2022 (7) TMI 230 - AT - Central Excise

Tribunal grants refund, appellant not liable for dues, sets aside impugned order

The Tribunal allowed the appellant's appeal, setting aside the impugned order. It held that the appellant was not liable for the dues of M/s Roma ... Recovery of sums due to Government from the owner of property - default made by the lessee under Leave & Licence Agreement - Cancellation of registration of petitioner - HELD THAT:- The undertaking given at the time of cancellation of Central Excise registration (which says that in case M/s Roma Industries, sachin does not pay the central excise dues due to any reason whatsoever, the directors /partners of M/s Shaniyal Dying and Printing Mill, Sachin will be responsible and pay the government dues), does not ipso facto bind the appellant with the liability which is otherwise not present. The Hon’ble Supreme Court in the case of M/S. TATA CHEMICALS LTD. VERSUS COMMISSIONER OF CUSTOMS (PREVENTIVE) JAMNAGAR [2015 (5) TMI 557 - SUPREME COURT] held that something illegal cannot convert itself into something legal by act of a third person. It is clear that the said undertaking was given by the Appellant in respect of dues of M/s Shaniyal Dying and Printing mills only. The last para 5 of undertaking was wrongly interpreted by the department in the present matter. The actual meaning of said para is that if the dues related to Appellant i.e. arise after the surrender of registration certificate was not paid by M/s Roma Industries, than the same will be paid by the Directors /Partners of M/s Shaniyal Dying and Printing Mills. The said undertaking nowhere state that dues related to M/s Roma Industries will be paid by the Appellant or for the dues of M/s Roma Industries appellant will be responsible. Clearly, in the present matter entire undertaking has been misinterpreted by the department. In the present matter section 11 of the Act can have no application in the facts of the case. In the present disputed matter appellant have not succeeded or acquired the business or trade of the arrears holder (M/s Roma Industries) and even have not purchased any property of the arrears holder (M/s Roma Industries). M/s. Roma Industries cannot treated as predecessor and the appellant cannot be treated as successor in the business of M/s Roma Industries. Between both of them there is relationship of lessor and lessee - Further as per the said agreement, M/s Roma Industries was absolutely liable for all the government dues for the period during which they were having possession of the said plot. On the identical facts and issue, this tribunal also considered the matter in the case of M/S SAHIL TEXTILES VERSUS COMMISSIONER OF C. EX. & S. TAX, SURAT-I [2017 (1) TMI 704 - CESTAT, AHMEDABAD] has held that recovery cannot be made from the Lessor by attachment of the property. Thus, it is settled that the government dues against the assessee cannot be recovered from the owner of the property which was leased out to the assessee against whom the dues are pending accordingly, the revenue has wrongly collected the amount of dues pertaining to M/s. Roma Industries consequently, the said amount is required to be refunded to the appellant along with interest as per law. Appeal allowed - decided in favor of appellant. Issues Involved:1. Legality of the undertaking for payment of dues.2. Interpretation of the undertaking.3. Authority of the signatory of the undertaking.4. Applicability of Section 11 of the Central Excise Act.5. Applicability of Section 142 of the Customs Act.6. Liability of the appellant for dues of M/s Roma Industries.7. Precedent cases and judgments.Issue-wise Detailed Analysis:1. Legality of the undertaking for payment of dues:The appellant argued that the refund claim was disallowed based on an alleged undertaking, which was not supported by any provision in the Central Excise Act or the Rules. The appellant contended that the department cannot enforce commitments beyond the clear provisions of the Act and Rules, and such an exercise of power is illegal.2. Interpretation of the undertaking:The appellant submitted that the undertaking was misinterpreted by the department. The undertaking was meant to cover old dues of the appellant, not the dues of M/s Roma Industries. The department's interpretation that the appellant would be liable for M/s Roma Industries' dues was incorrect.3. Authority of the signatory of the undertaking:The appellant argued that the second undertaking from 2002 was not executed by the appellant and lacked the necessary company resolution. The signatory, Vikesh Jayantilal Mandiviwala, was not a director of the appellant company at the relevant time, thus questioning the validity of the undertaking.4. Applicability of Section 11 of the Central Excise Act:The appellant contended that Section 11 of the Central Excise Act, which deals with the recovery of sums due to the government, did not apply as M/s Roma Industries was not a successor-in-business of the appellant. The appellant had merely leased the property to M/s Roma Industries, and there was no transfer of business or trade.5. Applicability of Section 142 of the Customs Act:Similarly, the appellant argued that Section 142 of the Customs Act did not apply because M/s Roma Industries had no interest in the appellant's property. The appellant had not transferred any business or trade to M/s Roma Industries, and the latter had no proprietary interest in the land, plant, and machinery.6. Liability of the appellant for dues of M/s Roma Industries:The Tribunal found that the undertaking given at the time of cancellation of Central Excise registration did not bind the appellant to the liability for M/s Roma Industries' dues. The Tribunal cited the Supreme Court's decision in Tata Chemicals v. CCE, which held that something illegal cannot become legal by the act of a third person. The Tribunal concluded that the appellant was not liable for the dues of M/s Roma Industries.7. Precedent cases and judgments:The Tribunal referred to several judgments, including Chandra Dying & Printing Mills Pvt. Ltd. v. Union of India and M/s Sahil Textiles v. CCE, which supported the appellant's position. These cases established that government dues against an assessee cannot be recovered from the property owner who leased the property to the assessee.Conclusion:The Tribunal set aside the impugned order, allowing the appeal with consequential relief. The Tribunal held that the revenue had wrongly collected the amount of dues pertaining to M/s Roma Industries and that the appellant was entitled to a refund along with interest as per law. The judgment was pronounced in the open court on 06.07.2022.