TIOL-DDT 520 · the untouched capture
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<html> <head> <meta http-equiv=Content-Type content="text/html; charset=windows-1252"> <title>Taxindiaonline's DDT 402</title> </head> <body> <p align="justify"><b><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 520</font></b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><br> 27.12.2006<br> Wednesday</b></font></p> <p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Customs loses a case for not depositing Rs.2500/- </font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">They arrested a person and promptly prosecuted him under the Customs Act and was successful in getting a conviction for three years in the first court. On appeal, the Sessions Judge, found that no evidence whatsoever had been recorded after the charge was framed but instead of quashing the conviction, he remanded the matter to the lower court to grant opportunity to the Prosecution to conclude its evidence. However, he imposed costs of Rs.2,500/- on the prosecution as and by way of a precondition. It was clearly mentioned in the order that the amount was to be paid on or before 08.01.2003.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So far so good.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The department which collects over a Lakh of Crores of taxes, could not find the Rs. 2500/- to comply with the directions of the Sessions Court. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The accused moved the High Court.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court held that since the pre condition itself has not been satisfied as directed by the impugned order, no further proceedings can take place. The effect of this is that the accused stands acquitted. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">After taking the trouble of arresting somebody and prosecuting him, the Revenue department miserably fails to take the case to its logical conclusion, for a paltry 2500 rupees! Why does this happen? And who is responsible?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Once a case goes to the Court or for that matter the Tribunal, the department loses interest in the case. They believe it is someone else’s responsibility. The DRs and standing counsels find it almost impossible to get any assistance from the department. They are at best treated as a nuisance. No wonder they lose cases!</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is only the government which can afford to lose a case because they could not pay Rs. 2500/-. The file to sanction Rs. 2500/- must be still doing the rounds in the bureaucratic maze as the accused was acquitted by the High Court. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See </strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=27&filename=legal/hc/2006/2006-TIOL-405-HC-DEL-CUS.htm">JAGAN RAM HANUMAN RAM Vs COLLECTOR OF CUSTOMS</a> </font></p> <p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">There is no Crown and the illusive crown has no precedence in recovery of arrears.</font></b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Long after the Crown has left us, our rulers still believe that they wear a crown and the bureaucracy as the arm of the crown has a strong belief that they are slightly above the law. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Recovery of arrears has been a controversial issue in the Central Excise and Customs department. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This is how the story begins: - A unit is started with a loan from institutions like the State Finance Corporation. After some time the unit becomes sick. – Sick of everything – major reasons for the sickness would be excessive activism of a multitude of government agencies of this welfare state. In the meantime after a couple of Audit parties, preventive parties, Show Cause Notices and adjudication, arrears are born and by the time the Central Excise officer goes to serve the adjudication order, he is informed that the unit is closed, taken over by the SFC and sold. After a while the new owner comes for registration and then the department demands the dues of the old unit from him. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Normally the last one to know about the sale of a unit by the financial institutions is the Central Excise department. After having failed in various High Courts and Supreme Court to recover the arrears, finally the law was amended with a proviso to Section 11 in 2004 by which the department can now recover arrears from even the successors of the defaulting units. After the 2004 amendment, attachment orders are issued left right and centre. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This is what happens. A unit is sick and then dead. It has alleged arrears to Central Excise department. The unit is taken over by the bank and sold. A new entrepreneur starts his business with new hopes in the premises of the old defaulter. He would provide employment to several people, pay a lot of excise duty, but excise department will not allow this. They will pounce on him and attach his property because some unknown person who was running the factory in the same premises had run away and the department could not catch him! </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But in hasty law making, the department had forgotten about the existence of other laws in the country. It is now established law that to recover dues, you need to create a charge and the first charge is created in favour of the bank that has given a loan – your crown not withstanding. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issue was once again tested in the Madras High Court last week when a Larger Bench held that</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) Generally, the dues to Government, i.e., tax, duties, etc. (Crown's debts) get priority over ordinary debts.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) Only when there is a specific provision in the statute claiming "first charge" over the property, the Crown's debt is entitled to have priority over the claim of others. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>(iii) Since there is no specific provision claiming "first charge" in the Central Excise Act and the Customs Act, the claim of the Central Excise Department cannot have precedence over the claim of secured creditor, viz., the Bank.</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iv) In the absence of such specific provision in the Central Excise Act as well as in Customs Act, the claim of secured creditor will prevail over Crown's debts.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So whatever you do, it is the bank which has given a loan that has precedence over the department and the attachment of property of the successor is patently illegal.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=4737">See our report in breaking news. </a></u></font></p> <p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Service Tax raid on Fashion Institute </font></b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The renowned Sportking Institute of Fashion Technology (SIFT), had some unwelcome visitors yesterday – the Service Tax officers. The institute which the department wants to classify under commercial coaching is charged with evading tax to the tune of Rs. 20 Lakhs.</font></p> <p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">New Year decorations – beware of Service Tax </font></b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As the new year bash is planned across many cities with lavish pandals and dazzling decorations, it is not exactly party time for the watchful Service Tax officers. They are targeting on the decorators who collect hefty charges for the extravaganza and the department would like to get a share.</font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until tomorrow with more DDT </font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font> <font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></span></font></p> </body> </html>