Can registration and Warehousing license be refused if previous lessee of premises was defaulter of government dues?

Case:- PMS Exports Pvt. Ltd. Vs Commissioner Of Central Excise, Vapi

Citation:- 2012 (285) E.L.T. 82 (Tri. – Ahmd.)

Brief Facts:-The appellant has taken the premises at Plot No. 242/1, 2, 3, GIDC, Umbergaon from Lesser, under a Lease Agreement for a period of 84 months and intended to shift from their unit located at Plot No. 210 (AA) GIDC. Pursuant to it, the appellant on 3-8-2011, applied for 100% EOU License under Section 58 & 65 of Customs Act, 1962 to the Jurisdictional Assistant Commissioner, Vapi. The department entertained a view that in the said Plot No. 242/1, 2, 3 GIDC, another unit namely M/s. Deto Stop India (100% EOU) was granted license dated 9-1-2001 and this unit failed to commence the production and disposed of the capital goods without seeking any permission from the respective departments. They neither applied for cancellation of the license under Section 58 and 65 of Customs Act, 1962, and registration issued under Rule 174 of Central Excise Rules, 1944/ Rule 9 of Central Excise Rules, 2002, nor applied for debonding of the 100% EOU and they are defaulter of Govt. Revenue along with interest and penalty, which is still pending for recovery. Consequently, the Central Excise Registration under Rule 174 of Central Excise Rules, 1944/Rule 9 of Central Excise Rules, 2002 & license issue under Section 58 & 65 of the Customs Act, 1962 to M/s. Deto Stop India Limited, cannot be cancelled till they pay the Govt. dues. Accordingly, Department issued show cause notice to the appellant to why their application received on 5-8-2011, should not be rejected for the purpose of granting 100% EOU licence under Section 58 and 65 of Customs Act, 1962 at Plot No. 242/1,2,3, GIDC, Umbergaon. The Assistant Commissioner vide order-in-original has rejected their application dated 3-8-2011 for issue of warehouse license under Section 58 and 65 of the Customs Act,1962. Aggrieved by such an order of the Assistant Commissioner rejecting the application for registration of Central Excise for warehousing, appellant preferred appeal before the first appellate authority. The first appellate authority, after following the due process of law, rejected the appeal of the appellant. Appellant filed appeal before Tribunal.

Appellant Contentions:-Appellant submits that the application which was made for registration was in respect of property, which was leased out by the original owner to the defaulted Company M/s. Deto Stop India Limited. Appellant further submits that, on an application under RTI Act, the Ministry of Commerce has clearly written to the jurisdictional Assistant Commissioner regarding the cancellation of the permission issued to M/s. Deto Stop India Limited. It is his submission that after 12-2-2004, Revenue has not taken any action. It is his submission that the original owner of the premises has sold the property to the various owners and the current owner has the clear title of the said property from whom the appellant has got the lease of the property for setting up of 100% EOU activity. Appellant submits that the judgment relied upon by the first appellate authority in the case of Manibhadra Processors - 2005 (184) E.L.T. 13 (Bom.) has been distinguished by the same High Court in the case of Tata Metaliks Limited - 2009 (234) E.L.T. 596 (Bom.) = 2010 (19) S.T.R. 449 (Bom.).

Respondent Contentions:-Respondent submits that the department is un-agreeable to grant registration and license to the appellant on the ground that earlier Export Oriented Unit registered in that premises had defaulted revenue and there is no trace of the earlier Export Oriented Unit. Respondent further submits that, if the current appellant is ready to pay the duty forgone in the case of earlier EOU, they may grant registration to the appellant.

Reasoning of Judgment:-We have considered submission on both sides. The issue involved in this case is regarding denial of registration certificate under the Central Excise laws and the Warehouse License under the Customs Act to the appellant, on the ground that the premises is already having Central Excise Registration certificate and Warehouse License in the name of some other EOU and that EOU has defaulted. It is undisputed that the current appellant has permission of the Development Commissioner to open and function from the current address. It is also undisputed that current owner of the premises was a purchaser of the property, from M/s. United Belt Company and M/s. United Belt Company had purchased the property from M/s. Anil Appliances. It is also undisputed that the Ministry of Commerce and Industries vide letter No.KASEZ/100%EOU/II/892/2000-01 /11837 to 11838 dated 12-2-2004 had specifically informed the jurisdictional Assistant Commissioner regarding withdrawal of the permission issued to M/s. Deto Stop India Limited, Umargaon. On this background, we find that it is necessary to reproduce the findings of first appellate authority, which are as under:-

“I have carefully gone through the impugned OIO, Appeal Memorandum and contentions made at the time of personal hearing. The issue to be decided in this appeal is whether the appellant can be granted registration under Rule 9 of Central Excise Rules, 2002 & License under Section 58 to 65 of Customs Act, 1962. In this connection, the jurisdictional Assistant Commissioner vide his letter F. No. IV/15-5/Bond/05-06 dated 12-3-2012 has communicated that the premises in question was taken on lease by M/s. Deto Stop India Limited from M/s. Anil Appliances under leave License agreement dated 4-1-2001 for a period of six years. I have gone through the said Leave License agreement dated 4-1-2001 between M/s. Deto Stop India Limited and M/s. Anil Appliances and find the same to be in order. It is therefore, clear that the appellant has wrongly contended that M/s. Deto Stop India Limited was never a lease holder in respect of Plot No. 242/1, 2, 3, GIDC, Umbergaon.

Further, since huge amount of Govt. Revenue along with interest and penalty is still pending for recovery, it is natural that the Central Excise Registration issued under Rule 174 of Central Excise Rules, 1944/Rule 9 of Central Excise Rules, 2002 & License issued under Section 58 and 65 of the Customs Act, 1962 to M/s. Deto Stop India Limited cannot be cancelled till they pay the Govt. dues. Therefore, as correctly cited by the adjudicating authority in the case of M/s. Manibhadra Processors V. Additional Commissioner of Central Excise - 2005 (184) E.L.T. 13 (Bom.) wherein it has been held by the Hon'ble High Court as under :

"that if there be an earlier hold of the registration certificate who has not paid the outstanding excise duties and fails to surrender registration certificate with respect to the same factory premises, no other unit in the same premises can be registered under the Rules unless earlier registration is deregistered or cancelled or surrendered by such registrant and all excise dues are cleared."

The appellant should not overlook the substance of the judgment, considering the huge amount of govt. dues, for their own personal gains. Moreover, the provisions of Section 11 of Central Excise Act, 1944, clearly lays down as under:

"In respect of duty and any other sums of any kind payable to the Central Government……..

Provided that where the person from whom the duty or any 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."

In view of the above provisions and other provisions of Section 11 of Central Excise Act and provisions of Section 142 of Customs Act, 1962, I find that the Govt. dues can be recovered even by attachment of the said premises. Consequently, registration under Central Excise Act, 1944 and registration for private warehouse under Section 58 of Customs Act cannot be granted to them. In the case of Manibhadra (supra), the Hon'ble Bombay High Court has also held that same premises cannot be registered in the name of two different persons. It can be seen that the entire 'findings' of the first appellate authority was based on the Hon'ble High Court of Bombay in the case of Manibhadra Processors (supra). We find that, as correctly pointed out that subsequently, the Hon'ble High Court of Bombay, in an identical issue has clearly distinguished the decision in the case of the Tata Metaliks Limited. With respect, We may reproduce the ratio of the judgment of their Lordship in the case of Tata Metals Limited. We shall first consider the issues in Writ Petition No. 759 of 2006 in the matter of registration of the establishment of the Petitioners. Section 6 of the Central Excise Act reads as under:

Registration of certain persons. - Any prescribed person who is engaged in –

(a) the production of manufacture or any process of production or manufacture of any specified goods included in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), or
(b) the wholesale purchase or sale (whether on his own account or as a broker or commission agent) or the storage of any specified goods included in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986)."

In terms of the Act therefore, a person who is engaged in the occupation or manufacture or in the process of production of specified goods included in the First Schedule and Second Schedule to the Central Excise Tariff Act, 1985 or the wholesale Purchase or sale or the storage of any specified goods included in the First Schedule and the Second Schedule) the Central Excise Tariff Act, 1985 (5 of 1986), must get himself registered with the proper officer. The next relevant provision is Rule 9 of the Central Excise Rules which reads as under:

Rule 9. Registration.–
(1) Every person, who produces, manufactures, carries on trade, holds private store-room or warehouse or otherwise uses excisable goods, shall get registered Provided that a registration obtained under rule 174 of the Central Excise Rules, 1944 or rule 9 of Central Excise (No. 2) Rules, 2001 shall be deemed to be as valid as the registration made under this sub-rule for the purpose of these rules.

(2) The Board may by notification and subject to such conditions or limitations as may be specified in such notification, specify person or class of persons who may not require such registration.

(3) The registration under sub-rule (1) shall be subject to such conditions, safeguards and procedure as may be specified by notification by the Board.

Sub-rule (3) of Rule 9 contemplates that the registration shall be subject to the conditions as specified by Notification by the Board. The Board has issued notification under Rule 9. The perusal of the said notification requires compliance of the following:

(a) An application by every person specified under sub-rule (1) of Rule 9 for registration.
(b) If the person has more than one premises requiring registration, separate registration certificate shall be obtained for each of such premises.
(c) Where a registered person transfers his business to another person, the transferee shall get himself registered afresh.
(d) Every registered person, who ceases to carry on the operation for which he is registered, shall de-register by making a declaration in the form specified in Annexure III and depositing his registration certificate with the Superintendent of Central Excise.

These are some of the requirements as set out under the rules. As per Section 6 of the Act read with Rule 9 as also the notification shows that the registration must be by the "Person". Our attention is however, invited to the judgment of this Court in Manibhadra Vs. Additional Commissioner of C. Ex. - 2005 (184) E.L.T. 13 (Bom.) to contend that if there be an earlier holder of the registration certificate who has not paid the outstanding excise duties and fails to surrender registration certificate with respect to the same factory premises, no other unit in the same premises can be registered under the Rules unless earlier registration is deregistered or cancelled or surrendered by such registrant and all excise dues are cleared. On behalf of the Revenue, the learned counsel has relied on this judgment to contend that in the instant case, there is a subsisting registration in favour of Respondent No. 7, Usha Ispat and once there be registration in their favour, the Registrar was right in rejecting or returning the application for registration made by the Petitioner herein. Let us consider the ratio of the said judgment. On a reading of the said judgment; the following facts emerge. There was a company known as Ludhiana Woollen and Silk Mills Pvt. Ltd. who were owners of the premises. They firstly leased out the premises on rent to M/s. Swastik Dyeing and Printing Mills Limited who had obtained excise registration on 1-10-1996 and failed to clear their dues. Subsequent thereto, M/s. Ludhiana Woollen and Silk Mills Pvt. Ltd. leased out the very same premises to M/s. Jagruti Textile Processors who also defaulted in payment of dues and did not surrender the registration certificate. The application of Manibhadra Processors was refused on the ground that Jagruti Textiles have not paid their outstanding dues and failed to surrender their registration certificate. It appears as per the facts on record that Ludhiana Woolen and Silk Mills Pvt. Ltd. has been indulging in the act of systematic induction of difference licensees in the very premises and helping them to defraud the central excise dues. It is on these facts, that the learned Bench of this court was pleased to hold that if one person is having more than one premises, considering the language of the rule and the notification, then he must obtain separate registration certificate for each premises and as such the registration is always in respect of "particular premises" and not with respect to a particular person. Relying on the notification issued by the Board, the court held that the intention appears to be to prevent successive registration in respect of the same premises. If that be so, one and the same premises can not be registered in the name of two different persons. The court proceeded to hold that the person holding earlier registration certificate must surrender registration certificates in respect of that premises, then only a new person can get registration in respect of that premises. From the facts, it will be clear that earlier though M/s. Swastik were in arrears fresh registration was granted in favour of M/s. Jagruti Textile Processors. The court found on the facts therein that there was a systematic attempt to evade tax dues and it is in these circumstances that the court was pleased to take the view which it is taken. The person who owned the premises was the same but was inducting various licensees who had defaulted in payment of their dues. The judgment will have to be restricted to the facts of that case. A perusal of Section 6 makes it absolutely clear that who has to be registered is the prescribed person. Under the rules also, it is the person who has to get registered. The notification in Clause (2) only sets out that if such registered person has more than one premises, then each of such separate premises would require registration certificate for each of such premises. In other words, it is the person who has to obtain separate registration certificate for each of the said premises. It is open to a person who has ceased to carry on the business to apply for deregistration. Would that mean in the absence of the person who has closed or sold the business or premises, applying for deregistration, there is no jurisdiction to grant another person registration of the premises as in the case of a bona fide transferee for value or for that to the owner of the premises whose lessee has defaulted in payment of excise dues. Section 6 and Rule 9 and the notification contemplates that it is the person who must be registered. Neither Section 6 nor Rule 9 and the Notification is a provision for enforcing the claim for dues of the department. That is contained in different provisions. An immovable property by itself cannot be sold unless the owner of the premises is defaulter and that too under a certificate as arrears of land revenue. That sale would be subject to the priority of claims. In case of a lease hold property given for a particular period, there would be no question of sale of the property except the limited interest.

In our opinion, the case of bona fide transferee was not in issue in the case of M/s. Manibhadra Processors (supra) or the instances we have cited above. The Respondent No. 3 has therefore, clearly acted without jurisdiction in refusing to grant registration on the specious plea that M/s. Usha Ispat whose assets has been sold and purchased by the Petitioners has not applied for deregistration. In the absence of a specific power to deny registration, the alternate would be whether there would be implied power. Neither Section 6 or Rule 9 or for that matter the notification confers such power. The right of revenue however, would subsist for recovery of dues both against the defaulter or the transferee if the predicates for recovery are met. An incidental aspect of the matter would be if the licence is for a particular period, on expiry of that period, the registration certificate would cease to be operative. In such cases, there would be no question of canceling the certificate of registration. It can be seen from the above reproduced ratio and the law laid down by the Hon'ble High Court of Bombay, registration certificate cannot be denied to the appellant. Thus, the ratio of the Hon'ble High Court squarely covers the issue in favour of the assessee. In view of the forgoing, the impugned order is set aside and we direct the lower authorities to issue Central Excise Registration Certificate as well as Warehouse License as prayed by the appellant in his application. Appeal allowed as indicated hereinabove.

Decision:-Appeal allowed.

Comment:- The analogy drawn from this case is that decision should not be passed merely on the basis of a High Court decision, more so, when there are contradictory decisions by the High Court on the said matter. This case involved in depth analysis of the provisions of the law and the reasoning of judgement by the High Court in the facts of the case and then only enhanced conclusion was arrived at.

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