2014 (4) TMI 1025 - HC - Customs

Conflict on Imposing Penalties on Partnership Firm and Partners under Customs Act, 1962

The court noted a conflict between judgments regarding the imposition of penalties on a partnership firm and its partners under the Customs Act, 1962. One ... Imposition of Simultaneous Penalties - Whether CESTAT erred in imposing simultaneous penalties on both the Partner and Partnership firm – Two conflicting opinions of two Division Benches of this Court - Section 112(a) of the Customs Act, 1962 - Held that:- This Court is not in agreement that two opinions rendered by two Division Benches of this Court are not conflicting - Textoplast Industries [2011 (7) TMI 402 - Bombay High Court]recognizes the settled concept and applies it, namely, a firm cannot be said to have an independent existence than that of partners even when it comes for imposition of penalty - Whereas, Commissioner of Customs (E.P.) v/s Jupiter Exports [2007 (6) TMI 2 - HIGH COURT, BOMBAY] holds that there is no difference between criminal prosecution and adjudication or penalty proceedings - Therefore, even in cases falling under the Customs Act, dealing with imposition of penalty same cannot be confined only on a partnership or its partner - Division Bench, therefore, does not agree with the principles applied in earlier Division Bench judgment and expressly differs from it - This divergence of opinion is apparent and this Court cannot follow judgment in Textoplast Industries. It is difficult to hold that Division Bench in Jupiter Exports is per incuriam or that the law laid down therein is no longer good law in the light of the judgment in Standard Chartered Bank v/s Directorate of Enforcement [2006 (2) TMI 272 - SUPREME COURT OF INDIA] noting that the controversy before Supreme Court was decided in the backdrop of the facts and particularly the legal position and status of a company incorporated and registered under the Indian Companies Act, 1956, this Appeal cannot be dismissed by following judgment in Textoplast Industries - Judgment in Textoplast Industries cannot be said to be either per incuriam or no longer good law - Further, in Director of Settlements, A.P. v/s M.R. Apparao [2002 (3) TMI 909 - SUPREME COURT] as far as a binding precedent is concerned, it cannot be assailed on the ground that certain issues were not considered or the relevant provisions were not brought to the notice of the Court. Matter referred to larger bench referring the following questions for opinion of a Larger Bench: (i) Whether, under Customs Act, and particularly in exercise of the powers conferred by Section 112(a) thereof, simultaneous penalties on both the Partner and Partnership firm can be imposed and (ii) Whether, judgment in Jupiter Exports holding that separate penalty on a partnership firm and a partner cannot be imposed, lays down the correct law or whether, as held by the later Division Bench in the case of Textoplast Industries, it is permissible to impose penalty separately on a partnership firm and a partner particularly in adjudication proceedings under the Customs Act, 1962. - Referred to larger bench. Issues Involved:1. Whether the CESTAT erred in imposing simultaneous penalties on both the partner and the partnership firm.2. The legal status and implications of penalties imposed on a partnership firm and its partners under the Customs Act, 1962.3. The conflict between different judgments regarding the imposition of penalties on a partnership firm and its partners.Detailed Analysis:1. Imposition of Simultaneous Penalties on Partner and Partnership Firm:The central issue in these appeals is whether the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) erred in imposing simultaneous penalties on both the partner and the partnership firm. The appellants argued that the law does not postulate the imposition of penalties on both entities simultaneously, as a partnership firm does not have an independent existence separate from its partners. They contended that penalizing both the firm and the partner results in double penalties for the same offense, which is not permissible. The appellants relied on the judgment in Commissioner of Customs (E.P.) v. Jupiter Exports, which held that when a partnership firm is penalized, separate penalties cannot be imposed on the partners.2. Legal Status and Implications of Penalties Under the Customs Act, 1962:The appellants argued that a partnership firm, unlike a company, is not a juristic entity and does not have an existence independent of its partners. Therefore, imposing penalties on both the firm and the partner is erroneous. They cited the Supreme Court judgment in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. M/s K. Kelukutty, which emphasized that a partnership firm is not a distinct legal entity apart from its partners. The appellants also referred to the case of M/s Malabar Fisheries Co. v. The Commissioner of Income Tax, Kerala, where the Supreme Court held that a partnership firm has no separate rights of its own in the partnership assets, and the firm's property is essentially the joint property of the partners.3. Conflict Between Different Judgments:The appellants highlighted a conflict between the judgments in Jupiter Exports and Textoplast Industries v. Additional Commissioner of Customs. While Jupiter Exports held that separate penalties cannot be imposed on a partnership firm and its partners, Textoplast Industries, relying on the Supreme Court's judgment in Standard Chartered Bank v. Directorate of Enforcement, held that penalties can be imposed on both entities. The appellants argued that the judgment in Textoplast Industries misinterpreted the Supreme Court's ruling in Standard Chartered Bank, which dealt with the prosecution of companies under the Foreign Exchange Regulation Act (FERA) and not with the imposition of penalties under the Customs Act.Court's Observations and Directions:The court noted the conflicting views in the judgments of Jupiter Exports and Textoplast Industries. It observed that the judgment in Jupiter Exports applied the settled legal concept that a partnership firm does not have an independent existence separate from its partners, whereas Textoplast Industries took a different view, holding that penalties can be imposed on both the firm and the partner. The court found that there is a clear conflict between the two judgments and that the issue requires further consideration by a larger bench.The court admitted the appeals and directed that the papers and proceedings be placed before the Chief Justice to obtain suitable directions. The court framed the following substantial questions of law for consideration by a larger bench:1. Whether, under the Customs Act, 1962, simultaneous penalties on both the partner and the partnership firm can be imposed.2. Whether the judgment in Commissioner of Customs (E.P.) v. Jupiter Exports, holding that separate penalties on a partnership firm and a partner cannot be imposed, lays down the correct law, or whether, as held in Textoplast Industries, it is permissible to impose penalties separately on a partnership firm and a partner in adjudication proceedings under the Customs Act, 1962.