Merger does not eliminate customs duty liabilities, successor company inherits transferor's tax obligations

The HC dismissed a writ petition challenging a customs show cause notice for duty recovery. The petitioner company, formed through merger with the original noticee company, argued the liability was extinguished due to merger. The court held that merger does not eliminate tax liabilities of the transferor company. The successor company inherits both assets and liabilities unless specifically retained by promoters. Since no amalgamation scheme was filed and the advance license benefit was availed by the transferor, the transferee must discharge the obligation. The petitioner was directed to reply within 30 days.

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Issues Involved:
1. Validity of the Show Cause Notice issued to a non-existent entity.
2. Compliance with Export Obligations and the resultant liability of the successor company.
3. Applicability of legal precedents and statutory provisions.

Summary:

Issue 1: Validity of the Show Cause Notice issued to a non-existent entity
The petitioner challenged the show cause notice dated 28.08.2019, issued by the third respondent, seeking to recover Customs duty on imports made by the petitioner under an advance license. The petitioner argued that the notice was issued to M/s. Fabritex Exports Pvt Ltd, a company that had ceased to exist due to mergers and de-mergers. The petitioner cited several Supreme Court decisions to support their claim that the notice should be quashed.

The respondents countered by stating that the Import Export Code (IE Code) of M/s. Fabritex Exports Pvt Ltd had not been canceled and continued to remain valid. Therefore, the notice was still applicable. The court noted that the transferee company (the petitioner) would inherit both the assets and liabilities of the transferor company (M/s. Fabritex Exports Pvt Ltd) under the scheme of amalgamation.

Issue 2: Compliance with Export Obligations and the resultant liability of the successor company
The petitioner contended that M/s. Fabritex Exports Pvt Ltd had obtained an Advance Authorization and imported goods without fulfilling the export obligations, thus violating the conditions of the notification and the bond executed. The respondents argued that the petitioner, as the successor company, was responsible for the liabilities incurred by M/s. Fabritex Exports Pvt Ltd, including the customs duty and interest on unutilized imported materials.

The court held that the merger or amalgamation of companies does not extinguish the liabilities of the transferor company. The petitioner, as the successor company, was obligated to discharge the liabilities of M/s. Fabritex Exports Pvt Ltd. The court directed the petitioner to respond to the show cause notice within 30 days and allowed the respondents to adjudicate the matter on merits within three months.

Issue 3: Applicability of legal precedents and statutory provisions
The court examined various legal precedents and statutory provisions cited by both parties. It concluded that the decisions cited by the petitioner could not be applied to the facts of the case. The court emphasized that mergers and amalgamations are not tools to evade tax liabilities and that the successor company inherits both assets and liabilities.

Conclusion:
The writ petition was dismissed, and the petitioner was directed to reply to the show cause notice within 30 days. The respondents were instructed to adjudicate the matter on merits within three months, with the entire process to be completed within six months. If the petitioner failed to cooperate, the respondents were authorized to confirm the demand and recover the amount based on available material. No costs were awarded, and connected miscellaneous petitions were closed.

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