Whether registration applied by owner be rejected on the grounds that the predecessor lessee has excise dues pending?

PJ/CASE LAW/2014-15/2423

Case:-M/s ARMAGAL TEA ESTATES COMPANY (P) LTD Vs THE ASST COMM. OF C.E. COONNOOR DIVISION, METTUPALAYAM

Citation:-2014-TIOL-2027-HC-MAD-CX

Brief fact:-In this Writ Petition, the petitioner seeks for issuance of a Writ of Certiorarified Mandamus, to quash the order in C. No . IV/07/22/2009-Cx Po dated 12.09.2011 of the respondent and direct the respondent to grant registration to the petitioner based on his application bearing number AACCA4407AEM001 dated 29.07.2011.

The petitioner is a private limited company established in the year 1977 for the purpose of manufacturing and selling of tea. The petitioner entered into a lease agreement with three persons namely, Mr. Jayachandran , Mr. Sadhiq and Mr.Sathyamoorthy and those persons are said to have registered with the Central Excise Authorities in Sr. No.7/96 dated 02.12.1996 bearing ECC Code- 2586010984. Abruptly, those lessees abandoned the factory and so the petitioner was unable to run the business and the whereabouts of the lessees were not known. Therefore, with a view to commence business activities, the petitioner submitted an application 22.07.2009 for registration in Form A-1. The said application was not processed and therefore the petitioner had sent a representation on 23.08.2011. Ultimately, by order dated 12.09.2011 the petitioner's application for registration was rejected stating that an amount of Rs.18 ,72,299 /- is pending as arrears from the previous registrant and as per Section 11 of Central Excise Act 1944 the liability of paying the arrears of the predecessor falls on the successor and the petitioner being the successor has to remit the arrears payment and issuance of registration certificate would be considered after payment of arrears. The said order dated 12.09.2011 is impugned in this Writ Petition.

Appellant’s contention:-Learned counsel for the petitioner submitted that the writ petitioner is the owner of the factory and what was leased out is only the factory premises and the registration obtained by the lessees were in their name and therefore they alone is liable to pay any amount that is due to the department. Further, it is submitted that the whereabouts of the lessees were not known and merely because the registration certificate obtained by them were not surrendered and they have not cleared the central excise dues, it is not ground to deny granting of registration to the petitioner, as he is the rightful owner of the premises.

Learned counsel for the petitioner also placed reliance on the decision of the Hon'ble Division Bench of Bombay High Court in the case of TATA Metaliks Ltd. vs. Union of India reported in 2009 (234) ELT 596 ( Bom ) = 2008-TIOL-140-HC-MUM-CX and contended that the department had acted without jurisdiction in refusing to grant registration on the plea that previous licensee has not applied for de-registration and in the absence of specific power to deny registration. Further, learned counsel referred to the decision of the Hon'ble Supreme Court in the case of State of Karnataka & Anr. vs. Shreyas Papers P. Ltd. & Ors., reported in CDJ 2006 SC 086 = 2006-TIOL- 01-SC-CT, for the real meaning of 'business' and 'ownership of business' as provided under section 15 (1) of Karnataka Sales Tax Act. Further learned counsel for the petitioner referred to the decision of this Court in the case of Sri Jagajothi Co. Ltd. vs. Commissioner of Central Excise, Tirunelveli reported in 2011 (268) ELT 164 (Mad), stating that only if there is transfer of business or trade which effects any change in ownership thereof, and in consequent thereof one succeeds in such business, such person is liable to pay dues under proviso to Section 11 of the Act. Learned counsel also referred to the decision of Hon'ble Supreme Court in Rana Girders Ltd. vs. Union of India & Ors. reported in CDJ 2013 SC 694 = 2013-TIOL-39-SC-CX, wherein it has been held that where the buyer had purchased the entire unit i.e. entire business itself he would be responsible to discharge the liability of Central Excise and the proviso to Section 11 was added w.e.f. 10.09.2004 is not applicable for liability arising before that date. With the above submissions, learned counsel seeks to quash the above proceedings.

Respondent’s contention:-Learned Senior Standing Counsel appearing for the respondent by referring to the counter affidavit submitted that the lessee had stopped production activities and abandoned the premises and the whereabouts of Mr. S. Jayachandran and Mr. S. Sathyamurthy were not known and the other lessee is the Managing Director of M/s. Yedakadu Tea Manufacturing Co. Pvt., Yedakadu , Nilgiris District and efforts have been taken to release the arrears of payment which resulted in futile. In the meantime, the petitioner applied for fresh Registration Certificate and the same was rejected on the ground that the previous Registration Certificate has not been surrendered and the earlier dues have not been cleared. The same is reiterated in the other paragraphs of the counter affidavit also and it is also submitted that without surrendering the previous Registration Certificate and without effecting payment of arrears, the question of issue of fresh Registration Certificate would not arise. In this regard, records were produced to show that an Order-in-Original dated 23.03.2005 has been passed in the name of the company, wherein an amount of Rs.8 ,35,829 /- has been claimed as basic excise duty apart from claim of cess and penalty.

Reasoning of judgment:-After hearing learned counsel for the parties and perusing the material placed on record, the following points arise for consideration. Firstly, whether the respondent is justified in passing the impugned order to clear the dues of the predecessor without affording an opportunity of hearing to the petitioner. Secondly, whether the petitioner could be called upon to pay the dues liable to be paid by his lessees as a condition precedent to issue fresh registration certificate. Admittedly, the registration stood in the name of three persons, who are the lessees and even according to the department, two of them are absconding and one of them who is the Managing Director, is unable to recover the dues. Therefore, they caught hold of the petitioner, when he applied for fresh registration certificate. Hence, the respondent has passed a non speaking order without affording an opportunity of hearing to the petitioner, rejecting his claim. When the department having recognised those three as lessees, cannot claim the amount payable by them from the petitioner. If they are not recognised as lessees then the question is different. From the records produced it is seen that the name of three persons, in whose name registration certificate has been granted and they have been described as lessees of the tea factory. Therefore, if an opportunity for personal hearing had been granted to the petitioner, he would have placed all the records including the decisions relied on stating that the liability left behind by lessees cannot be fastened on the petitioner, when he seeks for a fresh registration certificate in the capacity of owner of the factory. Since on the first ground itself this Court is convinced, that the petitioner has not been afforded with a reasonable opportunity, the petition is entitled to be allowed. In the light of the above, the second question need not be gone into since that would require examination of the facts and this should be done by the second respondent after issuing a show cause notice to the petitioner.

In the result, the writ petition is allowed and the impugned proceedings is quashed and the respondent is directed to issue a show cause notice clearly stating as to the names under which registration was granted and how the respondent is claiming the sales tax dues alleged to have been defaulted by the lessees and on receipt of the show cause notice, the petitioner is entitled to submit his reply, after affording an opportunity of personal hearing to the petitioner, the respondent shall pass orders on merits and in accordance with law. During the course of enquiry, the petitioner is entitled to produce all the documents including the judgements relied upon. The said proceedings shall be completed by the respondent, within a period of four months from the date of receipt of a copy of this order. No order as to costs.

Decision:-Petition disposed of.

Comment:-The analogy of the case is that the application for excise registration cannot be rejected without issuing show cause notice and without affording opportunity of personal hearing to the applicant. Therefore, the writ petition was allowed on this ground alone and matter was remanded for consideration by the adjudicating authority.

Prepared by: Monika Tak

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PJ/CASE LAW/2014-15/2423

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