2024 (2) TMI 1033 - HC - Customs

Challenged the show cause notice issued - mergers and de-mergers - non-existing company - seeking to recover Customs duty on the imports - beyond prescribed time/ extended period of limitation - advance license issued in respect of the four bills of entry - Advance Authorization - HELD THAT - There is no merits in these writ petitions challenging the impugned show cause notice. Merely because, the noticee company has been merged with the petitioner company ipso-facto would not mean the liability of the noticee company would stand extinguished on account of its merger with the petitioner company. Merger or amalgamation of companies is not a tool under law to either facilitate avoidance and evasion of tax liability already incurred by a transferor company like the Noticee. If the liabilities of the Noticee Company stood undischarged, the petitioner, as the successor of the business of the Noticee company and as the transferee company not only acquires the liabilities of the transferor company but also its assets, unless, the liability was retained by the promoters of the transferor company. The petitioner has not filed Scheme of Amalgamation before this Court. Therefore, Show Cause Notice proceeding cannot be scuttled. Since, the benefit of advance license was availed by the Noticee (transferor) and it had filed to discharge its obligation under the advance license, the liability has to be discharged by the transferee company as its successor. As a transferee company, the petitioner cannot state that the liability of the noticee company stood extinguished on account of its merger /amalgamation with it. This writ petition is therefore liable to be dismissed. The petitioner is therefore directed to file a reply with the impugned Show Cause Notice within a period of 30 days from the date of receipt of a copy of this order. For the sake of clarity, a corrigendum may be issued to the impugned Show Cause Notice to the petitioner as a transferee company/successor of Noticee company namely M/s.Fabritex Exports Pvt.Ltd. It is made clear that if the petitioner as the successor of the Notice company fails to co-operate with the respondents, the respondents are at liberty to confirm the demand proposed in the impugned show cause notice and recover the amount from the petitioner company based on the available material. This writ petition is dismissed. No costs. Consequently, connected miscellaneous petitions are closed.

Issues Involved:
1. Validity of the Show Cause Notice issued to a non-existent entity.
2. Compliance with Export Obligations and the resultant liability of the successor company.
3. Applicability of legal precedents and statutory provisions.

Summary:

Issue 1: Validity of the Show Cause Notice issued to a non-existent entity
The petitioner challenged the show cause notice dated 28.08.2019, issued by the third respondent, seeking to recover Customs duty on imports made by the petitioner under an advance license. The petitioner argued that the notice was issued to M/s. Fabritex Exports Pvt Ltd, a company that had ceased to exist due to mergers and de-mergers. The petitioner cited several Supreme Court decisions to support their claim that the notice should be quashed.

The respondents countered by stating that the Import Export Code (IE Code) of M/s. Fabritex Exports Pvt Ltd had not been canceled and continued to remain valid. Therefore, the notice was still applicable. The court noted that the transferee company (the petitioner) would inherit both the assets and liabilities of the transferor company (M/s. Fabritex Exports Pvt Ltd) under the scheme of amalgamation.

Issue 2: Compliance with Export Obligations and the resultant liability of the successor company
The petitioner contended that M/s. Fabritex Exports Pvt Ltd had obtained an Advance Authorization and imported goods without fulfilling the export obligations, thus violating the conditions of the notification and the bond executed. The respondents argued that the petitioner, as the successor company, was responsible for the liabilities incurred by M/s. Fabritex Exports Pvt Ltd, including the customs duty and interest on unutilized imported materials.

The court held that the merger or amalgamation of companies does not extinguish the liabilities of the transferor company. The petitioner, as the successor company, was obligated to discharge the liabilities of M/s. Fabritex Exports Pvt Ltd. The court directed the petitioner to respond to the show cause notice within 30 days and allowed the respondents to adjudicate the matter on merits within three months.

Issue 3: Applicability of legal precedents and statutory provisions
The court examined various legal precedents and statutory provisions cited by both parties. It concluded that the decisions cited by the petitioner could not be applied to the facts of the case. The court emphasized that mergers and amalgamations are not tools to evade tax liabilities and that the successor company inherits both assets and liabilities.

Conclusion:
The writ petition was dismissed, and the petitioner was directed to reply to the show cause notice within 30 days. The respondents were instructed to adjudicate the matter on merits within three months, with the entire process to be completed within six months. If the petitioner failed to cooperate, the respondents were authorized to confirm the demand and recover the amount based on available material. No costs were awarded, and connected miscellaneous petitions were closed.

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