Full Judgment
(a) Whether the issue of show cause notice to all the Partners of a partnership firm will constitute sufficient compliance with law for proceeding against the firm.
(b) Whether action for confiscation of goods of the partnership firm could be proceeded with on the basis of notice issued to its partners.Hindustan Foam Industry v. Collector of Central Excise that charging partnership firm for under-valuation and short levy was unjustified in the absence of issue of show cause notice to the firm needs reconsideration.
2. The Additional Collector of Customs, New Delhi passed a single Order-in-Original No. 214/91, dated 11/20-9-1991 confiscating zip fasteners of market value at Rs. 4,87,250/- and C.I.F. value of Rs. 1,92,000/- under Section 111(d) and (p) of the Customs Act, 1962. He also imposed penalty of Rs. 25,000/- on Shri Bulaki Ram of M/s. Kumar Brothers, of which, Shri Bulaki Ram was stated to be a partner of the appellants in the present case. The Customs Officers carried out a check on 2-8-1989 of the business premises of M/s. Kumar Brothers. Shri Bulaki Ram was present at the time of search which was also witnessed by two independent persons. On search 53856 zip fasteners of YKK brand of 8" in length and 12 Nos. of zip fasteners of YKK brand of 7" were recovered. The Officers found 96,000 zip fasteners of YKK brand of 8" and 12,000 Nos. of YKK zip fasteners of 9" collectively valued at Rs. 4,06,000/-(market value) in excess than the recorded balance in the Stock Register, which was seized by the Officers. Shri Bulaki Ram could not produce any documentary evidence in support of their legal acquisition. Show Cause Notice, dated 31-1-1990 was issued to S/Shri Bulaki Ram, Sarwan Kumar and Ashok Kumar, all brothers, the first two being partners of M/s. Kumar Brothers, calling upon them to show cause why the seized goods should not be confiscated and why penalty should not be imposed on them. After hearing the parties, the Additional Commissioner vide his Order-in-original, dated 11/20-9-1991 ordered absolute confiscation of the seized goods foreign origin. He also imposed a penalty of Rs. 25,000/- on Shri Bulaki Ram under Section 112 of the Customs Act, 1962.
3. Shri Naveen Mullick, ld. Counsel appeared before the referral Bench for both the appellants namely M/s. Kumar Brothers and Bulaki Ram. He submitted that the Show Cause Notice (SCN) was issued to the appellants Shri Bulaki Ram and other two persons and not to the firm. He contended that since the notice was not issued to the firm to which the goods belonged, the seized goods are liable to be returned. He stated that the serving of notice to the partners of the firm did not constitute service of a notice on the firm. For this proposition he relied upon the decision of the Tribunal in the case of Hindustan Foam Industry v.Collector of Central Excise reported in 1990 (48) E.L.T. 33. Referral Bench has taken note of the above decision of the Tribunal which has taken into consideration several decisions including the one in Mukha Mai Cokal Chand v. Collector of Central Excise, New Delhi reported in 1987 (32) E.L.T. 163 (Tribunal) and a decision of the Hon'ble Madras High Court in Additional Collector of Central Excise v. Kathiresan Pillai 1989 (42) E.L.T. 189. Ld. Referral Bench referred to the plea advanced before them that the appropriated goods in question belonged to the firm M/s. Kumar Brothers to which no notice had been issued. It is observed that the notice issued to the partners will not constitute notice to the firm and on that account it is contended that the goods are liable to be returned. Emphasis was particularly placed on the judgment of the High Court of Madras in Additional Collector of Central Excise v. Kathiresan Pillai (supra), in which it is held that issue of show cause notice to the firm has no legal consequence whatever, as the firm was not the licence holder nor had it applied for renewal.
Therefore, the notice issued to the firm was held to be non est in law.
In the case of Hindustan Foam Industry v. Collector of Central Excise (supra) the position was reversed as the notice was issued to the partners whereas the charge of undervaluation, imposition of penalty and the demand of duty was made on the firm. It is contended that the present case is similar to the one in Hindustan Foam Industry. The Referral Bench has taken note of the plea made before them that Shri Bulaki Ram was responsible for running the firm as given in the voluntary statement in the matter. He also admitted that he was a notified dealer and was maintaining the prescribed register. He had stated that he and his brothers, Sarwan Kumar and Ashok Kumar were the partners of the firm of M/s. Kumar Brothers. The Department also searched the premises of M/s. Kumar Brothers and made the seizure from the premises of the firm. It is also observed that despite the letter, dated 15-2-1990 written by their Counsel, Shri N.C. Chawla to the Additional Collector requesting for waiver of the requirement of a show cause notice vide his letter, dated 7-9-1989, the notice had been issued. The letter was written by the Counsel as reply on behalf of Shri Bulaki Ram of M/s. Kumar Brothers. The ld. Bench has noted that Shri Bulaki Ram was taking responsibility on himself for the dealings with the department in this case. He had waived the issue of the show cause notice though it was issued to him as well as the other partners.
4. The referral Bench has observed that in view of the objection taken before them which involves a question of law decided in the Hindustan Foam Industry case it had become necessary to examine whether the waiver of issue of show cause notice would deprive the firm of the right to be served with show cause notice for proceeding against them in the matter of confiscation of goods. Cognisance has also been taken of the decision in 1989 (41) E.L.T. 162, wherein it was held that it would not serve the purpose if a copy of the show cause notice served on the partners was also sent to the firm as there was no proposal to impose penalty on the firm. Accordingly, the above stated questions have been referred to the Larger Bench for the decision.
5. We have heard Shri Naveen Mullick, ld. Advocate for M/s. Kumar Brothers and Shri Bulaki Ram and Shri S. Srivastav, ld. DR for the Revenue. The ld. Counsel for the appellants reiterated the submissions made by him before the Referral Bench. The ld. Counsel referred to Paras 9 and 10 of the SCN in which Shri Bulaki Ram and Shri Sarwan Kumar and Ashok Kumar, the three partners have been stated to be concerned with the seized goods and have been called upon to show cause as to why the seized goods of foreign origin should not be confiscated and why penalty should not be imposed upon each of them. It is the submission of the ld. Advocate that since the notice has not been issued to the firm which is the real owner of the seized goods, their confiscation is not valid in law.
6. Shri S. Srivastav, ld. JDR submitted that the issue referred to the Larger Bench is no longer res Integra as the same have been answered by the Hon'ble Supreme Court in the case of Union of India v. Mustafa & Najibai Trading Co. 1998 (101) E.L.T. 529 (S.C). He stated that in Paras 28 to 34 of the said judgment, the Hon'ble Apex Court have held that action against the contraband goods in terms of the provisions of this Customs Act, any action in rem and if the SCN is issued to the person who is in a position to explain about the goods, then the requirement of Section 124 of the Customs Act would be fulfilled and the order confiscating the goods cannot be faulted, if no SCN issued to the real owners of the goods. He also referred to the judgment of the Supreme Court in the case of Agarwal Trading Corporation and Ors. v.Asstt. Collector of Customs, Calcutta and Ors. 1983 (13) E.L.T. 1467 (S.C.), wherein it has been observed in Para 7, that once it is found that there has been a contravention of any provisions of the Foreign Exchange Regulation Act read with Customs Act by a firm, the partners of it who are in charge of its business or are responsible for the conduct of the same, cannot escape liability, unless it is proved by them that the contravention took place without their knowledge or they exercised all due deligence to prevent such contravention.
7. We have carefully considered the submissions made before us. As rightly contended before us by the ld. DR. The questions raised before us already stand settled by the decision of the Hon'ble Supreme Court in the case of UOI v. Mustafa & Najibai Trading Co. (supra). Para 33 of this judgment is extracted below: "Section 124 of the Act, which incorporates the rule of audi alterm partem, one of the two basic tenets of the principles of natural justice, does not have the effect of making any alteration in the nature of these penalties. There may be situations where the goods are found to be smuggled goods and are seized but the identity of the owner of the goods is not known. Can it be said that since notice cannot be issued to the owner of the goods under Section 124 of the Act, the goods which are found to be smuggled goods cannot be confiscated under Section 111 of the Act In our view, this question must be answered in the negative because confiscation of goods under Section 111 of the Act is a penalty in rem which attaches to the goods which are the subject matter of the proceedings for confiscation and if it is found that the goods are liable to be confiscated under Section 111 of the Act, they can be confiscated without ascertaining their real owner. Moreover, in so far as the rule of audi alterm partem is concerned, the position is well settled that an order passed in disregard of the said principle would not be invalidated if it can be shown that as a result of denial of the opportunity contemplated by the said rule the person seeking to challenge the order has not suffered any prejudice. Since Section 124 of the Act incorporates the said principle of natural justice, failure to give the notice to the owner of goods would not, by itself, invalidate an order of confiscation. What has to be seen is whether the owner of the goods has suffered prejudice on account of the failure on the part of the officer passing the order for cation of goods to give a notice to the owner of the goods before passing the order for confiscation of goods. The owner of goods ordered to be confiscated cannot be said to have suffered any prejudice in a case where notice has been given to the person responsible for the alleged contravention on which the order for confiscation of goods is founded and who alone is in a position to offer an explanation for such contravention. The requirement regarding issuing of notice to the owner of the goods under Section 124 cannot, therefore, be construed as a mandatory requirement so as to have the effect of invalidating an order. An order of confiscation would not be rendered invalid if there is substantial compliance with the requirements of Section 124 in the sense that before passing an order of confiscation a notice has been given either to the owner of the goods or a person who is responsible for the contravention on which the order for confiscation of goods is founded and who alone is in a position to offer an explanation for such contravention".
8. However, coming to the facts of the present case, it seems that the above stated questions of law have been referred to the Larger Bench without first critically examining the claim of the appellants viz., M/s. Kumar Brothers that it is a partnership firm. As per Section 4 of the Indian Partnership Act, 1932, "Partnership" is the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into relationship with one another are called individually "partners and collectively a firm" and the name under which their business is carried on is called "firm name".
9. The definition of partnership in this Section contains three elements :- (1) There must be an agreement entered into by all the persons concerned; (3) the business must be carried on by all or any of the persons concerned, acting for all.
10. It is seen that in this case none of the above elements are in existence and there is no evidence to establish that there was any partnership firm set up by the three brothers viz., S/Shri Bulaki Ram, Sarwan Kumar and Ashok Kumar in the name of M/s. Kumar Brothers. During the course of hearing when asked, the ld. Advocate for the appellants pleaded ignorance about the existence of any partnership deed much less its being registered. Therefore, there is no evidence to show the constitution of any partnership firm in this case. If at all, M/s.
Kumar Brothers appears to be an association of individuals. On the facts of the present case since we have come to the conclusion that there is no proof of existence of any partnership firm, we are of the view that there is no scope of deciding the questions referred to us.
11. As regards other contentions made before us, the same already stand settled against the appellants by Paras 6, 7 & 8 of the Referral Bench Order, dated 21-2-1997.