Recovery of Federal Excise Duty from Retired Partner of the Firm

Recovery of Federal Excise Duty from Retired Partner of the Firm Case Laws Constitutional Law Federal Excise Duty Government Duties Interpretation - Tax Law Knowledge - Constitutional Law Lahore High Court Litigation & Arbitration Real Estate Solutions - Constitutional Law Tax Mr. Justice Muhammad Sajid Mehmood Sethi in his judgment has decided the issue regarding recovery of Federal Excise Duty from retired partner of the firm in Writ Petition No. 23426 of 2015.

1. Brief facts of the case are that petitioner’s bank account No.BTA-004888-00-6, maintained with respondent No.3, was attached by respondents No.1, 2 and 5, on basis of an alleged tax demand created against respondent No.4, and a Pay Order No.2402021 dated 09.03.2015 amounting to Rs.10,158,726/- was issued by respondent No.3 from said account in favour of respondent No.2. Through instant petition, petitioner has assailed the order dated 06.05.2015, passed by respondent No.1, and letter / order dated 23.07.2015, issued by respondent No.3, whereby prayer for return of pay order, withdrawal of illegal attachment / orders along with prayer for de-freezing the said account and cancellation of pay order, has been turned down. The relief sought from this Court, through instant petition, is as under:

a. “The impugned order dated 06.05.2015 issued by the respondent No.1 may kindly be set aside by declaring it as illegal, issued without lawful authority and of no legal effect; and, the respondents No.1 & 2 may very graciously be directed to return the Pay Order issued from the Petitioner accounts, beside withdrawing their order of illegal attachment of the Petitioner’s account.

b. The impugned letter dated 23.07.2015 issued by the respondent No.3 may kindly be declared as illegal, issued without lawful authority and of no legal effect, by directing the respondent No.3 to defreeze the Petitioner’s account and cancel the Pay Order issued therefrom in favour of the respondent No.2.

c. The respondents No.1, 2, 3 & 4 may, in addition to the cost of the instant and other cases, be burdened with appropriate fine payable as compensation to the petitioner for the mental agony and reputation damage caused to it.

d. During the pendency of this petition the respondents may be restrained from encashing the Pay Order No.2402021 dated 09.03.2015 amounting to Rs.10,158,726.00 issued by the respondent No.3 from the bank account of the petitioner in favour of the respondent No.2, and, the respondent No.3 may be directed to let the petitioner operate its account for its ongoing business transaction………”

2. Learned counsel for petitioner submits that no tax dues were outstanding against the petitioner, at the time of illegal attachment of its bank account. He adds that a tax demand created against respondent No.4 cannot be lawfully effected against petitioner. He further submits that petitioner is an entirely different entity, independent from respondent No.4, having different partners, separate Firm Registration number and clearly distinguishable NTN, therefore, the impugned orders/ actions are not sustainable in the eye of law.

3. On the other hand, learned counsel for respondents defends the impugned orders and submits that petitioner has failed to point out any illegality or legal infirmity in the impugned orders.

4. Arguments heard. Available record perused.

5. The operative part of impugned order dated 06.05.2015, passed by respondent No.1, is reproduced hereunder:-

i) As per ground No.6 taken by the petitioner, Urban Developers comprised of two partners namely Mr. Tahir Javed S/o Muhammad Ashiq and Mr. Riaz Ahmed Chohan S/o Saeed Ahmed Chohan. Mr. Riaz Ahmed Chohan resigned from Urban Developers on 18.06.2012.

ii) M/s Urban Developers was a partnership firm established in 1999 and Mr. Riaz Ahmed Chohan was a partner for the period to which FED liability pertained. According to partnership Act, 1932 partner of the firm is jointly and severally responsible for any liability of the firm. It is pertinent to mention again that as per “addendum to agreement of dissolution a partnership in Urban Developers dated 27.06.2012” Partnership firm, M/s. Urban Developers was dissolved vide agreement dated 18.06.2012 i.e. at a much later stage.

iii) The plea taken in ground No.6 stating that Mr. Riaz Ahmed Chohan had been absolved from all his liabilities whatsoever incurred during his partnership tenure and that he settled his total accounts with the surviving partner, is also not tenable since section 9 of the FED Act, 2005 clearly states that in case a business enterprises is discontinued / closed or ceases to exist, any amount of duty payable by the enterprise, if cannot be recovered, every person who was owner or partner of the said enterprise, shall, jointly and severally, be liable for payment of such duty.

6. Perusal of reproduced part of the impugned order itself shows that recovery of duty / dues can be effected from an owner / partner of the firm. Undeniably, a shareholder of petitioner, Riaz Ahmed Chauhan, had been a partner in respondent No.4, yet no claim against respondent No.4 becomes a liability of petitioner under any principle of law and equity.

Further information regarding recovery of Federal Excise Duty from retired partner of the firm can be solicited from AUJ LAWYERS. Feel free to contact us in case you need any clarification and/or require legal assistance regarding similar matters.