income-tax Act, 1961, or under section 18 of the Central Sales Tax Act, 1956, where the dues of a private limited company can be recovered from its directors when the private limited company is under liquidation, in specific circumstances. It is a well-settled position in law that a company incorporated under the Companies Act, 1956, is a separate person having a distinct independent identity, independent from its shareholders and directors. Consequently, the dues of the company cannot be recovered from the directors and/or individual share-holder of the company. Further, it is pertinent to note that it is not the case of the respondents that they are seeking to lift the corporate veil of the said company to establish that the said company was a mere shell and being utilised to defraud the Revenue of its legitimate dues. Further the case of lifting the corporate veil, if any, was to be made out at the time notices of demand were issued to the said company by making the directors/share-holders liable to pay the dues and the same being confirmed by the authorities under the said Act. Once it is an admitted position between the parties that the arrears of duty and penalty are those of the said company then the notices issued under the Recovery Rules, 1995, to its former director the late Balram P. Mukherjee and his daughter the petitioner herein to whom the said property has been gifted, are completely without jurisdiction. We are fortified in the view taken by us by two decisions of the Division Bench of this hon’ble court in Sunil Parmeshwar Mittal’s case (supra) and Satish D. Sanghavi’s case (supra) where on similar facts it has been held that arrears of duty payable by a limited company cannot be recovered from its director. Further, the reliance of the respondents upon an agreement dated March 21, 2000, between Kapoor family and the Mukherjee brothers whereby all the shareholding of Kapoor family in the said company was transferred to Mukherjee brothers and under which the Mukherjee brothers accepted their responsibility to discharge the Central Excise liability in support of its case that the dues of the said company can be recovered from the late Balram P. Mukherjee and/or his estate is not sustainable. Mr. Sridharan invited our attention to a decision of the Supreme Court in the matter of Sha Sukraj Peerajee (supra) reported in [1968] 21 STC 5, wherein the Supreme Court observed as under (page 10) :

“But even on the assumption that the respondent undertook to pay the arrears of sales tax due by the transferor, it does not follow that there is a liability created inter se between the State Government on the one hand and the transferee on the other hand. To put it differently, it is not open to the State Government to rely on the instrument inter vivos between the transferor and the transferee and to contend that there is any contractual obligation between the transferee and the State Government who is not a party to the instrument. We accordingly reject the argument of the appellants on this aspect of the case also.”

10. Consequently reliance of the respondent upon the agreement dated March 21, 2000, between Kapoor family and Mukherjee brothers to fasten the liability of excise duty and penalty arrears of the said company upon the late Balram P. Mukherjee is not sustainable.

11. For the aforesaid reasons, we allow the petition by quashing and setting aside :

(a)  A notice of demand dated May 9, 2011, issued to the father of the petitioner the late Balram P. Mukherjee by the Assistant Commissioner of Central Excise being (exhibit E);

(b)  A communication dated May 26, 2011, issued by the Deputy Commissioner of Central Excise directing the petitioner to pay the dues of said company along with interest (exhibit G) ;

(c)  A notice of attachment dated July 1, 2011, issued to the petitioner and her late father Balram P. Mukherjee by the Deputy Commissioner of Central Excise attaching the said property (exhibit K) ; and

(d)  A notice of attachment dated December 14, 2011, issued to the petitioner by the Assistant Commissioner of Central Excise (exhibit L).

12. We do not set aside Certificate No. 1 of 2011-12 dated May 2, 2011, forwarded by the Deputy Commissioner of Central Excise, Kurla Division, Mumbai II to the Deputy Commissioner of Central Excise, Chembur II, Mumbai II as the same is not filed before us. However in the view we have taken, a certificate to recover any dues/arrears of the said company from late Balram P. Mukherjee and/or his daughter the petitioner herein is not sustainable.

13. The petition is accordingly disposed of in the above terms. No order as to costs.

NF

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