2007 (9) TMI 287 - AT - Central Excise

Demand - Partnership firm - Liability - whether outgoing partners are liable to pay excise duty assessed against a registered partnership firm, which was dissolved?

Issues Involved:
1. Liability of outgoing partners to pay excise duty assessed against a dissolved partnership firm.
2. Validity of service of show cause notice.
3. Evidence of clandestine production and removal of excisable goods.
4. Applicability of provisions of the Central Excise Act to dissolved firms.
5. Imposition of penalties under Section 11AC and Rule 209A of the Central Excise Rules.

Issue-wise Detailed Analysis:

1. Liability of Outgoing Partners to Pay Excise Duty:
The core issue was whether outgoing partners are liable to pay excise duty assessed against a registered partnership firm that was dissolved. The judgment clarified that under the Central Excise Act, a partnership firm is not treated as a distinct legal entity separate from its partners. Therefore, the partners are jointly and severally liable for the excise duty liabilities incurred during the firm's operation. The Tribunal held that the partners continued to be liable for the excise duty liability incurred before the dissolution of their firm, and assessment proceedings do not frustrate by its dissolution. The Tribunal emphasized that the Central Excise Act does not recognize a partnership firm as a separate assessable entity, unlike the Income Tax and Sales Tax laws, where firms are treated as distinct legal entities.

2. Validity of Service of Show Cause Notice:
The Tribunal examined whether the show cause notice was properly served. It was noted that the show cause notice dated 10-8-2001 was sent to the partnership firm and all its partners. The Commissioner found that the notices were duly served, and this finding was not disputed during the arguments. The Hon'ble High Court of Madhya Pradesh had directed the partners to file their reply to the show cause notice, which they did, indicating proper service of notice.

3. Evidence of Clandestine Production and Removal:
The Tribunal assessed the evidence regarding clandestine production and removal of excisable goods. The Commissioner relied on private records, including two note-books titled "Daily report tin factory" and "Daily production report," seized from the factory premises. These records contained details of production and clearance of tin containers not reflected in the statutory records. The Tribunal found that the authenticity of these documents was admitted by the involved parties, and the evidence established clandestine production and removal beyond doubt. The Tribunal held that no further corroboration was required given the clinching nature of the oral and documentary evidence.

4. Applicability of Provisions of the Central Excise Act to Dissolved Firms:
The Tribunal discussed the applicability of the Central Excise Act provisions to dissolved firms. It was argued that the Central Excise Act does not contain provisions for post-dissolution assessment of a dissolved firm for its pre-dissolution clearances. The Tribunal held that the partners are liable for the firm's excise duty liabilities incurred before dissolution, and the assessment proceedings do not cease due to the firm's dissolution. The Tribunal distinguished the Central Excise Act from the Income Tax and Sales Tax laws, which specifically recognize firms as distinct assessable entities.

5. Imposition of Penalties:
The Tribunal upheld the imposition of penalties under Section 11AC of the Central Excise Act and Rule 209A of the Central Excise Rules. The demand of Rs. 46,53,866/- was confirmed against the appellant-assessees, and a penalty of the like amount was justified under Section 11AC along with interest under Section 11AB. Additionally, a penalty of Rs. 5 lacs imposed on the managing partner under Rule 209A was deemed appropriate due to his involvement in the clandestine activities.

Conclusion:
The appeal was dismissed, confirming the duty demand and penalties imposed. The Tribunal's decision emphasized the joint and several liabilities of partners for excise duty, the validity of the service of notices, and the sufficiency of evidence for clandestine production and removal of excisable goods.

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