By TIOL News Service

MUMBAI, APRIL 28, 2014: THE substantial question of law before the Bombay High Court is -

"Whether, the CESTAT has erred in imposing simultaneous penalties on both the Partner and Partnership firm?"

The appellant submitted -

+ Once the Appellant is a firm registered under the Indian Partnership Act, 1932, then, the independent existence thereof and de-hors the partners is ruled out. In other words, a partnership firm cannot have an independent existence than that of a partner.

+ It is not comparable to a company incorporated and registered under the Indian Companies Act, 1956. A company has an existence independent than that of its directors and shareholders unlike a partnership firm.

+ It is also submitted that there is a difference of opinion in the views taken in the following two decisions rendered by the Bombay High Court and, therefore, a reference to a Larger Bench should be made for resolving the subject controversy.

+ Law does not envisage imposition of dual or separate penalty - Commissioner of Customs (E.P.) v/s Jupiter Exports 2007-TIOL-329-HC-MUM-CUS.

+View taken in Jupiter Exports is contrary to the law laid down by the Supreme Court in the case of Standard Chartered Bank v/s Directorate of Enforcement 2006-TIOL-16-SC-FERA-LB. - Textoplast Industries v/s Additional Commissioner of Customs 2011-TIOL-438-HC-MUM-CUS

The counsel for the Revenue submitted that the judgment in the case of Textoplast Industries (supra)is a later judgment and rendered by a Division Bench and by applying the apex Court decision in Standard Chartered Bank (supra) and, therefore, the same should be followed without referring the matter to the larger bench.

The High Court observed -

++ The Division Bench in the case of Jupiter Exports (supra) noted the rival contentions and particularly with regard to imposition of separate penalties and observed that when the partnership firm is penalized separate penalties cannot be imposed on the partners. When these are the conclusions and which have been rendered in the backdrop of the status of a partnership firm particularly in custom and excise law, then, for the later Division Bench in Textoplast Industries (supra) to have held the same as not binding, something more was required to be said and held.

++ With greatest respect, the position of a partnership firm and as envisaged in the law of partnership is not altered unless a contrary provision is made in the Taxing Law. That appears to be the consistent legal opinion. In other words, the HonourableSupreme Court in the case of M/s Malabar Fisheries Co. v/s The Commissioner of Income Tax, Kerala reported in AIR 1980 SC 176 held that a partnership firm registered under the Partnership Act, 1932 is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property or firm's assets all that is meant is property or assets in which all partners have a joint and common interest. If the legal position remains the same and as noted above, then, with respect, prima facie , the later Division Bench ought not to have sounded a different note.

++ We find that it has rendered an altogether different opinion and which appears to be in conflict with that of the Division Bench delivering the judgment in Jupiter Exports (supra). The Division Bench has followed the judgment of the Honourable Supreme Court in the case of Standard Chartered Bank (supra). However, in Standard Chartered Bank (supra) the issue for consideration of the Honourable Supreme Court was, whether, Section 68 (1) of the Foreign Exchange Regulation Act, 1973 is inapplicable to the adjudication proceedings and it was confined to prosecution for penal offences under the FERA.

++ The three Judge Bench decision in Standard Chartered Bank (supra) is delivered in the context of the challenge raised by the Union of India. Further, the challenge was raised in the context of an offence committed by a Company. Therefore, a penalty also can be imposed on a Company and in holding that the Honourable Supreme Court noted the legal status of a company.

++ There is clear conflict, to our mind, in two views. One recognizes the settled concept and applies it, namely, a firm cannot be said to have an independent existence than that of partners even when it comes for imposition of penalty. Whereas, other holds that there is no difference between criminal prosecution and adjudication or penalty proceedings. Therefore, even in cases falling under the Customs Act, 1962 dealing with imposition of penalty same cannot be confined only on a partnership or its partner.

++ The Division Bench, therefore, does not agree with the principles applied in the earlier Division Bench judgment and expressly differs from it. This divergence of opinion, to our mind, is apparent and we cannot follow the later judgment in the case of Textoplast Industries (supra).

++ It is difficult to hold that the Division Bench in Jupiter Exports (supra) is per incuriam or that the law laid down therein is no longer good law in the light of the judgment in the case of Standard Chartered Bank (supra) delivered by the Honourable Supreme Court. Noting that the controversy before the Honourable Supreme Court was decided in the backdrop of the facts and particularly the legal position and status of a company incorporated and registered under the Indian Companies Act, 1956 we are of the opinion that this Appeal cannot be dismissed by following the judgment in the case of Textoplast Industries (supra).

++ It is clear that the judgment in Textoplast Industries (supra) cannot be said to be either per incuriam or no longer good law. [ Central Board of DawoodiBohra Community v/s State of Maharashtra reported in AIR 2005 SC 752 refers]

++ The appellant submitted that Chapter XIV of the Customs Act deals with Confiscation of Goods and Conveyances and Imposition of Penalties. Section 112 falling in the said Chapter and clause (a) thereof speaks of penalty for improper importation of goods and that can be imposed on any person. The argument is that there is separate chapter, namely, Chapter XVI dealing with the Offences and Prosecutions and Section 140 thereof provides for Offences by Companies. Therefore, the distinction between two provisions "any person" and "offences by companies being committed every person who at the time the offence was committed was in charge of and was responsible to the company for the conduct of business of the company as well as the company", shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly, cannot be lost sight of. It is submitted that these two are distinct proceedings and particularly under the scheme of the Customs Act, 1962. Taking a view that there is no necessity of expressing any opinion on the aforesaid submissions as it has been noted that the Appeal raises a substantial question of law, the High Court held that the conflict has to be resolved by a Larger Bench.

The following questions of law were referred for opinion of a Larger Bench:-

(i) Whether, under the Customs Act, 1962 and particularly in exercise of the powers conferred by Section 112(a) thereof, simultaneous penalties on both the Partner and Partnership firm can be imposed?

(ii) Whether, the judgment in the case of Commissioner of Customs (E.P.) v/s Jupiter Exports 2007-TIOL-329-HC-MUM-CUS holding that separate penalty on a partnership firm and a partner cannot be imposed, lays down the correct law or whether, as held by the later Division Bench in the case of Textoplast Industries v/s Additional Commissioner of Customs reported in 2011-TIOL-438-HC-MUM-CUS it is permissible to impose penalty separately on a partnership firm and a partner particularly in adjudication proceedings under the Customs Act, 1962?

(See 2014-TIOL-588-HC-MUM-CUS)