By TIOL News Service

MUMBAI, JAN 25, 2013: A SCN was issued u/s 124 of the Customs Act 1962 to several entities and persons viz. Nisum Exports & Finance Private Limited; Nisum Global Limited; Mehul Exports; Nirmal Agarwal and Mayur Vakharia. The gravamen of the notice was a fraudulent claim of duty drawback. No notice to show cause was issued to the Petitioner. The Petitioner is a Director of Nisum Global Limited. Mehul Exports is stated to be the proprietary concern of the spouse of the Petitioner.

The Commissioner of Customs (EP) confirmed the demand of Rs.94.75 lacs against Nisum Exports and Finance Private Limited, of Rs.53.05 lacs against Nisum Global Limited and Rs.3.40 Crores against Mehul Exports. Fine and personal penalties were also imposed. No order of adjudication was passed against the Petitioner since admittedly the notice to show cause was not issued against her.

On 1 st November 2011 a notice of demand was issued to the Petitioner stating that under the order of 20 September 2007 which had been forwarded for recovery by the Assistant Commissioner of Customs, Drawback Recovery Cell to the Assistant Commissioner of the Special Recovery Cell, an amount of Rs.6.69 Crores was due together with interest. A certificate had been forwarded by the Assistant Commissioner of Customs, Drawback Recovery Cell under Section 142 (1)(c)(ii) of the Customs Act 1962 read with Rule 6 of the Customs (Attachment of Property of Defaulters for Recovery of Customs Dues) Rules 1995 specifying that the amount was to be recovered from the Petitioner.

The Petitioner has sought to challenge the notice of demand as being without jurisdiction.

In the companion petition the Petitioner has sought to challenge a similar demand notice dated 1 November 2011 addressed to her on the basis of the order of adjudication passed against Nisum Global Limited in the amount of Rs.96.07 lacs. It has been stated that the Assistant Commissioner of Customs, Drawback Recovery Cell has forwarded the certificate to his counterpart in the Special Recovery Cell under Section 142 (1)(c)(ii) read with Rule 6. Following the notice of demand, a notice of attachment has been levied both upon the Petitioner and her spouse Nirmal Agarwal. The notice of attachment has been addressed to the Petitioner and her spouse as directors of Nisum Exports and Finance Private Limited and as also in the name of Mehul Exports and Nisum Global Limited. The attachment has been challenged by the Petitioner in the companion petition.

In support of the challenge to the demand notice, the Petitioner submits that under Section 142(1)(c)(ii) the mode of recovery of sums due to Government has been provided where any sum payable by a person under the Act is not paid. The submission is that the expression “such person” in clause (c) of sub-section (1) must refer to and mean the person by whom any sum is payable. Moreover it has been urged that the power to distrain property belonging to and under the control of such person must mean the person by whom the amount is payable. Reliance has also been placed on the provisions of Rules 3, 4, and 5 of the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules 1995 and it has been submitted that in the present case the certificate which was issued under Rule 3 was in the name of Mehul Exports, which is a proprietary concern of the spouse of the Petitioner and in the name of Nisum Exports and Finance Private Limited and Nisum Global Limited of which the director is shown as the spouse of the Petitioner. Hence, it was urged that since no certificate has been issued in the name of the Petitioner under Rule 3 of the Rules, it is not the Petitioner who has been treated as a defaulter and hence, there was no occasion to issue a show cause notice under Rule 4 to the Petitioner requiring her to pay the amount specified in the certificate, nor for that matter could an attachment be levied on the property of the Petitioner. The following judgments are relied in support Sunil Parmeshwar Mittal v. Deputy Commissioner, (Recovery Cell) 2005 (6) Bom. C.R. 778 . and Vandana Bidyut Chaterjee v. Union of India Writ Petition 165 of 2012 decided on 13 February 2012.

While opposing the Petition, Revenue in its affidavit stated that the property which was attached by the Revenue is a joint ownership property in the joint names of the Petitioner / her spouse and one Rahul G. Chokhani. The property, comprising of flat 1501 is stated to have been divided into three portions: 1501A, 1501B and 1501C, each of which have been registered individually and separately in the names of the aforesaid three persons. The Revenue has attached the two properties which are stated to be registered in the name of the Petitioner and her spouse. The Petitioner claims to be the owner of flat 1501B situated at Oberoi Sky Heights, Lokhandwala, Andheri (West), Mumbai 400 053. A further affidavit has been filed on 25 June 2012 by the Assistant Commissioner in which it is sought to be stated that flat No.1501 is a single flat for all practical purposes though registered separately by assigning three different numbers viz. 1501A, 1501B and 1501C in the names of the said three persons. At the time of the registration of the society the name of the Petitioner's spouse was alleged to have been given to flat 1501 which is a composite flat. The co-operative society is stated to have addressed a communication stating that flat No.1501 stands in the name of three persons according to the records of the society. It has been alleged that the Petitioner, though she holds a pan card, has not filed an income tax return and it appears that flat 1501 was shown as divided into three separate portions in order to avoid the scrutiny of the Income Tax Department.

In order to controvert the allegations contained in affidavit in reply an additional affidavit has been filed by the Petitioner on 23 July 2012 in which it has been stated that the building in question comprises of a ground floor and 36 upper floors having three flats on each floor except for six floors where there are only two flats. The Petitioner has stated that flat No.1501A is shown in the records of the society in the name of her husband admeasuring 971 sq. ft.; flat No.1501B is in her name and admeasures 950 sq. ft. while 1501C in the name of Rahul Chokhani admeasures 950 sq. ft. The Petitioner has stated that she had purchased the flat by an agreement dated 8 March 2004 for the sum of Rs.29.45 lacs. The Petitioner has stated that she had taken a housing loan of Rs.25 lacs from LIC Housing Finance Limited and has annexed the letter of sanction to the affidavit. In her affidavit in rejoinder the Petitioner has annexed a copy of the registered agreement dated 8 March 2004 in her name under which flat No.1501B was transferred and sold to her. The agreement refers to the area of the aforesaid flat as 950 sq. ft. and contains a floor plan. The Petitioner has also relied upon the bill of the co-operative society addressed to her in respect of flat 1501B.

The High Court after extracting the provisions of section 142 of the Customs Act, 1962 and The Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules 1995 observed –

“13. Now in the present case the notice to show cause under Section 124 was not issued to the Petitioner. The order of adjudication dated 20 September 2007 was similarly not in respect of the Petitioner. The certificates that were issued under Section 142(1)(c) (ii) on 19 March 2010 were in the names of (i) Mehul Exports of which the proprietor is Nirmal Agarwal, the spouse of the Petitioner; (ii) Nisum Exports and Finance Private Limited of which the director is stated to be Nirmal Agarwal in the certificate; and (iii) Nisum Global Limited of which again the director is stated to be Nirmal Agarwal. The Petitioner at the highest, as the affidavit in reply states, is one of the directors of Nisum Global Limited and of Nisum Exports and Finance Private Limited. But that is not sufficient to follow the recoveries that are due and payable by the two companies in the hands of the Petitioner who is a director. As the Division Bench of this Court has noted in the judgment in Vandana Bidyut Chaterjee (supra), there is no provision in the Customs Act 1962 similar to Section 179 of the Income Tax Act 1971 or Section 18 of the Central Sales Tax Act 1956 where the dues of a private limited company can be recovered from its directors. A company which is a juristic entity has a status independent of its directors and shareholders. If in a given case, it is the contention of the Revenue that the entity of a corporate body is a mere shell which is being utilized to defraud the Revenue, a case for lifting the corporate veil has to be made out when notices of demand are issued to the company by making the directors / shareholders liable to pay the dues. In the present case, no such exercise was carried out and as we have noted neither was a notice to show cause under Section 124 issued to the Petitioner nor was an order of adjudication passed against her. The certificate that was issued under Section 142(1)(c)(ii) was not issued to the Petitioner. Hence, the action of addressing a demand to the Petitioner on 1 November 2011 under Section 142(1)(c)(ii) read with Rule 6 of the Attachment Rules and the consequential attachment are wholly without the authority of law.

14. The affidavits which have been filed on behalf of the Revenue proceed on the basis that flat 1501 is a composite flat which has been bifurcated into 1501A, 1501B and 1501C respectively. The Petitioner has annexed to a rejoinder dated 18 June 2012 a copy of the registered agreement dated 8 March 2004 under which the flat bearing No.1501B was purchased by her. The Petitioner has also relied upon the bills of the co-operative society in respect of flat 1501B. In the additional affidavit dated 23 July 2012, the Petitioner has stated that she had obtained a loan of Rs.25 lacs for the purchase of the flat from LIC Housing Finance Limited. Whether the Petitioner is in breach of any of the provisions of the Income Tax Act 1961 is not an issue which falls for determination in these proceedings and we clarify that nothing contained in this order would amount to a determination on that aspect which does not fall within the purview of these proceedings.

15. In the circumstances, we have come to the conclusion that the action of the Revenue in seeking to issue a notice of demand dated 1 November 2011 upon the Petitioner and the levy of attachment to the extent of the interest of the Petitioner in flat 1501B are unlawful and would have to be set aside. We order accordingly. We, however, clarify that the order would be confined only to the Petitioner insofar as she is aggrieved by the notice of demand and to the extent of the interest of the Petitioner in respect of flat 1501B.”

In passing: Barking up the wrong tree is an idiomatic expression in English, which is used to suggest a mistaken emphasis in a specific context. The phrase is an allusion to the mistake made by dogs when they believe that have chased a prey up a tree, but the game may have escaped by leaping from one tree to another - Walsh, William Shepard (1909). Handy-book of literary curiosities, p.80.

(See 2013-TIOL-62-HC-MUM-CUS)