Case: Vandana Bidyut Chaterjee Vs. The Union of India, Through The Secretary, Ministry of Finance, Department of Revenue & Others

ORAL JUDGMENT: (M.S. SANKLECHA, J.)Rule; with the consent of Counsel for the parties returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal.2 By this petition under Article 226 of the Constitution of India the Petitioner is challenging the following:a) A Notice of demand dated 9 May 2011 in pro forma Appendix 1I of Customs(Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995 to the late father of the Petitioner, Balram P Mukherjee issued by the Assistant Commissioner of Central Excise;b) A Communication dated 26 May 2011 issued by the Deputy Commissioner of Central Excise directing the Petitioner to pay the dues of M/s. Verma Mukherjee Pvt. Ltd. along with interest in view of a notice of demand to defaulter dated 9 May 2011;c) A Certificate No.01/2011-12 dated 2 May 2011 forwarded by the Deputy Commissioner of Central Excise, Kurla Division, Mumbai II to the Deputy Commissioner of Central Excise, Chembur II, Mumbai II;d) A Communication dated 7 June 2011 from the Deputy Commissioner of Central Excise seeking information from the Petitioner about herself and her late father;e) A Notice of attachment dated 1 July 2011 issued to the Petitioner and her late father Balram P Mukherjee in pro forma Appendix 1V of Customs(Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995 by the Deputy Commissioner of Central Excise attaching his property; andf) A Notice of attachment dated 14 December 2011 issued to the Petitioner in proforma Appendix 1V of Customs(Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995 attaching the property at Plot No.113, at village Vadhavali, Chembur by the Assistant Commissioner of Central Excise.3 The brief facts leading to the present petition are as follows:a) The father of the Petitioner, late Balram Priyanath Mukherjee, was during his life time a Director of Verma Mukherjee Private Limited (the company). The company was engaged in the business of processing grey fabrics on job work basis, and had obtained registration as manufacturer under the Central Excise Act 1944 (The Act). Balram P. Mukherjee died on 4 September, 2011.b) The deceased also at one time owned a property situated at 3/4 Union Park, S.T. Park, Chembur, Mumbai 400071, described as at Plot No.113, at Village Vadhavali, Chembur in the Attachment Notice dated 14 December 2011. On 20 September 2009 Balram P. Mukherjee during his life time had by a deed of Gift dated 20 September 2009 gifted the said property to his daughter, the Petitioner herein.c) On 9 May 2011 a notice of demand was addressed to the Petitioners father, being a notice to defaulter in form Appendix II by the Assistant Commissioner of Central Excise. The aforesaid notice of demand was in terms of Section 142(1) (c)(ii) of the Customs Act, 1962 read with Rule 4 of the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995 (The Recovery Rules 1995) calling upon the Petitioners father to pay Central Excise duty amounting to Rs.71,68,243/- and penalty of Rs.2500/- on the basis of a Certificate No.01/2011-12 dated 2 May 2011. The aforesaid notice called upon the Petitioners father to pay duty along with interest thereon and penalty within seven days from the date of service of the notice, failing which recovery proceedings under the Recovery Rules, 1995 were threatened.d) Thereafter, on 26 May 2011, the Deputy Commissioner of Central Excise issued a notice to the Petitioner informing the Petitioner that there were arrears of Rs.71,68,243/- as duty and Rs.25000/- as penalty payable by the said Company of which the Petitioners father was a Director. By the aforesaid notice, the Petitioner was informed that arrears of duty and penalty are recoverable from the Company; in the Municipal record the property stands in the name of the Petitioners father and as she was in occupation of the said property, a notice of demand dated 9 May 2010 was enclosed to a letter dated 26 May 2000. The above communication further directed the Petitioner to pay dues along with interest failing which, it was stated, the procedure for attachment under the Recovery Rules 1995 would follow. On 4 June 2011, the Petitioner by a letter addressed to the Deputy Commissioner of Central Excise pointed out that she is the daughter of Balram P Mukherjee and presently owned the said property. The Petitioner further pointed out that neither she nor her father was a defaulter of Excise duty under Section 142 (1) of the said Act or under the Recovery Rules, 1995 as is evident form the notice itself which very clearly states that the arrears of duty and penalty are recoverable from the company. In the circumstances, the Respondents were requested to refrain from taking coercive measures for recovery of duty and penalty from the Petitioner.e) Thereafter, on 1 July 2011, the Deputy Commissioner of Central Excise served a notice of attachment under the Recovery Rules, 1995 at the Petitioners address to the Petitioners father and the Petitioner . By the notice, the Petitioner was informed that property has been attached and in terms of Rules 9 and 10 of the Recovery Rules, 1995 the Petitioner was prohibited from in any manner dealing with and /or transferring her interest in the property. Thereafter, on 27 December 2011, a notice of attachment dated 14 December 2011 was addressed to the Petitioner as daughter of the late Balram Mukherjee to prohibit the Petitioner from in any manner dealing with and/or transferring her interest in the said property without the permission of the Excise Department.f) It is on the aforesaid facts that the petitioner has come to court seeking to quash the recovery proceedings against her under the Recovery Rules, 1995.4 The Respondents have filed an affidavit in reply dated 2 February 2011 of the Asst. Commissioner of Central Excise to the present Petition in this Court. The Respondents have stated that the amounts of Rs.71,68,243/- as duty and Rs.25000/- as penalty are arrears of the Company. The Affidavit also points out that by an agreement dated 21 March 2000 entered into between Mukherjee Brothers and Kapoor family who together controlled the said company, the shares of the Kapoor family were transferred to Mukherjee Brothers. The aforesaid agreement also provided that the Mukherjee family would be responsible to discharge the Excise duty liabilities of the said company and therefore justifies the present proceeding against the Petitioner and her late father the Late Balram P Mukherjee. The Affidavit also stated that a Notice of Attachment was served upon the Late Balram P. Mukherjee under the Recovery Rules,1995 on 6 December 2005 and therefore the Gift deed dated 20 September 2009 was void in law. However, the alleged Notice of demand served on 6 December 2005 was not produced before the Court.5 On the aforesaid facts, it was submitted by Learned Senior Counsel appearing for the Petitioner that the action of the Respondents in seeking to attach the said property now belonging to the Petitioner and formerly belonging to her father the late Balaram P. Mukherjee to recover the dues of the company is without jurisdiction. This was so as the liability to pay the excise duty is on the manufacturer of goods who alone can be a defaulter in payment of excise duty. In support of his submission, Counsel invited our attention to Rule 4 of the Central Excise Rules, 2002 which provides that a person who manufactures excisable goods is obliged to pay duty leviable on the said goods at the time of removal from the place where they are manufactured. Even earlier, under Rule 7 of the Central Excise Rules, 1944, it was the person who manufacturers excisable goods who was liable to pay excise duty on manufacture of goods. It was submitted by the Petitioner, that neither the Petitioner nor her father were at any time manufacturers of goods and/or registered under the said Act as manufacturers to become liable to pay Excise duty. That the arrears of duty and penalty were that of the company is an admitted position as accepted in the Affidavit in reply dated 2 February 2012 of the Respondent. It was submitted that it is also evident from the notice/communication dated 26 May 2011 that the arrears of Excise duty and Penalty were payable by the said company of which the Petitioners father was a Director. Counsel further submitted that there is no provision under the said Act to recover the dues of excise from the Directors of a limited company in case of default on payment of duty by the limited company as in the present case. This was in contrast to Section 179 of the Income Tax Act, 1961 which provides that a Director of the a Private Limited Company which is in liquidation, shall be jointly and severally liable for payment of income tax dues of the company unless he proves that non payment of income tax by the company cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. Similar provision is also found under Section 18 of the Central Sales Tax Act, 1956, according to the Counsel. Further Counsel invited our attention to the Recovery Rules, 1995 and in particular to the definition of defaulter given in Rule 2(vi) which reads as under:Rule 2- Definition : In these rules, unless the context otherwise requires:(i) .......(ii) ......(iii) ......(iv) .....(v) .....(vi) Defaulter means any person from whom government dues are recoverable under the Act.On the basis of the above definition, Counsel submitted that in this case neither the Petitioner nor her father who was a Director of the company, were defaulters in paying Government dues. In this case, the defaulter, if any, was the said company and the proceedings under the Recovery Rules, 1995 could only be taken against the said company. The proceedings for recovery of Excise and Customs dues under the Recovery Rules, 1995 is to recover duty from the defaulter. It was on the basis of the aforesaid provisions of law that he contended that the proceedings against the Petitioner are without jurisdiction as neither she nor her predecessor-in-title to the said property namely her late father could be considered defaulters under the Recovery Rules, 1995. In support of his case Counsel has relied upon two decisions of this Court in Sunil Parmeshwar Mittal reported in 2005 (188) E.L.T. 268 (Bombay) and of SatishD.Sanghavi in Writ Petition No.2087 of 2006 Order dated 22 September 2009 where this Court has taken a view that a Director of the company which has failed to pay excise duty could not be held responsible and liable to discharge the liabilities of a defaulting company.6 Mr. Pradeep Jetly, Counsel appearing for the Respondents submitted that the duty of Rs.71,68,743/- and penalty of Rs.25,000/-was arrears of the said company. However he contended that as far back as on 21 March 2000 by an Agreement the interest of Kapoor family in the said company was transferred to the late Balram P Mukherjee and his brother Suraj Mukherjeee i.e. Mukherjee Brothers. Further the aforesaid Agreement between the Kapoors and the Mukherjees provided that the discharge of Central Excise duties would be the responsibility of the Mukherjee Brothers. Therefore Mr. Jelty stressed that as a consequence of the transfer of share holding on 21 Mach 2000 between the Kapoor family and Mukherjee family the entire shareholding was transferred to Mukherjee family, who inter alia accepted their responsibility to discharge the central excise duty payable by the said Company. It was thereafter submitted that a notice of attachment under Rule 4 of the Recovery Rules 1995 was served on Balram P. Mukherjee on 6 December 1995 and therefore any transfer thereafter was a fraudulent transfer of the said property. Consequently, it was submitted by Mr. Jetly that the attachment proceedings were in order and once notice under Rule 4 of the Recovery Rules 1995 has been served, then any further transfer of the said property either by way of gift, sale etc. was a fraudulent transfer done only with a intent to deprive the revenue of its dues. In view of the above, it was submitted by Mr. Jetly that the Court should not issue a writ in the present proceeding as the Respondents were completely within jurisdiction in seeking to recover the dues and penalty of the said company from its erstwhile Director late Balram P Mukherjee and his successor in title to the said property i.e. the Petitioner.7 In rejoinder, Mr. Sreedharan Senior Counsel for the Petitioner submitted that the Respondents have not brought on record the alleged Attachment Notice dated 6 December, 1995 served upon the late Balram P Mukherjee and therefore the same should not be believed. Without prejudice to the above he submitted that any recovery proceeding against the late Balram P Mukherjee is without jurisdiction as he cannot be liable for Excise dues/arrears of the said company in his capacity as a Director thereof. The Counsel further submitted that statutory dues cannot be contracted away without the State being a party to it. In support of the above submission he placed reliance upon the decision of the Supreme Court in the matter of Sha Sukraj Peerajee reported in (1968) Vol. XXI Sales Tax Cases Page 521.8 We have considered the submissions. It is an undisputed position that duty and penalty are arrears of the company. It was the company that was the person engaged in manufacture of goods and registered as manufacturer under Section 6 of the said Act and therefore obliged to pay excise duty. Further under the Act and the Rules, the person liable to pay duty is the person who manufactures the goods in terms of Rule 7 of the erstwhile Central Excise Rules, 1944 and Rule 4 of the Central Excise Rules 2002 as now existing. Therefore the obligation to pay duty is on the company. The Affidavit in reply dated 2 February 2011 filed by the Respondents states that the arrears being Rs. 71,68,243/- as excise duty and Rs.25000/- as penalty are dues of the Company. Therefore in terms of Section 142 of the Customs Act, 1962 as made applicable to the Central Excise Act, 1944 by virtue of a Notification issued under Section 12 of Central Excise Act 1944 the Central Government can recover sums due to it from the person who has not paid its dues. It is under Section 142 read with Section 156 of the Customs Act, 1962 that the Recovery Rules 1995 have been framed. In terms of the Recovery Rules 1995, the amounts which can be recovered are only those belonging to a defaulter. A defaulter is defined under the Recovery Rules 1995 as any person from whom government dues are recoverable. It is an undisputed position that in this case that the dues/arrears of excise duty and penalty are that of the Company. Therefore the recovery proceedings under the Recovery Rules, 1995 can be taken only against the company, as it alone is the defaulter. There is no provision to recover the arrears of the company from its Directors and or/shareholders under the said Act. The arrears of dues belonging to a limited company are recoverable only from the limited company concerned which is an independent entity in law, particularly so, as it obtains a separate registration under the Act. Therefore in terms of the Recovery Rules 1995, the dues can be recovered only from the limited company. There is no provision in the said Act as is found under Section 179 of the Income Tax 1961 or under Section 18 of the Central Sales Tax Act, 1956 where the dues of a private limited company can be recovered from its Directors when the private limited company is under liquidation, in specific circumstances. It is a well settled position in law that a Company incorporated under the Companies Act, 1956 is a separate person having a distinct independent identity, independent from its shareholders and Directors. Consequently, the dues of the company cannot be recovered from the Directors and/or individual shareholder of the company. Further, it is pertinent to note that it is not the case of the Respondents that they are seeking to lift the Corporate veil of the said company to establish that the said company was a mere shell and being utilized to defraud the revenue of its legitimate dues. Further the case of lifting the corporate veil, if any, was to be made out at the time notices of demand were issued to the said company by making the Directors/shareholders liable to pay the dues and the same being confirmed by the authorities under the said Act. Once it is an admitted position between the parties that the arrears of duty and penalty are those of the said Company then the notices issued under the Recovery Rules 1995 to its former Director the late Balram P Mukherjee and his daughter the Petitioner herein to whom the said property has been gifted, are completely without jurisdiction. We are fortified in the view taken by us by two decisions of the Division Bench of this Honble Court in Sunil Parmeshwar Mittal reported in 2005(188) E.L.T. 268 (Bombay) and SatishD. Sanghavi in its order Writ Petition No. 2087 of 2006 dated 22 September 2009 where on similar facts it has been held that arrears of duty payable by a limited company cannot be recovered from its Director. Further, the reliance of the Respondents upon an agreement dated 21 March 2000 between Kapoor family and the Mukherjee brothers whereby all the shareholding of Kapoor family in the said company was transferred to Mukherjee brothers and under which the Mukherjee Brothers accepted their responsibility to discharge the Central Excise Liability in support of its case that the dues of the said company can be recovered from the late Balram P Mukherjee and/or his estate is not sustainable. Mr. Sridharan invited our attention to a decision of the Supreme Court in the matter of Deputy Commercial Tax Officer, Park Town Division, Madras and another Vs. Sha Sukraj Peerajee reported in (1968) Vol. XXI Sales Tax Cases Page 5 wherein the Supreme Court observed as under :But even on the assumption that the respondent undertook to pay the arrears of sales tax due by the transferor, it does not follow that there is a liability created inter se between the State Government on the one hand and the transferee on the other hand. To put it differently, it is not open to the State government to rely on the instrument inter vivos between the transferor and the transferee and to contend that there is any contractual obligation between the transferee and the state government who is not a party to the instrument. We accordingly reject the argument of the appellant on this aspect of the case also.Consequently the reliance of the Respondent upon the agreement dated 21 March 2000 between Kapoor family and Mukherjee Brothers to fasten the liability of excise duty and penalty arrears of the said company upon the late Balram P Mukherjee is not sustainable.

Decision:
1[ds]8 We have considered the submissions. It is an undisputed position that duty and penalty are arrears of the company. It was the company that was the person engaged in manufacture of goods and registered as manufacturer under Section 6 of the said Act and therefore obliged to pay excise duty. Further under the Act and the Rules, the person liable to pay duty is the person who manufactures the goods in terms of Rule 7 of the erstwhile Central Excise Rules, 1944 and Rule 4 of the Central Excise Rules 2002 as now existing. Therefore the obligation to pay duty is on the company. The Affidavit in reply dated 2 February 2011 filed by the Respondents states that the arrears being Rs. 71,68,243/as excise duty and Rs.25000/as penalty are dues of the Company. Therefore in terms of Section 142 of the Customs Act, 1962 as made applicable to the Central Excise Act, 1944 by virtue of a Notification issued under Section 12 of Central Excise Act 1944 the Central Government can recover sums due to it from the person who has not paid its dues. It is under Section 142 read with Section 156 of the Customs Act, 1962 that the Recovery Rules 1995 have been framed. In terms of the Recovery Rules 1995, the amounts which can be recovered are only those belonging to a defaulter. A defaulter is defined under the Recovery Rules 1995 as any person from whom government dues are recoverable. It is an undisputed position that in this case that the dues/arrears of excise duty and penalty are that of the Company. Therefore the recovery proceedings under the Recovery Rules, 1995 can be taken only against the company, as it alone is the defaulter. There is no provision to recover the arrears of the company from its Directors and or/shareholders under the said Act. The arrears of dues belonging to a limited company are recoverable only from the limited company concerned which is an independent entity in law, particularly so, as it obtains a separate registration under the Act. Therefore in terms of the Recovery Rules 1995, the dues can be recovered only from the limited company. There is no provision in the said Act as is found under Section 179 of the Income Tax 1961 or under Section 18 of the Central Sales Tax Act, 1956 where the dues of a private limited company can be recovered from its Directors when the private limited company is under liquidation, in specific circumstances. It is a well settled position in law that a Company incorporated under the Companies Act, 1956 is a separate person having a distinct independent identity, independent from its shareholders and Directors. Consequently, the dues of the company cannot be recovered from the Directors and/or individual shareholder of the company. Further, it is pertinent to note that it is not the case of the Respondents that they are seeking to lift the Corporate veil of the said company to establish that the said company was a mere shell and being utilized to defraud the revenue of its legitimate dues. Further the case of lifting the corporate veil, if any, was to be made out at the time notices of demand were issued to the said company by making the Directors/shareholders liable to pay the dues and the same being confirmed by the authorities under the said Act. Once it is an admitted position between the parties that the arrears of duty and penalty are those of the said Company then the notices issued under the Recovery Rules 1995 to its former Director the late Balram P Mukherjee and his daughter the Petitioner herein to whom the said property has been gifted, are completely without jurisdiction. We are fortified in the view taken by us by two decisions of the Division Bench of this Honble Court in Sunil Parmeshwar Mittal reported in 2005(188) E.L.T. 268 (Bombay) and SatishD. Sanghavi in its order Writ Petition No. 2087 of 2006 dated 22 September 2009 where on similar facts it has been held that arrears of duty payable by a limited company cannot be recovered from its Director. Further, the reliance of the Respondents upon an agreement dated 21 March 2000 between Kapoor family and the Mukherjee brothers whereby all the shareholding of Kapoor family in the said company was transferred to Mukherjee brothers and under which the Mukherjee Brothers accepted their responsibility to discharge the Central Excise Liability in support of its case that the dues of the said company can be recovered from the late Balram P Mukherjee and/or his estate is not sustainable. Mr. Sridharan invited our attention to a decision of the Supreme Court in the matter of Deputy Commercial Tax Officer, Park Town Division, Madras and another Vs. Sha Sukraj Peerajee reported in (1968) Vol. XXI Sales Tax Cases Page 5 wherein the Supreme Court observed as under :But even on the assumption that the respondent undertook to pay the arrears of sales tax due by the transferor, it does not follow that there is a liability created inter se between the State Government on the one hand and the transferee on the other hand. To put it differently, it is not open to the State government to rely on the instrument inter vivos between the transferor and the transferee and to contend that there is any contractual obligation between the transferee and the state government who is not a party to the instrument. We accordingly reject the argument of the appellant on this aspect of the case also.Consequently the reliance of the Respondent upon the agreement dated 21 March 2000 between Kapoor family and Mukherjee Brothers to fasten the liability of excise duty and penalty arrears of the said company upon the late Balram P Mukherjee is not sustainable.