Excise Dues of company cannot be recovered from its directors or shareholders

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HIGH COURT OF BOMBAY

Vandana Bidyut Chaterjee

v.

Union of India

Writ Petition No. 165 of 2012

February 13, 2012

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 February 2, 2011, filed by the respondents states that the arrears being Rs. 71,68,243 as excise duty and Rs. 25,000 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 the 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 Act, 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 share-holder 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 utilised 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/share-holders 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 hon’ble court in Sunil Parmeshwar Mittal’s case (supra) and Satish D. Sanghavi’s case (supra) 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 March 21, 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.