TaxTMI 
TaxTMI 
2013 (11) TMI 1392
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....hri Narinder Singh Punn, Director of M/s. Freezair India (P) Limited CB-382/10, Indra Market, Ring Road, Naraina, New Delhi under Sections 11A, 11AB and 11AC of the Central Excise Act, 1944 (Act, for short) read with Rules 9(2), 173Q, 209A and 226 of the Central Excise Rules, 1944. 3. In paragraph 37 of the said notice, it was stated as under:- "Whereas it appears that M/s Freezair India/M/s Freezair India (P) Ltd. has not paid Central Excise duty amounting to Rs.45,62,325/- on the cooling/indoor units of split air conditioner & other parts of air conditioner manufactured and cleared by them, without disclosing the production/clearances with the intent to evade payment of duty (as per Annexure-A), during the years 1996-97, 1997-98 & 1998-99 without getting themselves registered with the Central Excise department, by wilfully suppressing the clearances from the department, without accounting for the production and clearances in the statutory records, without submitting RT-12 returns, without filing classification declaration, without following the prescribed procedure, without maintaining prescribed Central Excise records in contravention of above re....
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....ngaged in the manufacture of Air Conditioners and cooling units of split air conditioners falling under Chapter Heading No. 8415 and to its two directors namely Sh. Kuldeep Singh Punn and Sh. Narender Singh Punn. Prior to 29-01-98, the said company was known as Freezair India situated at the same address and Sh. Kuldeep Singh Punn was Proprietor (at present, Director of the said company)." (Emphasis Supplied) 8. After considering the reply, the alibi and defence was rejected and in paragraph 44 of the said order the adjudicating authority, i.e., Commissioner, Central Excise, Delhi-1 directed and confirmed demand of Central Excise duty of Rs.45,62,325/- under Rule 9(2) read with proviso to Section 11A of the Act. Penalty of equivalent amount was imposed on the appellant under Section 11 AC of the Act read with Rule 173Q. Interest under Section 11AB of the Act was directed to be imposed. Recovery was directed against the appellant even for the period prior to the incorporation. Penalty of Rs.3 lacs and Rs.2 lacs was imposed on Kuldeep Singh Punn and Narender Singh Punn under Rule 209A of the Rules. 9. The appellant herein preferred an appeal before Customs, Excise and Gold (Control....
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....quently, learned counsel for the Revenue was asked to seek instructions whether having regard to the facts of the case, if the appellant-assesseee paid the excise duty as demanded for the period prior to 1st April, 1998, the revenue would be willing to wave off and not press for recovery of penalty. Revenue did not agree to the said proposal. By order dated 14th September, 2011, the appeal was allowed to be withdrawn with liberty to the appellant to prefer an appeal or reference before the High Court. Pursuant to the said liberty, the present reference was filed and stands admitted for hearing and disposal in terms of order dated 14th November, 2011. The question raised is whether the appellant-company can be held to be vicariously liable for the dues and the liability of Kuldeep Singh Punn, an individual and promoter director. The important issue is whether the appellant could have been assessed and charged with the liability to pay excise duty, penalty and interest for the period prior to 1st April, 1998, i.e., whether the original adjudication/assessment order itself is flawed and bad for levying, imposing and creating duty liability on the appellant for the period prior to 1st ....
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....ligations of the corporate identity and seek performance or penalise the natural person behind the corporate cloak. Sometimes but rarely it can be applied as a principle at the behest of the company i.e. the corporate entity. In the present case, what is sought to be enforced in the impugned order is entirely different. It holds that the appellant company liable for the dues and liabilities of Kuldeep Singh Punn, its promoter director. The liabilities are for the period prior to the incorporation of the company or beginning of the operations. 14. In view of the aforesaid discussion, we reject the argument of the respondent that in the present case that the corporate veil should be lifted and, thereby make the appellant company liable to pay duty for the failure and fraudulent transactions made by Kuldeep Singh Punn, sole proprietor. The said activities and liabilities indulged were in his capacity as a sole proprietor and not because he was or would be the promoter director of the appellant. In the absence of any such statutory provision relied upon and pointed out to us, the said plea of the respondent has to be rejected. Principle of vicarious liability has to be created and ena....
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....pply, there should be determination of duty on the predecessor and a finding to invoke and make recovery from the successor. (The second part need not be in the order of assessment). It is immaterial whether the said assessment was before or after the transfer of business to the successor in whole or in part. In the present case, there has been no assessment of duty on the predecessor either before or after transfer; i.e., with effect from 1st April, 1998 or with the incorporation of the appellant-company on 29th January, 1998. In other words the predecessor, i.e., Kuldeep Singh Punn has not been assessed or charged with the liability. For the period even prior to 1st April, 1998, the appellant company has been assessed, which is wrong and incorrect. This is not permissible and is not postulated under Rule 230(2) of the Rules. No provision has been highlighted or pointed out under which this adjudication can be sustained and upheld. Respondent may have succeeded and would have applied Rule 230(2), if the original assessment had been rightly made and assessed in the hands of Kuldeep Singh Punn the sole proprietor for the period prior to 1st April, 1998. However, Rule 230(2) cannot b....
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....ny other sums of any kind, as specified in this section, is recoverable or due, transfers or otherwise disposes of his business or trade in whole or in part, or effects any change in the ownership thereof, in consequence of which he is succeeded in such business or trade by any other person, all excisable goods, materials, preparations, plants, machineries, vessels, utensils, implements and articles in the custody or possession of the person so succeeding may also be attached and sold by such officer empowered by the Central Board of Excise and Customs, after obtaining written approval from the Commissioner of Central Excise, for the purposes of recovering such duty or other sums recoverable or due from such predecessor at the time of such transfer or otherwise disposal or change." 20. The proviso was inserted with effect from 10th September, 2004. This is probably the reason why the proviso was not referred to by the learned counsel for the parties. The proviso has to be harmoniously read with Rule 230(2). The Rule permits detention of assets of the predecessor, while the proviso postulates and permits sale etc. The said proviso further supports the interpretation given above dra....
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....first two parts. It applies only when an adjudicating order is passed in terms of the law, (i.e., Act) against Kuldeep Singh Punn. It relates to recovery of the dues which may be payable by predecessor pursuant to an adjudication order against the predecessor, i.e., Kuldeep Singh Punn. 24. It can be contended that the view taken above is technical and is not equitable. Tax laws are technical and principles of good and fair governance require compliance with the law and statute. Revenue cannot ignore the basic principles and if we accept the contention of the Revenue in the present case, it may lead to unacceptable consequences and injustice in other cases. If we were to hold that the appellant company is responsible, liable and could have been assessed for period prior to 1st April, 1998, there would be inappropritate and unsatisfactory consequences, which are undesirable. In law, equity and as a legal principle, it would imply that the penalty could have been and should have been imposed on the appellant even for the prior period. Further personal penalty could and should have been imposed even on unconnected persons/directors for the prior period (In the present case it is an ac....
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....of the Act, i.e., Excise Act, 1944 or the Rules framed thereunder, proceedings could have been initiated and continued and the appellant could have been assessed and tax levied for the period prior to 1st April, 1998 in respect of transactions etc of the predecessor Kuldeep Singh Punn, who was/is very much alive. 26. The appellant company has taken over assets and liabilities of Kuldeep Singh Punn. The liabilities taken over, were mentioned in the books of accounts and not those which were not mentioned or were clandestine activities undertaken by Kuldeep Singh Punn in his personal or individual capacity as a sole proprietor, before the company was incorporated on 29th January, 1998 and started business with effect from 1st April, 1998. Even otherwise the appellant at best has taken over the "liability" but this does not mean that the assessment or adjudication order should be passed or could have been passed against the appellant. 27. Recovery of liability is distinct and separate from the "charge" or adjudication of the liability. The general principle or rule is that a successor is not liable for the debt of the predecessor but this rule is subject to judge-made doctrines whic....
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....e provisions of the Partnership Act, 1932, the Supreme Court held as under:- "8. ....The scheme of the Act is a simple one. A firm is a dealer: the said dealer is assessable to tax on its turnover, if its turnover exceeds the prescribed limit. It cannot do business while being liable to pay tax under the Act without getting itself registered and possessing a registration certificate. It is assessed to tax under Section 11 of the Act in the manner prescribed thereunder. If it discontinues its business, it shall within the specified time inform the prescribed authority accordingly. A dealer and its partners are jointly and severally responsible to pay the tax assessed on the dealer. But there is no provision expressly empowering the assessing authority to assess a dissolved firm in respect of its turnover before its dissolution. The question is whether such a power can be gathered by necessary implication from the other provisions of the Act. 9. The first question is whether a firm is a separate assessable entity for the purpo....
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....issolved firm could be liable and should pay the assessed tax but rejected the said ratio/reasoning observing:- "15. The Allahabad High Court in Jagat Behari Tandon v. Sales Tax Officer, Etawah[ (1955) 6 TC 125] maintained the assessment of a dissolved firm on the ground that it was not a separate entity. The Madhya Pradesh High Court in Lalji v. Assistant Commissioner Sales Tax, Raipur [ (1958) 9 STC 571] relied upon Section 17 of the CP and Berar Sales Tax Act, 1947, similar to Section 16 of the present Act, to sustain the continuity of a firm as a legal entity till a notice contemplated by that section was given. The Madras High Court in R.D. Fernandes, in re [ (1957) STC 368] relied upon the provisions of the Partnership Act to reach the desired end. The Punjab High Court in Khushi Ram Behari Lal & Co. v. Assessing Authority, Sangrur [ (1964) 15 STC 165] distinguished the Full Bench decision, which is the subject-matter of the present appeal before us on the ground that the dissolution of the firm in the case before it was long after the assessment proceedings were initiated. It also relied upon Section 16 of the Act....