CX - liability accrued to proprietorship concern cannot be said to have evaporated when entire assets belonging to it came to be vested to a partnership firm: HC
By TIOL News Service
KOLKATA, MAY 12, 2014: ONE M.L.Narayana was carrying out business as proprietor in the trade name and style of “Shree Ganesh Forging Company” and committed default in payment of excise duty. Proceedings were initiated against the proprietor who subsequently died in the midst of the proceedings. According to the department, the factum of death of the said proprietor was not communicated and the authority proceeded to decide the matter imposing the duty and the penalty upon the said proprietor.
One of the sons of the said deceased preferred an appeal before the CESTAT and subsequently made an application for dismissal of the said proceeding on the ground that the appeal has abated.
The Tribunal dismissed the appeal.
Later on, all the sons of the deceased proprietor formed a partnership firm in the same trade name and style and obtained a separate assessee number.
Consequently, the department initiated proceedings against the said partnership firm in the matter of the default committed by the earlier proprietorship firm.
Challenging a notice of demand, a Writ Petition No. 35 of 2014 was filed before the High Court wherein a plea was sought to be taken that the said partnership firm is distinct and separate from the erstwhile proprietorship concern and, therefore, the authorities cannot impose the liability of the proprietorship concern upon the newly constituted partnership firm. The Court dismissed the writ petition on a categorical finding that the liability accrued to a proprietorship concern cannot be said to have evaporated when the entire assets belonging to it came to be vested to a partnership firm. In the said judgment dated 21st January, 2014 rendered in W.P. 35 of 2014, it was recorded that the appeal filed by one of the sons herein have ‘abated' which was subsequently corrected by insertion of the word ‘dismissed'.
Taking a clue from the aforesaid correction, the petitioner approached the Tribunal for Restoration of Appeal (ROA) by filing an application for recalling the said order by which the appeal before the Tribunal was dismissed as abated.
The Tribunal rejected the said application on the ground of limitation by treating the same as having been filed under Section 35C(2) of the CEA, 1944.
Now, in a fresh Writ Petition, this order dated 4th March, 2014 passed by the CESTAT is challenged before the High Court.
While assailing the said order, the petitioner submits that the Tribunal misconstrued the purport and/or tenet of the application to be an application for rectification of the mistake apparent on the record though the application was filed for recalling the order and restoration of the appeal. It is further submitted that the abatement would arise when a person appealing died and no application for substitution is taken out within the prescribed period. However, in the present case, the appeal is filed by the petitioner no.2 who is still alive.
By referring to Rule 41 of the CESTAT (Procedure) Rules 1982, it is sought to be contended that the tribunal may make such orders or give such directions as may be necessary or expedient to give effect or in relation to its orders or to prevent the abuse of its process or to secure the ends of justice. Thus it is submitted that if the tribunal has a power to dismiss the appeal, it has further power to recall the order and restore the appeal, by placing reliance upon a judgment of the Supreme Court rendered in case of J. K. Synthetics Ltd. - vs- Collector of Central Excise - 2002-TIOL-261-SC-CX and a division bench judgment of the Calcutta High Court in the case of Income-Tax Officer, “F” Ward, District IV (2), & Others –v- Murlidhar Sarda & Another 1975 (99) ITR 485.
It is lastly submitted that the Tribunal though has recorded that the appeal has abated but in fact, the same was dismissed and, therefore, an application for recalling the said order cannot be said to be barred under Section 35C(2) of the CEA, 1944.
The respondent(representing UOI &Ors) inter alia submitted –
++ It is indeed true that the appeal was taken out by the petitioner no.2 and not by the deceased proprietor and, therefore, recording of abatement even on the basis of the application taken out in this regard is a mistake committed by the tribunal.
++ The petitioner was advised that the demand upon a deceased proprietor would perish automatically after the constitution of the partnership firm which has a separate legal entity.
++ In fact, on the aforesaid plea, the earlier writ petition was filed before this Court and same stood dismissed with a categorical finding that mere conversion of the proprietorship concern into a partnership firm does not evaporate the liability of the erstwhile concern. The petitioner tried to take shelter under a mistaken advice and also deriving a clue from the correction made in an order passed in an earlier writ petition.
The High Court observed -
+ It admits no quarrel to the proposition of law as laid down by the Supreme Court in case of J. K. Synthetics Ltd (supra) that the tribunal is bestowed with the power to recall its order under Rule 41 of the CEGAT Procedure Rules.
+ The division bench of this Court in case of Income-Tax Officer, “F” Ward, District IV (2), & Others (supra) opined in the identical line.
+ The proposition of law is that the Court or the Tribunal should not be swayed by the nomenclature of the application but should look into the substance thereof.
+ From a meaningful reading of the said application, it is manifest that the petitioner tried to contend before the tribunal that the recording of abatement is mistake having been committed on the legal advice.
+ Section 35C(2) of the CEA, 1944 provides the period of six months from the date of the order for rectifying the mistake in the order.
+ The aforesaid provision does not provide for condonation of delay in making out an application beyond the stipulated period of six months from the date of the order.
+ When the statute has provided the maximum period of limitation, the tribunal cannot pass an order condoning the delay of more than the prescribed period in absence of any express power to do so. Equally the Court cannot direct the authority to act contrary to the law.
Holding that the application filed by the petitioner before the Tribunal is, in substance, an application to rectify the mistakes made in the order and not a simplicitor application for recalling the order of dismissal of an appeal by default, the Tribunal order was upheld and the Writ Petition was dismissed.
(See 2014-TIOL-707-HC-KOL-CX)
