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

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 = appeal accepted, 0 = rejected): 1

Explanation:
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.