Case: S.L. Kirloskar &amp; Others Vs. Union of India &amp; Others

The petitioners are Directors/Executives of Kirloskar Brothers Limited which is a Public Limited Company registered under the Companies Act. The Company is engaged in manufacturing activities and, inter alia, manufactures Hermetic Compressors which are liable for payment of excise duty under Central Excise and Salt Act, 1944. On January 15, 1986, the Collector of Central Excise and Customs, Pune served show cause notice upon the Company and the petitioners to explain why penalty should not be imposed under Rule 9(2) and Rule 173Q(1) of the Central Excise Rules. The notice, inter alia, recites that the Company had contravened the provisions of Rule 173(C)(1) of the Rules by suppressing and failing to declare in the price list full particulars of the value realised in respect of clearance of Hermetic Compressors manufactured and cleared during January 1, 1981 and ending with November 30, 1985. The notice further recites that the Company and the Directors and Executives have contravened the provisions of Rule 173F read with Rule 9(1), Rule 173G(2) of the Central Excise Rules, 1944 by clearing excisable goods without correctly determining and paying the duty liability thereon. The notice further recites that the Company and all Directors and employees mentioned in the show cause notice are called upon to explain to the Collector of Central Excise, Pune, why penalty should not be imposed and as to why Central Excise duty amounting to Rs. 5,43,52,819.14 should not be recovered from the Company. The petition is filed by the Directors and the Executives to challenge the service of show cause notice.

Court's reasoning:
The expression `manufacturer as defined under the Act makes the Company liable for payment of excise duty and the Company being a legal entity, the liability of the Company cannot be foisted on the Directors of the Company. Under the Companies Act, the affairs of the Company and the ultimate control of the Company lies with the Board of Directors and neither the Board of Directors, nor the individual Director is liable to discharge the liabilities of the Company unless the Statute so specifically provides. Thereliance by Shri Andhyarujina in this connection on the decision of the Division Bench of this Court reported in 1984 Maharashtra Law Journal 117, (Suresh Tulsidas Kilachand and others v. Collector of Bombay and others), isthe first instance, Rule 209A was enacted with effect from April 14, 1986. Being a rule for levy of penalty, the rule cannot be construed with retrospective effect. The show cause notice, in the present case, is in respect of evasion of excise duty for the period between January 1, 1981 and November 30, 1985. Rule 209A which came on the Statute for the first time in April 1986 cannot be attracted to make Directors and Executives liable. Secondly, the rule makes any person who is in any way concerned in removing excisable goods, with the knowledge that the goods are liable for confiscation, answerable. It is not the claim of the Department in the show cause notice that any of the Directors and Executives were in any way concerned in removing the excisable goods with the knowledge that the same are liable for confiscation. In our judgment, Rule 209A has no application whatsoever to the facts of the present case and the show cause notice served on the petitioners cannot be sustained.This Court is bound to entertain the petition when the grievance is that the show cause notice is issued by the Collector without any jurisdiction whatsoever. An identical contention was raised before the Division Bench of this Court to which one of us (Pendse, J.) was a party, and turned down in the decision reported in 1991(52) Excise Law Times 500 (Tata Engineering and Locomotive Company Ltd. v. Union of India). It was held that the claim of the Department that the proceedings commenced with the service of show cause notice should be permitted to continue cannot be accepted when the show cause notice was issued without any jurisdiction and the show cause notice could not be sustained by reference to any of the provisions of law. In our judgment, the petitioners are entitled to relief.