2011 (10) TMI 554 - HC - Central Excise

Demand and penalty - part of the duty during the course of investigation and paid the balance amount of duty and 25% of total duty amount of proposed demand as penalty within the time limit specified under proviso to Section 11A(2) - Held that - During the adjudication proceedings, the firm deposited the amount claimed and that the Additional Commissioner returned a finding that the proceedings against the firm stands concluded under proviso to sub-section (2) of Section 11A of the Central Excise Act, 1944 but imposed a penalty of ₹ 2 lacs each individually and separately on the partners of the firm. The said order was set aside by the Commissioner (Appeals) on 20-3-2009. It was held that the Rule 26 of the Rules is a penal provision and not the one under which show cause notice can be issued. Since the show cause notice under Section 11A(1) of the Act had been issued and proceedings stand concluded against firm, therefore, penalty proceedings under Rule 26 of the Rules cannot be continued against partners. The said order was affirmed in appeal by the Tribunal as well vide order dated 5-1-2011. Once the proceedings against the firm stand concluded, penalty proceedings against partners of the firm cannot continue as Rule 26 of the Rules is not an independent provision but has to be read with Section 11A of the Act. The firm has satisfied the due of the Revenue, therefore, the imposition of penalty under Rule 26 of the Rules are not justified. - Decided against Revenue.

Summary

Issues:
Appeal against imposition of penalty on partners under Rule 26 of the Central Excise Rules, 2002 after proceedings against the firm concluded under Section 11A(2) of the Central Excise Act, 1944.

Analysis:
The appeals were filed by the Revenue under Section 35G of the Central Excise Act, 1944, challenging the order of the Customs, Excise & Service Tax Appellate Tribunal, New Delhi, which declined the imposition of penalty on the partners of the firm. The Revenue had issued a show cause notice to the firm for alleged clandestine activities, leading to shortages and subsequent duty payment. The firm was called upon to explain the deficiencies and pay the outstanding duty. Additionally, show cause notices were issued to the partners for potential penalties under Rule 26 of the Central Excise Rules, 2002.

During adjudication, the firm paid the claimed amount, and the Additional Commissioner concluded proceedings against the firm under Section 11A(2) of the Act. However, penalties of Rs. 2 lakhs each were imposed individually on the partners under Rule 26. The Commissioner (Appeals) later set aside these penalties, stating that Rule 26 is a penal provision and not a basis for issuing show cause notices. As proceedings against the firm had concluded, penalties under Rule 26 against the partners could not be pursued. This decision was upheld by the Tribunal in 2011.

The appellant argued that concluding proceedings under Section 11A(2) did not absolve the partners from separate penalty proceedings under Rule 26. The Court disagreed, stating that once proceedings against the firm were concluded, penalties against the partners could not continue as Rule 26 is not an independent provision but must be read with Section 11A. As the firm had satisfied its dues to the Revenue, the imposition of penalties under Rule 26 on the partners was deemed unjustified. Consequently, both appeals were dismissed.