2012 (4) TMI 42 - HC - Central Excise

Court quashes demand notices, invalidates recovery certificate, limits recovery to company only. Petition allowed.

The Court allowed the petition, quashing the Notice of Demand, Communication, and Notices of Attachment issued to the Petitioner and her late father. The ... Recovery of government dues under the Recovery Rules, 1995 - defaulter as person from whom government dues are recoverable - liability of a limited company distinct from its directors and shareholders - attachment of property under the Recovery Rules, 1995 - lifting the corporate veil - private agreement between transferor and transferee cannot create contractual liability in favour of the StateRecovery of government dues under the Recovery Rules, 1995 - defaulter as person from whom government dues are recoverable - liability of a limited company distinct from its directors and shareholders - attachment of property under the Recovery Rules, 1995 - Validity of notices of demand and attachment issued to the petitioner and her late father to recover excise dues admitted to be those of a limited company - HELD THAT: - The court held that the admitted arrears of excise duty and penalty were dues of the company which alone, as the person engaged in manufacture and registered under the Act, was liable to pay duty. The Recovery Rules, 1995 operate to recover amounts only from a defaulter, defined as a person from whom government dues are recoverable. There is no provision in the Central Excise enactment analogous to statutory provisions in other laws (such as Section 179 of the Income-tax Act or Section 18 of the Central Sales Tax Act) permitting recovery of a limited company's excise dues from its directors or shareholders. A company incorporated under the Companies Act is a separate legal person and its dues cannot be recovered from directors or individual shareholders unless the corporate veil is appropriately pierced and such a case is made out; no such case was pleaded or established. Consequently, notices of demand and attachment issued to the late director and to his transferee daughter to recover the company's admitted arrears were without jurisdiction and unsustainable. [Paras 8, 9]The notices of demand and attachment issued to the petitioner and her late father to recover the company's excise dues are quashed and set aside.Private agreement between transferor and transferee cannot create contractual liability in favour of the State - lifting the corporate veil - Sustainability of respondent's reliance on a private agreement by which transferees purportedly accepted responsibility to discharge the company's excise liabilities - HELD THAT: - The court rejected the contention that an inter se agreement between shareholders/transferees and transferors, by which the transferees undertook to discharge the company's tax liabilities, can be relied upon by the State to fasten liability on the transferees. Citing the principle that the State is not a party to such private instruments, the court held that such an agreement cannot create a contractual obligation enforceable by the revenue against the transferee. Further, the respondents did not invoke or establish grounds for piercing the corporate veil; accordingly the private agreement did not sustain recovery proceedings against the late director or his transferee. [Paras 8]Reliance on the private agreement to fasten the company's excise liabilities on the late director or the petitioner is not sustainable.Final Conclusion: Writ petition allowed; notices of demand and attachment issued to the late director and to the petitioner to recover dues acknowledged to be those of the company are quashed and set aside; certificate not set aside as not placed on record; no order as to costs. Issues Involved:1. Validity of the Notice of Demand dated 9 May 2011.2. Validity of the Communication dated 26 May 2011.3. Validity of the Certificate No.01/2011-12 dated 2 May 2011.4. Validity of the Communication dated 7 June 2011.5. Validity of the Notice of Attachment dated 1 July 2011.6. Validity of the Notice of Attachment dated 14 December 2011.Issue-wise Detailed Analysis:1. Validity of the Notice of Demand dated 9 May 2011:The Petitioner challenged the Notice of Demand issued to her late father by the Assistant Commissioner of Central Excise, which sought recovery of Central Excise duty and penalty from the deceased. The Court noted that the liability to pay excise duty is on the manufacturer of goods, as per Rule 4 of the Central Excise Rules, 2002. Since the deceased and the Petitioner were not manufacturers, they could not be considered defaulters under the Recovery Rules, 1995. The Court held that the notice was without jurisdiction and quashed it.2. Validity of the Communication dated 26 May 2011:This communication directed the Petitioner to pay the dues of M/s. Verma Mukherjee Pvt. Ltd., the company where her late father was a director. The Court reiterated that the liability to pay excise duty is on the company, not its directors or shareholders. The Court found that there is no provision under the Central Excise Act to recover dues from the directors of a limited company. Consequently, the communication was quashed.3. Validity of the Certificate No.01/2011-12 dated 2 May 2011:Although the Certificate was not filed before the Court, the Court observed that any certificate to recover dues from the late Balram P. Mukherjee and his daughter was not sustainable. The Certificate was related to the company's dues, and since the recovery could only be made from the company, the certificate against the individuals was invalid.4. Validity of the Communication dated 7 June 2011:The Court did not specifically address this communication in detail but implied that any actions based on the invalid notices and communications were also without jurisdiction.5. Validity of the Notice of Attachment dated 1 July 2011:The Deputy Commissioner of Central Excise issued this notice to attach the property of the Petitioner and her late father. The Court held that the attachment was invalid as the property belonged to the Petitioner, who was not a defaulter. The attachment notice was quashed.6. Validity of the Notice of Attachment dated 14 December 2011:This notice aimed to attach the property at Plot No.113, Village Vadhavali, Chembur. The Court found that the property was gifted to the Petitioner before the issuance of the notice, and she was not liable for the company's dues. The notice was quashed.Conclusion:The Court allowed the petition, quashing the Notice of Demand dated 9 May 2011, the Communication dated 26 May 2011, the Notice of Attachment dated 1 July 2011, and the Notice of Attachment dated 14 December 2011. The Certificate No.01/2011-12 was not set aside as it was not filed before the Court, but the Court noted that any recovery from the deceased or his daughter was not sustainable. The petition was disposed of with no order as to costs.