Excise Registration granted to Proprietory Firms is illegal: J. Abhichandani

AIT News Network

NEW DELHI. Vide a significant ruling AIT-2007-264-CESTAT Justice Abhichandani President of CESTAT has held that the Central Excise Registration granted in name of the Firms owned by the Proprietor is illegal. All excise registrations and assessments are required to be done in the name(s) of the persons concerned even when they run proprietory business in different names. 

T H E R U L I N G

• Excise registrations contemplated by Rule 9 can be done only of person(s) who are manufacturers and such person(s) alone can be the assessees. A proprietory concern has no legal existence of its own and is not a person like a company or a living individual. The use of the prefix “Messers” in a proprietory name misleads the public at large and the officials, by suggesting that it is a body of persons. A registered partnership firm would be a group of persons who are its partners and will collectively be manufacturers and assessees, though doing a business in the name of their partnership firm. Only a registered partnership firm can sue or be sued in the firm’s name, that too for convenience sake. Beyond that, it has no juristic personality. The scheme of the said Act and the Rules contemplates, registration and assessment of individuals or juristic persons, and not of mere business names of sole-proprietors. An individual himself will be the manufacturer and assessee, even if he does his activities under more than one business names of his sole-proprietory concerns. One can effectively thwart an inquiry into “relationship” ­so important for ascertaining the genuineness of transaction value ­by projecting proprietory concerns of different names to create an illusion that the transactions are between different entities; though in reality their proprietor being the same, cannot transact with himself. There cannot be contractual relations with one’s own self and, therefore, no legal contractual transactions can be recognized amongst the sole proprietory concerns created by the same individual showing inter se business activities in such different names. There cannot be any independent contractual relationship between mere business names when the proprietor is the same person. It cannot be easily ascertained from the assumed business names of sole proprietory concerns, whether they are owned by the same proprietor and if there are different proprietors, whether they are “related” in the context of the need for valuation inquiries.
• The word “manufacturer”, under Section 2(f) of the Central Excise Act, 1944 shall include not only person who employs hired labour in the production or manufacture of the excisable goods, but also any person who engages in their production or manufacture on his own account. Thus, a manufacturer has to be a person, living or juristic. A sole­proprietory concern is not a juristic person and cannot, of its own, be a manufacturer or producer. For the purpose of Section 4, “assessee” is defined in sub-section (3)(a) thereof, to mean the person who is liable to pay the duty of excise under the Act and includes his agents. Any prescribed person who is engaged in the production or manufacture or any process of production or manufacture of specified goods is required to get himself registered with proper officer, as required by Section 6 of the said Act. Therefore, registration can be done only of such prescribed person, and not of a sole-proprietory concern, which by itself is not a person. The practice of giving registration in the name of a proprietory 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 proprietory name. The word “assessee”, as defined in Rule 2(c) of the Central Excise Rules, 2002, means any person who is liable for payment of duty or a registered person of a private warehouse. Under Rule 4, duty is payable on removal of excisable goods by every person who produces or manufactures or stores in a warehouse.  Thus, none of the provisions of the Act or the Rules warrants recognition of mere sole proprietory name as manufacturer or assessee, who would be liable to pay the duty. 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 proprietory business. All the excise registerations 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 proprietory business in different names. In fact, the practice of registering manufactures in the name of proprietory 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. 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. 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. It will be noticed that, no such instruction ever existed in the earlier proforma application for registration. This is evident from the earlier proforma A1 issued under Rule 9 of the Rules of 2001, which required a request being made to the Superintendent of Central Excise to issue a Registration Certificate under Rule 9 for the purposes indicated in the Schedule to that proforma. In that Schedule, name and address of the person applying for the registration was required to be mentioned. 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 sole­proprietory concerns. 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 proprietory business in different names. 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 proprietory concerns and not in the names of the real persons who are the manufacturers and assessees, and take appropriate remedial measures.

(Click here for full text of Ruling AIT-2007-264-CESTAT)