Tax arrears of deceased Assessee can’t be recovered from Spouse Personal Properties of

FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:-

1. The petitioner has challenged the action of the respondents in attaching her immovable properties and creating charge on such properties for the recovery of the dues of her husband.

2. Brief facts are as under:

3. The petitioner Smt. Meena K. Agarwal is wife of Shri Krishna Said Shri Krishna Agarwal had been engaged in manufacturing and export of goods by setting up proprietary concerns in the name of M/s. Gujchem International and M/s. Gujarat Impex. There are serious allegations of unpaid excise duties as also wrongly claiming export incentives concerning the said proprietary concerns. The Commissioner of Central Excise and Customs, Vadodara, passed an order dated 21.12.2005 and confirmed duty demand of Rs. 1.87 crores (rounded off) against M/s. Gujchem International and Rs. 2.11 crores (rounded off) against M/s. Gujarat Impex. He also imposed matching penalties against the said concerns in addition to imposing personal penalty of Rs.5 crores against the petitioner’s husband.

4. The petitioner’s husband challenged the said order of the adjudicating authority before the Customs Excise & Service Tax Appellate Tribunal (‘CESTAT’ for short). During the pendency of the appeals, the petitioner’s husband expired on 11.07.2008. His wife i.e. the present petitioner substituted him as his legal heir and pursued the appeals before CESTAT. CESTAT disposed of the appeals by the judgment dated 02.07.2009. The husband of the petitioner having died, the Tribunal deleted the personal penalty however, confirmed the duty demands. In this respect the Tribunal held and observed as under:

“Therefore, we hold that no penalty needs to be imposed on Shri KKA. Further, in respect of duty liability, no precedent case has been shown and no arguments were put forth and therefore, Mrs. Meena K. Agarwal would be liable to pay the duty confirmed against Shri KKA.“

The petitioner thereafter applied to CESTAT for rectification of the said order, since the Tribunal had declared that the duty demands against her is confirmed. The Tribunal by an order dated 10.11.2009 allowed the application of the petitioner, and substituted the observations of confirming the duty against the petitioner by the following sentence:

“In view of the observation above, duty demanded from Shri K.K.Agarwal (KKA) in the impugned order is upheld.”

5. In essence therefore, the Tribunal modified its earlier order confirming the duty demand against the wife of the assessee and confined its findings to confirming the duty demands against the assessee himself. Effectively therefore, the Tribunal recognized the position of the wife of the deceased assessee when she had appeared as the legal heir of the appellant before the Tribunal. The Tribunal heard her grievance against the legality of the order of the adjudicating authority confirming the duty as the legal heir of the assessee. The Tribunal therefore, while rejecting her appeal merely confirmed the demand of duty against her predecessor.

6. The duty so confirmed could not be recovered. The Commissioner of Central Excise therefore, issued a communication to the Superintendent of City Survey, Vadodara on 09.02.2011 and called upon him not to permit any transfer of the four immovable properties registered in the name of Mrs. Meena Agarwal i.e. wife of the assessee. This document does not form part of the record but is made available to us by the learned AGP from the original files of the Superintendent of City Survey, Vadodara, copy of which is taken on record. In this communication, the Superintendent of City Survey Office was conveyed that the department is contemplating attachment of four flats, details of which were supplied in the said document, for which the sale deed were registered under the Index dated 30.07.2008. The communication further conveyed that the apprehensions of the department that the individual may dispose of the property to avoid paying the government revenue. The City Survey Superintendent was requested not to permit transfer of such properties till further communication. It is not in dispute that all the properties were purchased in the name of the petitioner under registered sale deeds dated 31.03.2008.

7. The petitioner had also received a notice of recovery issued in March, 2011 from the department of Central Excise calling upon her to pay total amount of Rs. 12.79 crores (rounded off) which had remained unpaid inclusive of interest, failing which, steps will be taken to realize the same in terms of Customs (Attachment of Property of Defaulters for the recovery of Government Dues) Rules 1995. The petitioner responded to such notice by a letter dated 22.03.2011, pointing out that the CESTAT has deleted the penalty but confirmed the duty demands against the proprietary concerns of her husband. She further contended that all the four properties proposed to be attached were purchased by her out of her own source of income and not acquired by her through inheritance from her late husband and the department therefore, cannot attach such properties. Her stand in specific terms were as under:

“During these years I have owned 4 properties which are proposed to attached by the authority, are purchased out of my own source of income and since purchase of the said properties are in my name. These properties are not from the inheritance of Late Shri K.K.Agarwal and therefore authority has no jurisdiction to attach the said properties which has nothing to do with the liability of Late Shri K.K. Agarwal and therefore any proposal or the action to attach my properties are nothing but a wrongful action on the part of the authorities and therefor the action taken so far is illegal and without any jurisdiction.”

8. Department further persisted with the issue and once again called upon her to pay up the dues under letter dated 29.03.2011. Counsel for the petitioner submitted that in response to such letter, the petitioner had also placed before the departmental authorities the certificate issued by the Chartered Accountant dated 10.06.2011, giving full details of the source from which the petitioner had purchased such Despite which the department did not lift the attachment. Even the appeal filed by the petitioner against the action of the City Survey Superintendent imposing such attachment was opposed by the department and was dismissed by the Deputy Collector by an order dated 3 1.05.2013.

9. Having heard the learned counsel for the parties, the issues before us are rather simple. Against the two proprietary concerns of the deceased husband of the petitioner, substantial central excise dues have been confirmed by the judgment of CESTAT. In absence of any further challenge to this judgment, the duty demands have attained finality. Such dues have remained unpaid. The husband of the petitioner having expired, the department seeks recovery of dues from her immovable properties. The assessee having expired, the government dues can be recovered from his properties even in the hands of his legal heirs who might have inherited such properties. In other words, the property of the deceased can be made answerable for recovery of the unpaid dues of the department. The personal properties of the legal heir which has nothing to do with the inheritance, simply cannot be utilized for such recoveries. In fact, it is not even the case of the department that the recoveries can be effected from the wife of the deceased out of her own personal properties.

10. The issue therefore, in short is that if any of the four immovable properties can trace their acquisition to the source provided by the late husband of the petitioner, the same can be made answerable for the recoveries of the unpaid dues of the department but not otherwise. In other words, if the petitioner is correct in contending that all the four immovable properties were purchased by her from her own source of income, the department cannot carry out coercive recovery against such properties merely because her husband died leaving behind sizable departmental dues. The departmental authorities have not applied their minds to this aspect of the matter. It is not clear in what manner the petitioner has placed such certificate of the Chartered Accountant dated 10.06.2011 before the departmental authorities. To avoid any confusion, we allow the petitioner to place the same before the Commissioner of Central Excise, Vadodara, along with representation pointing out the source of acquisition of such properties. This shall be done latest by 31.01.2018. Commissioner of Central Excise, Vadodara, shall examine such details and pass a speaking order. If his conclusion is that the petitioner had acquired such properties from her own source of income, he shall lift the attachment on such properties and communicate the same to the City Survey Superintendent. If his conclusion is to the contrary, he will give brief reasons for the same. He will be guided by the observations of this judgment. Such an order may be passed preferably within four months from the date of receipt of representation of the petitioner.

10. The petition stands disposed of. Rule is discharged.

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