2007 (8) TMI 170 - AT - Central Excise

Partnership firm is not a legal entity so demand can be raised after dissolution of firm in respect of excisable goods cleared by them prior to dissolution No penalty imposable on partner individually Wooden furniture can not be treated as Handicrafts to avail exemption under Not. 76/86

Summary

Issues Involved:
1. Validity of assessing and demanding duty from a dissolved partnership firm.
2. Confiscation of goods and imposition of penalties.
3. Classification of furniture items as handicrafts and their excisability.

Detailed Analysis:

1. Validity of Assessing and Demanding Duty from a Dissolved Partnership Firm:
The primary issue in appeal Nos. 637-639/98 was whether the dissolved firm M/s. SJA could be assessed for duty and whether such a demand could be raised under the Central Excise Act and relevant rules. The firm was dissolved on 5-10-1996, and the show-cause notice was issued on 22-10-1996. The appellants argued that there was no provision in the Central Excise Act or rules for assessing and demanding duty from a dissolved firm. They relied on the Supreme Court rulings in the cases of the State of Punjab v. Jullundur Vegetables Syndicate and Khushi Ram Behari Lal & Co. v. The Assessing Authority, Sangrur, which held that a dissolved firm could not be assessed unless there was a statutory provision allowing it.

The Revenue countered, citing Section 47 of the Indian Partnership Act, which allows a dissolved firm to continue for winding up its business and discharging its debts, including dues to the government. They also referenced the Supreme Court decision in Agarwal Trading Corporation & Others v. Assistant Collector of Customs, Calcutta.

The Tribunal examined the rival contentions and found that the Central Excise Act and rules did not provide for assessing a dissolved firm. The Commissioner's finding that the firm continued to exist post-dissolution was unsupported by facts or law. The Tribunal cited the Supreme Court ruling in Jullundur Vegetables Syndicate, which established that a dissolved firm could not be assessed without specific statutory provision. Consequently, the assessment and demand of duty on M/s. SJA post-dissolution were deemed unsustainable.

2. Confiscation of Goods and Imposition of Penalties:
The Commissioner had confiscated the furniture items under Rule 173Q, giving M/s. Hotel Rajputana Palace Sheraton the option to redeem the goods on payment of a fine of Rs. 5.25 lakhs. The Tribunal upheld the confiscation, noting that the goods were excisable and had been removed without payment of duty, thus attracting Rule 173Q.

However, the penalties imposed on M/s. SJA and individuals were found unsustainable. The penalty under Section 11AC was invalid for the period 1992-93 as the provision was not in force then. The penalties on Shri Jayant Juneja and M/s. Hotel Rajputana Palace Sheraton under Rule 209A were vacated due to lack of evidence showing they dealt with the goods knowing they were liable to confiscation.

3. Classification of Furniture Items as Handicrafts and Their Excisability:
The appellants contended that the furniture items were handicrafts, exempt under Notification No. 76/86-CE. They presented a certificate from an expert stating the items were handcrafted. The Tribunal referred to the Supreme Court's ruling in CCE v. Louis Shoppe, which laid down tests for characterizing wooden furniture as handicrafts. The Tribunal found that the furniture items did not meet the criteria for handicrafts as they lacked substantial ornamentation or artistic improvement. Consequently, the items were classified under Heading 94.03 as "other furniture," making them excisable and dutiable.

Separate Judgments:
The Tribunal was divided on whether a dissolved firm could be assessed for duty. The Judicial Member held it was impermissible, citing the lack of statutory provision. The Technical Member disagreed, arguing the Central Excise Act did not treat a partnership firm as a separate legal entity requiring specific provision for assessment post-dissolution. The matter was referred to a third member, who sided with the Technical Member, following the Larger Bench decision in M/s. Gopal Industries Ltd. v. CCE, which allowed assessment and demand of duty from a dissolved firm.

Final Order:
In view of the majority opinion, the appeals by Shri Sunil Juneja, Smt. Sita Juneja, and Shri Jayant Juneja were dismissed, and the appeal by M/s. Hotel Rajputana Palace Sheraton was partly allowed. The penalties and duty demands on the dissolved firm were upheld, but the redemption fine was reduced to Rs. 3 lakhs, and the direction for M/s. Hotel Rajputana Palace Sheraton to pay the duty was set aside.