1. This is an application, purporting to be one under the proviso to S.35 F of the Central Excises and Salt Act, 1944 (hereinafter, the Act) praying, inter alia, that a deposit of the differential duty for the years 1978-79, 79-80 and 80-81, being sought to be recovered from the applicant herein, together with a penalty in a sum of Rs. 5,00,000/- as well as another sum of Rs. 23,27,519.36 alleged to have been demanded from the applicant by the Superintendent by his letter dated 29-12-1984, be dispensed with and the recovery stayed till the disposal of the appeal filed by the appellant.
(a) It was originally filed on or about 15-4-1985 when the duty required to be paid in terms of the order under appeal was not yet quantified, although the penalty was. The application was not in conformity with the requirements of R. 28 of the Customs, Excise & Gold (Control) Appellate Tribunal (Procedure) Rules, 1982 and when this was pointed out on 19-7-1985, the applicant offered to file an appropriate application in the proper form. The applicant also undertook to disclose the individual resources of the various partners of the applicant.
(b) It was on 2-9-1985 when the application now heard was filed with a request that it may be substituted in place of the earlier application. The instant application was stated to be "in the form required by the Tribunal Rules".
(i) at the material time, the assessee was a partnership concern.
The partnership was dissolved in 1982 and its business including the assets and liabilities were taken over by the present applicant; (ii) notwithstanding compliance by the assessee, at all material times, with the provisions of the Act and the Rules, and the approval of the price and classification lists and R.T. 12 returns for the relevant periods and subsequent assessments thereof, the Collector of Central Excise had purported by his order dated 29-12-1982 (now impugned in the appeal before the Tribunal) to review and re-open completed assessments arbitrarily and without any basis and finally to impose a heavy liability of duty apart from a penalty of Rs. 5,00,000/-. (iii) the applicant has, prima facie, a good case in appeal; (iv) no specific amount of duty was mentioned in the impugned order.
A penalty of Rs. 5 lakhs was, however, levied. Subsequently, by a letter dated 29-12-1984, the Superintendent demanded the payment of duty to the extent of Rs. 23,27,519.36; (v) the reasons for dispensing with a prior deposit of the aforesaid amounts are, briefly, the crisis and recession in dye Stuffs industry consequent upon the crisis in the textile industry, the losses suffered by the applicant in the recent past as well as apprehended present and future losses as evidenced by the projected balance sheet for the year ending with 31-3-1985, paucity of financial resources and inadequate liquid money to make payment of any amount whatsoever, and finally, the closure of the applicant's business in case the amount demanded towards duty and penalty is required to be deposited; (vi) in the event the deposit of the amounts of duty and penalty demanded is dispensed with and their recovery stayed, the applicant is prepared to secure them by an undertaking not to alienate any of its unencumbered fixed assets (land and buildings, plant and machinery) valued at about Rs. 27,04,000/-.
(d) The applicant had to be required to disclose the assets of the erstwhile partners of the assessee by the order of the Tribunal dated 20-3-1986. It was then that the applicant filed merely the copies of the assessment orders in Income Tax and Wealth Tax of the quandom partners for some though' not for all the years required by the Tribunal. The applicant failed to file any affidavit whatsoever affirming that they did not have any assets other than those declared for Income Tax and Wealth Tax purposes, although required to do so once and again - first on 19-7-1985 and again by the order dated 21-3-1985.
3. In the course of arguments, apart from reiterating the contents of the application, it was additionally submitted that - (a) the order in adjudication dated 29-12-1984, was, ab initio, void since the assessee, a partnership firm at the relevant time was dissolved with effect from 1-10-1982 [reliance upon deed of dissolution at P. 14-22 of the Paper Book filed on 13-3-1986 - and 17 STC 326 (SO and 37 STC 236]; (b) the notice to show cause having been issued on 27-2-1982, i.e., prior to the date when S. 35(F) of the Act came into operative force, the requirement of a deposit, in terms thereof, is inapplicable; (c) in terms of 5.11-A of the Act as it read at the material time, the Collector of Central Excise was incompetent to have adjudicated the notice to show cause and the order he made in adjudication, is consequently, without jurisdiction; (d) in any view, the deposit of the huge amount demanded towards duty and penalty will, ex facie, cause undue hardship to the applicant and it may, accordingly, be dispensed with.
4. On a perusal of the papers and the submissions made, it would appear to us that - (a) admittedly, the liability was alleged to have arisen in the years 1978-79, 1979-80 and 1980-81; (b) the partnership that was dissolved with effect from 1-10-1982 was one constituted in terms of a partnership deed dated 12-7-1982, i.e., subsequent to the issue of the notice,to show cause on 27-2-82. The partnership subsisted for merely for a period of 2 months 18 days; (c) there is nothing on record and the applicant had not chosen to disclose what exactly was the constitution of the assessee during the years when the alleged liability had arisen or even on the date of the notice to show cause; (d) nor is there anything on record to show that the Central Excise authorities were kept informed of the various changes in the constitution of the assessee from time to time; (e) the dissolution prior to the adjudication order of a partnership firm that came into being after the commencement of the proceedings in adjudication can have little effect, if at all, on the validity or the legality of the order made in adjudication; (f) we have not had the advantage of perusing the decisions cited for the applicant but then it seems - (i) an assessment itself is one thing and the reopening of an assess-'ment already made for short levy is another; and (ii) once the liability accrued and put in issue in an appropriate proceeding, subsequent changes in the constitution of the assessee should have little effect on 4he validity or legality of such proceeding. Were it not so, every proceeding that already commenced may be defeated by the simple device of a change in the constitution of the assessee; (g) in any event, the effect, if at all, of the various changes in the constitution of the assessee right from the time when the alleged liability accrued on the validity and legality of the adjudication would depend to a large extent on the covenants inter se relating to the devolution of rights and liabilities upon the successor in interest each time a change in constitution occurs.
Suffice it to observe from para 6 of the deed of dissolution that every liability of the short lived partnership, including Central Excise, whether existing or contingent, had devolved on the present applicant. All the quandom partners had converted their shares in the partnership into shareholdings in the applicant and one of them is a director of the applicant; (h) a conclusion in the premises upon the legality or validity of the adjudication order cannot, in any view, be reached on a cursory or prima facie view of one segment in isolation but of multiple changes in the constitution of the assessee from time to time; (i) equally the question relating to the competence of the Collector in the context of S. 11-A of the Act prior to its recent amendment is not one for a prima facie conclusion; (j) the applicability of S. 35(F) of the Act to an appeal that is a sequel to a notice to show cause issued prior to the day when it became operative is concluded in the Tribunal in its decision in 1984 (16) ELT 126 (Aminchand Pyarelal v. Collector of Central Excise, Chandigarh). It was held therein by a majority of the Bench that S. 35(F) of the Act applies to all appeals filed after 11-10-1982 irrespective of the date of initiation of the proceedings; (k) however, a perusal of the balance sheet of the applicant for the year ending with 31-3-1985 would reveal that - (ii) the cash, bank balances and amounts due from sundry debtors did not exceed Rs. 23,03,299/- as against loans, secured and unsecured to the extent of Rs. 32,54,5671- and (iii) the contingent liability for excise duty on account of the notice to show cause estimated at Rs. 2k lakhs and penalty, if any, has not been provided for. The projected balance sheet for the year ending with 31-3-1986 does not disclose any marked improvement; (1) the assessment orders of the quandom partners for income tax or wealth tax do not also disclose any substantial income or assets.
5. Deposit of a penalty of Rs. 5,00,000/- itself without touching upon the demand for payment of an amount of Ks. 23,27,519.36 in the context of the meagre resources revealed during the examination of the balance sheet of the applicant, would, per se, constitute "undue hardship".
6. In the premises, we, hereby, dispense with the deposit of the duty demanded in a sum of Rs. 23,27,519.36 as well as the penalty in a sum of Rs. 5,00,000/- on condition that the applicant deposits an amount of Rs. 2 lakhs towards the demand for duty and furnishes an undertaking not to dispose of any of its immovable assets pending judgment in the appeal within eight weeks from the date of communication of this order.