2017 (1) TMI 704 - AT - Central Excise

Recovery of outstanding dues - attachment of property - Lease of property to 100% EOU - under registered lease deed executed on 30.09.1999, the Appellants had leased their factory, building and plant and machinery to M/s Revawala Exports for a period of six years commencing from 30th Sept. 1999, and till 29th Sept. 2005 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 Revawala 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:
1. Recovery proceedings against the lessor for outstanding dues from lessee - EOU.
2. Interpretation of Section 142(1)(c)(ii) of Customs Act, 1962.
3. Applicability of previous judgments in similar cases.

Analysis:
1. The appeal was filed against an order passed by the Commissioner (Appeals) initiating recovery proceedings against the lessor for confirmed excise duty and penalties amounting to ?48,39,348 due to default by the lessee, an EOU. The recovery notice was issued to the appellants for attachment of their property. The issue revolved around whether the outstanding dues from the lessee could be recovered from the lessor. The learned Advocate for the Appellants argued that the recovery proceedings were initiated incorrectly under Section 11 of Central Excise Act, 1944 and Section 142 of Customs Act, 1962. Reference was made to previous Tribunal judgments to support the contention that recovery cannot be made from the lessor in such cases.

2. The key contention was the interpretation of Section 142(1)(c)(ii) of the Customs Act, 1962. The Commissioner (Appeals) had held that the property was under the control of the defaulter lessee, justifying the recovery from the lessor. However, the Tribunal, following precedent, emphasized that recovery cannot be made from the lessor by attaching the property when the lessee, an EOU, vacated the premises before fulfilling export obligations. The Tribunal found that the recovery notice was issued before the expiry of the lease period, but it was registered, which the Revenue argued made the case different from previous judgments. However, the Tribunal deemed this argument insignificant in determining the liability of the lessor under Section 142(1)(c)(ii) of the Customs Act, 1962.

3. The Tribunal referred to previous cases like Rajabali Ismail Rajbara to establish the principle that recovery of confirmed dues pending against the lessee - EOU cannot be recovered from the lessor, even if the lessee vacated the premises before the lease period ended. The judgment in this case was set aside, and the appeals were allowed based on the precedent established in Rajabali Ismail Rajbara case. The Tribunal concluded that the recovery proceedings against the lessor were not justified, and the liability did not extend to the lessor in this context.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the legal interpretations made by the Tribunal in this case.