2017 (11) TMI 1531 - AT - Customs

Non-fulfillment of export obligation - N/N. 48/99-Cus. Dated 29th April, 1999 - the proprietorship firm was granted Advance License, which was further converted into partnership firm - there was a inter-se litigation between the partners and vide the order of competent District Court No.48k by the Hon ble Civil Judge, Moradabad, arbitrators were appointed under the authority of law and a compromise was arrived before the court, whereby, it was agreed that excepting the liabilities of M/s SOM. Industries, M/s M. K. Handicrafts, all other liabilities of Government or Non-Government shall lie with the respondent-Shri Manoj Sikka and his wife Smt. Hema Sikka - Held that - both the parties are directed to bring the facts on record whether the duty and penalty as demanded which have survived through process of appeal at the first stage, whether the same have been paid or discharged.

Summary

Issues:
1. Grant of Advance License and Export Obligation
2. Conversion of Proprietorship into Partnership Firm
3. Customs Duty Demand and Confiscation
4. Imposition of Penalties on Firm, Partners, and CHA
5. Inter-se Litigation and Compromise Agreement

Analysis:

1. Grant of Advance License and Export Obligation:
The case involved a proprietorship concern granted an Advance License for the import of Brass Scrap for export of Handicrafts. The proprietorship was required to discharge an Export Obligation within a specified period. However, the proprietorship was later converted into a partnership firm. As the export obligation was not fulfilled, a show cause notice was issued, leading to the demand for Customs duty and confiscation of goods.

2. Conversion of Proprietorship into Partnership Firm:
Following the conversion of the proprietorship into a partnership firm, the liabilities and obligations of the firm were to be determined. The dispute between partners and subsequent arbitration resulted in a compromise agreement specifying the allocation of liabilities between the partners and the erstwhile proprietor.

3. Customs Duty Demand and Confiscation:
The Customs authorities demanded duty from the firm and its partners based on the non-fulfillment of the export obligation. The confiscation of goods was ordered, but as the goods were not available, the confiscation was dropped. Additionally, penalties were imposed on the firm, partners, and a separate penalty on the CHA involved.

4. Imposition of Penalties on Firm, Partners, and CHA:
In light of the non-compliance with the export obligation, penalties were imposed on the firm, partners, and the CHA. The imposition of penalties was a consequential action following the failure to discharge the obligations under the Advance License.

5. Inter-se Litigation and Compromise Agreement:
The inter-se litigation among the partners led to the appointment of arbitrators and a subsequent compromise agreement. This agreement delineated the liabilities between the partners and the former proprietor, clarifying the distribution of obligations as per the court's directive.

The Tribunal directed both parties to provide details regarding the payment or discharge of the demanded duty and penalties. The matter was scheduled for further hearing to ascertain the status of compliance with the obligations. The case highlighted the complexities arising from the conversion of business structures and the subsequent allocation of liabilities among partners and former proprietors.