Central Excise registration - proprietors, partners and firms - CBEC plans to react to CESTAT order - in due course
While the CBDT is moving at such unbelievable speed, the CBEC remains at the normal bureaucratic inertia as the following incident would show.
In a landmark judgement, President Abichandani of the CESTAT observed in the case of M/s VASHIST ISPAT PRODUCT - 2007-TIOL-992-CESTAT- DEL
1. Registration can be done only of such prescribed person, and not of a sole-proprietary concern, which by itself is not a person.
2. The practice of giving registration in the name of a proprietary concern and not the person, who is the proprietor, is contrary to the provisions of the said Act and is capable of perpetuating frauds due to the real name of the person concerned, being camouflaged by the assumed proprietary name.
3. None of the provisions of the Act or the Rules warrants recognition of mere sole proprietary name as manufacturer or assessee, who would be liable to pay the duty.
4. Only a person living or juristic can be registered for the purposes of the Act and will be liable to assessment and payment of duty irrespective of any name/names that he may adopt for doing the proprietary business.
5. All the excise registrations and assessments under the Act and the Rules are required to be done in the name(s) of the persons concerned even when they run their proprietary business in different names.
6. In fact, the practice of registering manufactures in the name of proprietary concerns, appears to have been unwittingly recognized by a seemingly innocuous but a most damaging instruction in note 5 which has crept in the prescribed Form A1 , which was substituted w.e.f . 1.10.2002.
7. The said form is prescribed for application for central excise registration, in the context of Rule 9 of the Central Excise Rules, 2002. Surprisingly, though Section 6 of the Act clearly contemplated registration of a person who is engaged in the production or manufacture of excisable goods, the newly introduced instruction no. 5 of the proforma application A1 requires that, name of the registrant should be the name and style in which the registrant is likely to carry out the business.
8. This shady instruction 5 was wholly uncalled for and is contrary to the scheme of the Act and the Rules, and is capable of perpetrating mischief and fraud by shielding the names of the real persons who are engaged in the manufacture of excisable goods and are required to be registered under Section 6 of the Act read with Rule 9 of the Central Excise Rules, 2002, which refer to the registration of the person who produces or manufactures the excisable goods.
9. There was absolutely no scope for registering the name of any "non-person"; and the details of the properties, persons, directors as the case may be, were also required to be given. In the same way, even in the still earlier proforma in Form R1 under the Central Excise Rules of 1944, the application for registration was required to be made by the person in whose name the registration certificate was required to be issued. The application was to be made in the name of the person (living or juristic) applying and not in any other name. Thus, there never was any possibility of giving excise registration in the names of sole-proprietary concerns.
10. In view of the substantive provisions of Section 6 of the said Act and Rule 9 of the said Rules, instruction No. 5 in the proforma application Form A1 is ultra vires the scope of the said statutory provisions. All excise registrations and assessments are required to be done in the name(s) of the persons concerned even when they run proprietary business in different names.
11. It will be for the Parliament, the rule making authority, the Board and the excise officials to recognize the potential mischief and large scale abuse that is caused by allowing the excise registrations and doing assessments in the names of proprietary concerns and not in the names of the real persons who are the manufacturers and assessees, and take appropriate remedial measures.
The Registrar was directed to forward a copy of this judgment to the Government of India, Ministry of finance, North Block, New Delhi .
We carried this order of the CESTAT on July 22, 2007 .
Again Justice Abichandani speaking for the Larger Bench over which he presided, observed in the case of GOPAL INDUSTRIES LTD -
1. The issue involved in this case is whether outgoing partners are liable to pay excise duty assessed against a registered partnership firm, which was dissolved. Having regard to the importance and wide repercussions of the question involved the appeal has been placed for disposal before this Larger Bench.
2. There is no dispute about the fact that there is no reference express or implied in the CentralExcise Act or the Rules for assessment of a partnership firm, unlike in the provisions of the Income Tax Act in which Section 2(31) provides an inclusive definition of "person", which includes a "firm".
3. The assessment of partnership firm under the Income Tax Act is separate from the assessment of individual partners as regards their own income. Section 189(1) of the Income Tax Act provides that when a firm is dissolved, the assessing officer shall make an assessment of total income of the firm as if no dissolution had taken place.
4. There is no such provision under the Excise Act and the Rules treating a partnership firm as a separate assessable entity.
5. Excise registration is done of any "prescribed person" as provided by Section 6 of the Act, and the word "assessee" in Rule 2(d) of the Central Excise Rules means any person who is liable for payment of duty assessed or a producer or a manufacturer of excisable goods or a registered person of a private warehouse including his authorized agent.
6. Since no provision has been made in the Excise Act or Rules made thereunder, treating a partnership firm as a distinct assessable entity, every partner would be liable jointly with all other partners and also severally, for all acts of the firm, done while he is a partner, as provided by Section 25 of the Indian Partnership Act, 1932.
We carried this judgement also in July 2007.
Obviously, the good president had pointed out that there was something terribly wrong with the Instruction No. 5 in the Central Excise application for registration. Obviously the Central Excise registration has to be given to a person and not a firm or concern which is not a juristic person.
The Board has issued a draft amendment proposing suitable amendments in the rules to rectify this lapse - five months after we carried the orders! See the speed difference between the Boards.
There is an opinion in Revenue circles that the Tribunal is out and out for the assessee which is not true. Judges like Justice Abichandani were the best advocates for Revenue and got it out of the stupid mistakes committed by the babus in tinkering Law and even suggested changes - which take months if not years to be carried out because of the proverbial red tape!
If you have any comments on the draft amendment mail them to hema.priya@nic.in by 31.12.2007
Board's draft amendment.