2018 (10) TMI 210 - AT - Central Excise

Clandestine removal - proceedings were initiated against one M/s Diwan Industries, a partnership firm - Revenue s stand is that since the proprietor of the present unit is a partner in M/s Diwan Industries and the arrears against the partnership firm can be recovered from the partners, the appropriation of the refund sanctioned to the proprietary unit is legal and proper. Held that - A proprietary unit is an individual legal entity and any refunds due to the proprietary unit cannot be adjusted or appropriated towards the demand which may be pending recovery against an another independent legal entity, of which the proprietor of unit is a partner. It has to be kept in mind that the present proceeding are not recovery proceeding against the partnership firm so as to make the recoveries independently from the partners also. The dispute relates to the refund of the duty deposited by a proprietary unit and on success of their appeal before Tribunal such refunds have to be sanctioned to the proprietary unit. Any such adjustments against the dues of a partnership firm is neither justified nor proper nor legal. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Proceedings for confirmation of demand due to clandestine removal against a partnership firm and a proprietary unit. Appropriation of refund sanctioned to the proprietary unit against the dues of the partnership firm.

Analysis:
The judgment dealt with the confirmation of demand against a partnership firm, M/s Diwan Industries, and a proprietary unit, M/s Mahavir Industries, due to clandestine removal. The demand against M/s Diwan Industries was confirmed along with a penalty, and a demand was also confirmed against M/s Mahavir Industries. Both parties appealed before the Commissioner (Appeals) and subsequently before the Tribunal. The Tribunal directed both parties to deposit a part amount as a condition for hearing their appeal, but M/s Diwan Industries failed to comply, leading to the dismissal of their appeal. On the other hand, M/s Mahavir Industries approached the High Court via a writ petition, deposited the directed amount, and their appeal was allowed, entitling them to a refund.

Regarding the appropriation of the refund, the Assistant Commissioner upheld the adjustment of the sanctioned refund against the dues from M/s Diwan Industries due to the proprietor of M/s Mahavir Industries being a partner in the partnership firm. However, the appellate tribunal found that a proprietary unit is an individual legal entity, and any refunds due to it cannot be adjusted against the dues of another independent legal entity, even if the proprietor is a partner in that entity. The tribunal emphasized that the proceedings were not recovery proceedings against the partnership firm to make recoveries from the partners independently. Therefore, the adjustment of the refund against the partnership firm's dues was deemed unjustified, improper, and illegal.

Ultimately, the tribunal set aside the impugned orders of the authorities below, finding no merit in their decision. The appeal was allowed, granting consequential relief to M/s Mahavir Industries in obtaining the refund of the pre-deposited amount.