2012 (6) TMI 556 - HC - Central Excise

Legal heirs not liable for deceased manufacturer's excise duty; Court rules against Revenue appeal

THE COMMISSIONER OF CENTRAL EXCISE, BANGALORE-III Versus SHRI DHIREN GANDHI

The High Court upheld the Tribunal's decision, ruling that legal heirs are not liable for the central excise duty of a deceased manufacturer. The court ... Recovery of duty from a successor in business - legal heirs of a deceased assessee - Held that:- the proviso is attracted to cases in which the person chargeable to duty transfers or dispose of the business which he is carrying on during his lifetime. If any amount was due from the predecessor in title, the successor in title is liable and it is to be recovered from him. We do not find any provision in the Act which foists any such liability in the case of intestate succession. In other words, there is no provision which empowers the authorities to recover due from a deceased assessee by proceeding against his legal heirs. The way Sec. 11 and 11A are worded, it is amply clear, the legislature has consciously kept away the legal heirs from answering to liabilities under the Act. In all the cases of such commercial activity being carried on, except that of an individual, the death of any person who is involved in the manufacturing activity, has no impact on the business or manufacturing activity. Even after his death, the manufacturing activity goes on, the legal entity which is carrying on the business is not disrupted and the commercial activity is continued without any interruption. In the case of an individual, on his death, the manufacturing activity comes to an end. To hold his legal heirs liable for the dues under the Act from the manufacturer who is the person who is charged with the duty to pay tax would be unreasonable. Issues Involved:1. Liability of legal heirs for central excise duty.2. Applicability of Sections 11 and 11A of the Central Excise Act, 1944.3. Interpretation of the term 'manufacturer' under Section 2(f) of the Act.4. Jurisdiction of the authorities in demanding duty from successors.Detailed Analysis:1. Liability of Legal Heirs for Central Excise Duty:The core issue was whether legal heirs are liable to answer the claims of the department under the Central Excise Act when the registered manufacturer dies, and the registration certificate is surrendered. The Tribunal held that there is no provision to demand duty from the successor, and the provisions of Section 11 of the Central Excise Act, 1944, to demand duty from the successor cannot withstand the test of law. The High Court agreed, stating that there is no provision in the Act that foists liability on the legal heirs of a deceased assessee.2. Applicability of Sections 11 and 11A of the Central Excise Act, 1944:Section 11A deals with the recovery of duties not levied or paid, short-levied, short-paid, or erroneously refunded. The court noted that Section 11A can be invoked only to recover duty from a person chargeable with duty, who is defined as the manufacturer under Section 3 of the Act. The court emphasized that the legislature has consciously kept legal heirs away from answering liabilities under the Act, as evident from the wording of Sections 11 and 11A.3. Interpretation of the Term 'Manufacturer' under Section 2(f) of the Act:The court highlighted that the term 'manufacturer' includes any person who engages in the production or manufacture of excisable goods, either by employing hired labor or on their own account. Therefore, the person chargeable with duty under the Act is the manufacturer. The court clarified that the liability to pay duty is primarily on the manufacturer, and this does not extend to legal heirs unless they continue the business and comply with the statutory requirements.4. Jurisdiction of the Authorities in Demanding Duty from Successors:The court examined the proviso to Section 11, which allows recovery of sums due from the successor if the predecessor transfers or disposes of the business during their lifetime. However, the court found no provision in the Act that allows recovery from legal heirs in the case of intestate succession. The court concluded that the authorities do not have jurisdiction to claim cenvat credit from the legal heirs once the registration certificate is surrendered.Conclusion:The High Court upheld the Tribunal's decision, stating that the legal heirs are not liable for the central excise duty of the deceased manufacturer. The court emphasized that the legislature did not intend to impose such liability on legal heirs, and the authorities' claim was without jurisdiction. The appeal by the Revenue was dismissed, and the substantial question of law was answered in favor of the assessee and against the Revenue.