2025(09)LCX0258

RAJA METALS CORPN.

Versus

COMMISSIONER OF CUSTOMS

Customs Appeal No. 98 of 2010 decided on 30-09-2025

IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL, CHENNAI
COURT HALL - III

Customs Appeal No.98 of 2010

(Arising out of Order in Original No. 9745/2009 dated 6.10.2009 passed by the Commissioner of Customs (Seaport – Export)), Chennai)

M/s. Raja Metal Corporation                                     Appellant
No. 239, Old No. 495
Mint Street, Chennai – 600 03.

Vs.

Commissioner of Customs (Seaport – Export)         Respondent
Custom House
No. 60, Rajaji Salai
Chennai – 600001.

APPEARANCE:

Shri B. Satish Sundar, Advocate for the Appellant
Smt. O.M. Reena, Authorized Representative for the Respondent

CORAM

Hon’ble Shri P. Dinesha, Member (Judicial)
Hon’ble Shri M. Ajit Kumar, Member (Technical)

FINAL ORDER NO. 41073/2025

Date of Hearing : 21.04.2025
Date of Decision: 30.09.2025

Per M. Ajit Kumar,

This appeal arises out of Order in Original No. 9745/2009 dated 6.10.2000 passed by the Commissioner of Customs (Seaport – Export), Chennai (impugned order).

2. The appellant is a manufacturer-exporter of SS utensils. The appellant imported stainless steel coils/sheets without payment of duty under Advance License Scheme for the manufacture and export of final product viz. SS utensils. Based on intelligence regarding the diversion of the said imported goods to the local market the officers of DGCEI, Chennai Zonal Unit conducted search at the factory and office premises of the appellant. During the search, it was noticed that the appellant had not manufactured any SS utensils out of the imported coils/sheets but had diverted the same to the local market and no export was undertaken on the duty-free goods imported under the Advance Licence. After due process of law, the Ld. Commissioner of Customs confirmed the proposals in the Show Cause Notice and also appropriated an amount of Rs.7 lakhs voluntarily paid towards the duty liability of Rs.56,94,794/-. Aggrieved by the said order dated 6.10.2009, the appellant came before this Tribunal. However, in due course the appeal came to rejected for non-prosecution. Subsequently this tribunal accepted the appellants plea and restored the appeal vide Misc Order no. 40398 of 2018 dated 19.04.2018 on payment of cost of Rs.50,000/.

3. Shri B. Satish Sundar, Ld. Counsel appeared for the appellant and Smt. O.M. Reena, Ld. Authorized Representative appeared for the respondent.

3.1 The Ld. Counsel for the appellant submitted that the impugned order was primarily challenged before this tribunal on the ground that officers of DGCEI do not have the authority to demand differential duty in terms of section 28(1) of the Customs Act, 1962. They are not ‘proper officers’ and do not have territorial jurisdiction to take action despite their being clothed with jurisdiction under Notification No.27/2009-Cus (NT) dated 17.03.2009 to cover "Whole of India". Dehors the aforesaid submissions, he stated that the firm had three partners namely one P. Selvaraj Nadar and his sons S. Gunasekar and S. Ponsekar. Shri Gunasekar died on 12.03.2007 and Shri Selvaraj Nadar died on 06.07.2013. The firm itself closed its business and surrendered its commercial tax registration, which was accepted on 11.04.2017. Despite closure of business and death of the aforesaid partners, the revenue recovery unit of the Custom House sought to take action against the surviving partner of the erstwhile appellant firm by resorting to section 142 notices, which prompted the surviving partner to file an application and seek for restoration of the present appeal which had been dismissed for default. This tribunal accepted the plea and restored the appeal on payment of cost. However, the surviving partner Shri S. Ponsekar also died subsequently on 16.06.2024. All the above-mentioned death certificates have been submitted as additional submissions subsequently. As per the partnership deed dated 03.04.1992 there is no separate clause for closure of business or for winding up/eventualities on demise of the partner. The deed also states at clause 13 when there is no specific provision in the terms of the deed for conducting the partnership, provision of the Indian Partnership Act will apply. Section 42 of the said act deals with the dissolution of the firm on the happening of certain contingencies. Section 42(c) says that a firm is dissolved by death of a partner. The Ld. Counsel stated that when one partner died in 2007 and another partner died in 2013, the firm stood dissolved in 2013 as per the provisions of the Indian Partnership Act. The dissolution was accentuated by the closure of the business in 2017. The appellant-firm itself which was the sole noticee does not own any property movable or immovable and therefore on dissolution of the firm / closure, no recovery of the dues adjudged can be made from a firm which is not in existence. He further stated that the Show Cause Notice which had been issued, made only the firm answerable to the charges and sought to fasten duty liability and other adjudicatory dues on the firm alone and not on its partners in their individual capacity. The Ld. Counsel submitted that the issue can be approached in another angle. With the death of the 2nd partner and survival of only one partner namely Shri Ponsekar, the firm could at best only be treated as a proprietary firm in his hands and not as a partnership firm. The death of the surviving partner in year 2024 (treating him to be the proprietor) extinguishes the adjudicatory liability on the appellant firm. Further none of the partners were termed as defaulter in terms of the Customs (Attachment of property of defaulters for recovery of government dues) Rules, 1995 nor a certificate issued to them by the Assistant/Deputy Commissioner of Customs in terms of sec. 142 or the aforesaid Rules. Therefore, in the absence of such action, the question of invoking the Rules or Sec. 142 of the Customs Act does not arise qua the said firm or the authorised signatory namely Ponsekar. In any event, when an act requires a particular thing to be done in a particular manner, it has to be done in that manner alone. Further in the absence of any machinery provision under sec. 142 or the aforesaid rules to demand duty in such a situation, there can be no recovery of the adjudged dues from the legal representatives of the deceased partner. Hence the Ld. Counsel states that the appeal stands abated in terms of Rule 22 of the CESTAT (Procedure) Rules 1982. He prayed that the impugned order may be abated.

3.2 The Ld. Authorized Representative Smt. O.M. Reena submitted on behalf of the respondent-revenue that this is a case where the demands against the partnership firm have already been finalised and demanded. The fraudulent nature of the activities of the partnership firm has also been clearly brought out in the impugned order. Further the State has right to claim priority in respect of tax dues. The principle of priority of Government debts is founded on the rule of necessity and of public policy. Hence the appeal may be rejected.

4. We have gone through the Appeal Memorandum and the oral and written submissions made by both parties to this appeal. We find that Section 42 of the Partnership Act, 1932, states

Section 42: Dissolution on the happening of certain contingencies.

42. Subject to contract between the partners a firm is dissolved—

(a) if constituted for a fixed term, by the expiry of that term;

(b) if constituted to carry out one or more adventures or undertakings, by the completion thereof;

(c) by the death of a partner; and

(d) by the adjudication of a partner as an insolvent.

(emphasis added)

We find that Section 4 of the Partnership Act states that persons who have entered a partnership with one another are individually called partners and collectively a firm. The said Section also clearly implies that a firm or partnership is not a legal entity, separate and distinct from its partners. In other words, partnership is merely a convenient name to carry out business by partners. The Hon’ble Supreme Court in DHANASINGH PRABHU Vs CHANDRASEKAR & ANOTHER [2025 INSC 831, Dated: 14.07.2025], held that a partnership firm, unlike a company registered under the Companies Act, does not possess a separate legal personality and the firm’s name is only a compendious reference for describing its partners. A partnership firm comprises of its partners who are the persons directly liable on behalf of the partnership firm and by themselves. Hence the liability of partners for the debts of the business is unlimited and they are jointly and severally liable for all business obligations of the partnership firm. Insofar as criminal liability is concerned, once it is established that an illegal act has been committed by the firm or its partners, then the partners will be jointly liable for it. However, its identity can undergo a change with a change in partners, subject to the terms of the contract. A firm without a reference to its partners has no juristic identity in law and therefore a partnership firm alone cannot be proceeded against.

5. Earlier a three Judge Bench of the Hon’ble Supreme Court in the case of Commissioner Of Income-Tax, Nagpur Vs Seth Govindram Sugar Mills Ltd [AIR 1966 SUPREME COURT 24 / 1965 3 SCR 488 / 1965 57 ITR 510], had examined the case of dissolution of a partnership firm having two members and more than two members. It held:

“Partnership, under Section 4 of the Partnership Act, is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Section 5 of the said Act says that the relation of partnership arises from contract and not from status. The fundamental principle of partnership, therefore, is that the relation of partnership arises out of contract and not out of status. To accept the argument of the learned counsel is to, negative the basic principle of law of partnership. Section 42 can be interpreted without doing violence either to the language used or to the said basic principle. Section 42(c) of the Partnership Act can appropriately be applied to a partnership where there are more than two partners. If one of them dies, the firm is dissolved; but if there is a contract to the contrary, the surviving partners will continue the firm. On the other hand, if one of the two partners of a firm dies, the firm automatically comes to an end and, thereafter, there is no partnership for a third party to be introduced therein and, therefore, there is no scope for applying clause (c) of Section 42 to such a situation. It may be that pursuant to the wishes of the directions of the deceased partner the surviving partner may enter into a new partnership with the heir of the deceased partner, but that would constitute a new partnership.”

(emphasis added)

Hence in the case of a partnership of more than two members, the partnership is not automatically dissolved on the death of a member.

6. Coming to the issue at hand, we find that there were three partners in the impugned firm namely S/Shri P. Selvaraj Nadar and his sons S. Gunasekar and S. Ponsekar. The important date lines of this case are:

The facts stated above are based on the appellants submissions.

7. Some of the important clauses of the impugned ‘Deed of Partnership’ are as under:

THIS INSTRUMENT OF PARTNERSHIP entered into and executed this 3rd April 1992, BETWEEN (1) P.SELVARAJA NADAR, son of Sri Ponnuswany Hadar, aged about 70 years, residing at No239, Hint Street, Hadras-600 003, hereinafter called the Partner of the FIRST PART. (2) S.PONSEKAR. son of Sri P.Selvaraja Nadar, aged about 46 years, residing at No. 239, Mint Street, Madras 500 003, hereinafter called the Partner of the SECOND PART and (3) S. GUNASEKARAN, son of Sri P. Selvaraja Nadar, aged about 41 years, residing at Ho.339. Mint Street, Madras 600 003, hereinafter called the Partner of the THIRD PART, is as follows-

WHEREAS the above mentioned Parties were carrying on business in partnership under the name and style of "RAJA METALS CORPORATION at No.239, Mint Street, Madras 600 003, evidenced by a Deed of Partner-ship dated 31st March 1975;

AND WHEREAS the above parties decided to alter and amend certain clauses in the partnership in view of the present amendment of the Income-tax Act.

AND WHEREAS the above Parties generally agreed on all the terms and conditions now desirous of reducing in writing in this Deed of Partnership governing the future relationship of the partnership business

***** **** *****

(4) Duration: The partnership shall be carried on mutually at the WILL of the partners.

***** **** *****

(12) Notwithstanding anything stated or provided herein the parties shall have full power and discretion to modify, alter or vary the terms and conditions of this Deed in any manner whatsoever they think fit, by mutual consent, which shall be reduced in writing and shall be signed by all the parties and thereupon the said writing shall become an appendage and part of this deed.

(13) Wherever no specific provision is made in these presents the provisions of Indian Partnership Act 1932 shall be applicable to this partnership.”

8. Two issues have been raised by the counsel representing the appellant:

A) Officers of DGCEI do not have the authority to demand differential duty in terms of section 28(1) of the Customs Act, 1962, they not being ‘proper officers’ and not having jurisdiction to take action despite their being clothed under Notification No.27/2009-Cus (NT) dated 17.03.2009 to cover "Whole of India".

B) On the death of all the partners and the closure of the partnership firm the appeal stands abated in terms of Rule 22 of the CESTAT (Procedure) Rules 1982.

We shall take up the issues raised sequentially.

9. Officers of DGCEI do not have the authority to demand differential duty in terms of section 28(1) of the Customs Act, 1962.

9.1 We find that the appellant has acknowledged that DGCEI officer have been granted jurisdiction which covers the "Whole of India" vide Notification No.27/2009-Cus (NT) dated 17.03.2009 issued as per the powers conferred by sub-section (1) of section 4 of the Customs Act, 1962 (52 of 1962) read with sub-section (1) of section 5 of the said Act. Hence jurisdiction, has been specifically conferred on the officers. The appellants’ grievance however is that are they not ‘proper officers’ in this regard. On examining the issue, we find that the Validation Act, 2011 was passed by Parliament on 16.09.2011. The Act held that notwithstanding anything to the contrary contained in any judgment, decree or order of any court of law, tribunal or other authority, all persons appointed as officers of Customs under sub-section (1) of section 4 before 06.07.2011 shall be deemed to have and always had the power of assessment under section 17 and shall be deemed to have been and always had been the proper officers for the purposes of the section. Through this amendment, a new sub-section (11) was introduced in Section 28. We further find that pending the decision on the Review Petition against the Apex Court’s judgment in Canon India Private Limited [2021 (3) TMI 384] dated 09.03.2021], various amendments were made by the Finance Act, 2022 to Sections 2, 3 and 5 of the Customs Act. Further, Section 110AA of the Customs Act was also introduced to inter alia provide that a SCN under Section 28 can only be issued by that ‘proper officer’ who has been conferred with the jurisdiction, by an assignment of functions under Section 5, to conduct assessment under Section 17 in respect of such duty. Section 97 of the Finance Act, 2022 inter alia provides for validation of certain actions. The said section is reproduced below:

97. Notwithstanding anything contained in any judgment, decree or order of any court, tribunal, or other authority, or in the provisions of the Customs Act, 1962 (52 of 1962) (hereinafter referred to as the Customs Act),––

(i) anything done or any duty performed or any action taken or purported to have been taken or done under Chapters V, VAA, VI, IX, X, XI, XII, XIIA, XIII, XIV, XVI and XVII of the Customs Act, as it stood prior to its amendment by this Act, shall be deemed to have been validly done or performed or taken;

(ii) any notification issued under the Customs Act for appointing or assigning functions to any officer shall be deemed to have been validly issued for all purposes, including for the purposes of section 6;

(iii) for the purposes of this section, sections 2, 3 and 5 of the Customs Act, as amended by this Act, shall have and shall always be deemed to have effect for all purposes as if the provisions of the Customs Act, as amended by this Act, had been in force at all material times.

Explanation. –– For the purposes of this section, it is hereby clarified that any proceeding arising out of any action taken under this section and pending on the date of commencement of this Act shall be disposed of in accordance with the provisions of the Customs Act, as amended by this Act.

The Hon’ble Supreme court in its Review judgment in COMMISSIONER OF CUSTOMS Vs M/S CANON INDIA PVT. LTD [2024 INSC 854, Dated: 07.11.2024], held that the challenge to the constitutional validity of the Finance Act, 2022 and more particularly Section 97 thereof, being unfounded should fail. It follows from the above discussion that sub-section (11) of Section 28 is constitutionally valid, and its application is not limited to the period between 08.04.2011 and 16.09.2011. Hence, we find that officers of DGCEI, in this case, having been appointed as officers of Customs under sub-section (1) of section 4 of the Customs Act, 1962 (52 of 1962) read with sub-section (1) of section 5 of the said Act before the 06.07.2011 had the authority to demand differential duty in terms of section 28 of the Customs Act, 1962 during the material period and there was no infirmity in the SCN.

10. On the death of all the partners and the closure of the partnership firm the appeal stands abated in terms of Rule 22 of the CESTAT (Procedure) Rules 1982.

10.1 The counsel for the appellant has stated that with the death of all the partners and by the firm surrendering its commercial tax registration which was accepted on 11.04.2017, has extinguished the adjudicatory liability on them. No SCN was issued to the partners of the firm and none of the partners were termed as defaulter in terms of the Customs (Attachment of property of defaulters for recovery of government dues) Rules, 1995 nor a certificate issued to them by the Assistant/Deputy Commissioner of Customs in terms of sec. 142 or the aforesaid Rules. Hence the appeal stands abated in terms of Rule 22 of the CESTAT (Procedure) Rules 1982.

10.2 We find that the Hon’ble Supreme Court judgment in SHABINA ABRAHAM Vs COLLECTOR OF CENTRAL EXCISE AND CUSTOMS [2015 (322) E.L.T. 372 (S.C.)], has held that in the absence of machinery provisions for proceeding against dead person’s legal heirs, duty and other sums do not become “payable” to apply recovery provisions under the Central Excise Act. Similarly, we find that though Section 142 of the Customs Act, provides for the method by which the Department may recover dues from an assessee, there is no enabling provision therein for the continuance of recovery in the hands of his legal representatives. The Customs Act 1962 does not make a provision for bringing on record the legal representative of the assessee or the procedure to be followed, after his death. However the lack of a procedure merely bars a remedy but does not extinguish the liability. The Hon’ble Madras High Court in a Customs matter in the case of S. Hidayathullah @ Mannady Bharakath (Died) and Ors Vs The Commissioner of Customs, Airport Customs House, Chennai [2025 (5) TMI 590 - MADRAS HIGH COURT / 2025:MHC:1144], referred to the judgment in the case of Shabina Abraham (supra) and held;

43. To put it alternatively, and as the Supreme Court has held in Shabina Abraham’s case, the scheme of the Customs Act has consciously kept legal heirs away from the rigour of answering to liabilities under that Act. With this, the position stands settled that a demand under a fiscal statute, be it of tax, duty, interest or penalty, cannot be pursued by the concerned Revenue Department, except if the relevant Statute enables such pursuit.

44. The assessments in the present case have been framed as early as on 24.10.2002 when there was no enabling provision under the Customs Act stipulating that the demands under those orders could be enforced as a first charge. In such circumstances, and on the facts of the present case, Section 142A of the Act also cannot come to the aid of the Department.

45. For the aforesaid reasons, we are of the considered view that the appeals abate. In the absence of a mechanism under the Act prior to 2011 for enforcement of the demand of duty, penalty, interest or any other sum payable by an assessee or a person under Customs Act, 1962, the demands raised under orders dated 24.10.2002 lapse. If at all, the department could only have pursued the demand by way of civil suit, which is not possible at this distance of time.

(emphasis added)

10.3 The Hon’ble Supreme Court in the case of Perumon Bhagvathy Devaswom, Vs. Bhargavi Amma (Dead) By LRs & Ors [2008 AIR SCW 6025 / 2008 (8) SCC 321], held that the word ‘abate’ means termination of the suit or appeal. Abatement is not dependent upon any judicial adjudication or declaration of such abatement by a judicial order. It occurs by operation of law. But nevertheless ‘abatement’ requires judicial cognizance to put an end to a case as having abated. 10.4 Based on the discussion above we accept the prayer of the appellants counsel, that the appeal abates in this case in terms of Rule 22 of the CESTAT (Procedure) Rules 1982 and we order accordingly.

(Order pronounced in open court on 30.09.2025)