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2005 (8) TMI 116 - HC - Central ExciseRecovery of Government dues - Liability to pay excise dues - Res judicata - Whether the former Director of the company could be held responsible and liable for payment of liabilities of the defaulting company, after ceasing to be a Director of that company - Validity Of notices issued to the petitioners - breach of principles of natural justice - HELD THAT:- As seen hereinabove, Section 4 of the Act provides for valuation of excisable goods for the purposes of charging of duty of excise and makes the assessee; which includes his agent liable to pay the excise duty under the Act. It would be right to say the duty is charged on goods, but the person who is liable to pay the duty is the person known as "the assessee". Clause (a) of sub-section (3) of Section 4 defines assessee exhaustively to mean the person who is liable to pay the duty of excise under the Act and includes his agent. The duty can be recovered from the person who is an assessee within the meaning of definition. Under Section 6 no person can engage in the production or manufacture of any specified goods, included in the First schedule of the Act (now the new Central Excise Tariff) except under the authority and in accordance with the terms and conditions of a licence granted under the Act. If a person produces 'excisable goods' within the meaning of that expression, he has got to obtain a licence under Section 6 of the Act. Examination of the above provisions would unequivocally go to show that none of the provisions makes the former Director personally liable to pay excise duty. The Act does not impose any obligation or liability on the former Director to pay the arrears of excise duty. If that be so, even the subordinate legislation cannot bring such a person within its fold. The word 'defaulter' has also been defined to mean any person from whom Government dues are recoverable under the Act. Rule 3 deals with the issuance of recovery certificate; whereas, Rule 4 provides for issuance of notice. Notice is required to be issued and served upon a defaulter requiring him to pay the amount specified in the certificate issued under Rule 2(iii) within seven days from the date of the service of the notice. As already stated 'defaulter' means a person from whom Government dues are recoverable under the Act. None of the provisions under the Rules of 1995 makes the former Director responsible to pay the dues of the Government. The absolute liability created under the Act and the Rules is of that person who is an assessee i.e. a person engaged in production or manufacture of any specified goods included in I schedule of the Act (now the new Central Excise Tariff). In this view of the matter, in our opinion none of the petitioners were and are liable to pay the alleged Government dues either under the provisions of the Act or Rules of 1995. Notices issued to the petitioners were not only in breach of principles of natural justice but the same were in violation of section of Section 11A of the Excise Act. At this juncture, it will not be out of place to mention that even under the provisions of the Companies Act the petitioners are not liable to discharge the liability of the company, if any, of which they were Directors in the past. As soon as a company is incorporated, it constitutes an independent juristic person in the eyes of law as distinct from its members constituting it. Even private limited company consisting of only two members has, nonetheless, a separate legal entity. It is entirely different from its members. From the date of its incorporation a company is endowed with certain special rights and privileges and, unlike the partnership firm or a Hindu undivided family, is not a mere aggregate of members. It can carry on business and can acquire and hold property in its corporate name and has other special advantages e.g. to contract with all its members and others. In short, it becomes a body corporate capable of exercising all functions of an incorporated company having a perpetual succession. It remains in existence, irrespective of the changes in its members, until it is wound up and dissolved under the provisions of the Companies Act. The characteristic of company limited by shares is that it enjoys the privilege of limited liability i.e. liability of its member is limited to the extent of the face value of the shares subscribed by each member and the amount remaining unpaid an them for the time being. Thus, considering effect of incorporation of a company and its independent juristic existence, a former Director of the company cannot be held responsible for payment of the liabilities of the company in absence of any specific provision. No contrary provision to persuade us, not to take a view taken hereunder, was brought to our notice. Thus, we have no hesitation to hold and declare that petitioners herein cannot be held liable to pay outstanding dues of the central excise duty sought to be demanded from them. We, therefore, quash and set aside the impugned last demand notice dated 1st October, 2003 holding it to be without jurisdiction and without authority of law and make the rule absolutely in terms prayer Clause (a) and (b) with no order as to costs.
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