2016 (12) TMI 1511 - AT - Central Excise

Attachment of property - factory premises was leased to M/s Siddhnath Exports, an 100% EOU, for the period from 27.03.2000 to 26.03.2006. Since M/s Siddhnath Exports defaulted in payment of confirmed excise duty and penalty amounting to ₹ 4,59,00,617/-, the recovery proceeding of the said amount was initiated from the Appellants - the recovery notice was issued to the Appellant on 11.10.2005 along with M/s Siddhnath Exports for recovery of the outstanding dues under Section 142(1)(c)(ii) of Customs Act, 1962. It is not in dispute that under registered lease deed executed on 27.03.1999, the Appellants had leased their factory, building and plant and machinery to M/s Siddhnath Exports for a period of six years commencing from 27th March 2000, and till 26th March 2006 and stipulated that in any case, the factory was not to be vacated till the export obligation was discharged. However, the said lessee M/s Siddhnath Exports has left their premises before completion of export obligations and expiry of lease period of six years. Held that - I find that on the very same issue, the Tribunal has discussed in detail, the legality of the recovery of the outstanding dues from the lessor when the lessee, an 100% EOU, vacated the premises before fulfillment of the export obligations in Rajabali Ismail Rajbara case 2014 (3) TMI 483 - CESTAT AHMEDABAD (LB) and by majority held that recovery cannot be made from the Lessor by attachment of the property - appeal allowed - decided in favor of appellant.

Summary

Issues:
Recovery proceedings against the appellants under Section 11 of Central Excise Act, 1944 read with Section 142 of Customs Act, 1962. Interpretation of Section 142(1)(c)(ii) of Customs Act, 1962 regarding recovery of outstanding dues from the lessor when the lessee vacated the premises before fulfilling export obligations and lease period expiry.

Analysis:
The appeals were filed against the OIA passed by the Commissioner (Appeals), C.Ex. & S.Tax, Surat, regarding recovery proceedings initiated against the appellants for confirmed excise duty and penalty amounting to ?4,59,00,617. The recovery was sought from the appellants as owners of the factory premises leased to M/s Siddhnath Exports, an EOU, for the period from 27.03.2000 to 26.03.2006. The dispute arose when M/s Siddhnath Exports defaulted in payment, leading to recovery actions against the appellants. The Commissioner (Appeals) upheld the attachment order, prompting the present appeals.

The appellant's advocate argued that recovery proceedings were initiated erroneously under Section 11 of Central Excise Act, 1944 and Section 142 of Customs Act, 1962, as the leased premises were vacated by M/s Siddhnath Exports in 2001. The advocate highlighted that the property was subsequently leased to another manufacturer, M/s Shivshakti Textiles, with a new Central Excise registration issued to the new lessee in 2003. The advocate cited previous Tribunal judgments to support the contention that recovery from the lessor is not permissible when the lessee vacates the premises before fulfilling obligations, as in the present case.

The authorized representative for the Revenue countered, arguing that the facts in the present case differed from previous judgments, noting that the lease deed was registered and the recovery notice was issued before the lease period expiry. However, the Tribunal found that the recovery notice was indeed issued before the lease period ended, but M/s Siddhnath Exports vacated the premises prematurely, breaching the lease agreement. The Tribunal referenced previous cases to establish that recovery from the lessor in such circumstances is impermissible.

In conclusion, the Tribunal set aside the impugned order and allowed the appeals, following the precedent established in previous cases. The judgment reiterated that recovery of outstanding dues from the lessor is not justified when the lessee vacates the premises before fulfilling obligations, even if the recovery notice was issued before the lease period expiry. The decision emphasized the importance of legal interpretation in fastening liability on the lessor under Section 142(1)(c)(ii) of the Customs Act, 1962.