2007 (7) TMI 456 - AT - Customs

Penalty - Failure to meet export obligation by importer-company - Held that - It is well settled that the rights and obligations of a limited company are the rights and obligations of that legal person and not of Managers or share holder. In such a case, the liability of a shareholder would be limited to his shareholding, be he a promoter or not - In the present case, the findings are that the Company failed to carry out its export obligation. Therefore, the liabilities will have to be borne only by the Company. There is no finding of fraud, or misappropriation against the present appellant. In such a case, penalty on the officer of the company is not permissible. Section 112 of the Customs Act speaks of any person, who in relation to any goods, does or omits to do any act . In the present case, that person is the public limited company and not the individual person (appellant). Therefore, person who attracted the penalty is the limited company. Appeal allowed.

Summary

Issues:
Penalty imposition on individual officer of a company for failure to meet export obligations.

Detailed Analysis:

Issue 1: Liability of individual officer for penalty due to company's failure to meet export obligations
The case involved a penalty of Rs. One crore imposed on the appellant, who was the Managing Director of a company that failed to fulfill its export obligations despite importing machinery for export production. The Commissioner held the Managing Director liable, stating that directors must ensure liabilities are discharged, especially with significant exemptions availed. The order highlighted the company's mismanagement, avoidance of duty payment, and reprehensible conduct. The appellant argued that liability rests solely on the importing company and not on individual officers. The appellant's counsel cited a High Court decision, emphasizing that individual liability arises only in cases of fraud or when the corporate veil is lifted.

Issue 2: Interpretation of liability in cases of customs duty non-payment
The Department argued that the appellant, being a promoter and the Managing Director, should bear responsibility for the company's failure to pay customs duty and meet export obligations. However, it was contended that in the absence of fraud or misappropriation by the individual officer, penalties should be imposed on the company as a legal entity. The Tribunal clarified that the rights and obligations of a limited company are distinct from its managers or shareholders. As the company failed to fulfill its export obligations without evidence of fraud by the appellant, the liability should be limited to the company itself. Section 112 of the Customs Act refers to "any person" in relation to goods, with the Tribunal determining that the liable entity in this case was the public limited company, not the individual appellant.

Conclusion:
The Tribunal ruled that the penalty imposed on the appellant, as an individual officer, was not sustainable. Citing the legal principle that a company's liabilities are separate from those of its officers, the penalty was set aside, and the appeal was allowed with any consequential relief. The judgment clarified that in the absence of fraud or misappropriation by an individual officer, penalties should be imposed on the company as a legal entity, not on individual officers, even if they hold significant positions within the company.