2015 (4) TMI 1086 - AT - Central Excise

Clandestine manufacture and clearance of medicaments - pre-deposit of penalty imposed upon them under Rule 26 of the Central Excise Rules, 2002 - stay demand - Held that - All the four noticees are directly involved in the illegal manufacturing and clearance of the medicines. In the interest of the Revenue, some terms need to be imposed upon them especially when the main accused M/s. Gold Star Pharmaceuticals Pvt. Ltd. has defaulted in making the pre-deposit as ordered by this Bench and also considering that both M/s. Gold Star Pharmaceuticals Pvt. Ltd. and M/s. Suraj Medical Agencies are family concerns of Sh. Roshan Lal Kawatra, Sh. Kashmir Chand and Sh. Ashok Kumar. Further on legal issue also, it has been held that there is no bar in imposition of penalty on natural person if they are part of company/corporate body etc. In view of the above, hold that penalties under Rule 26 have been rightly imposed upon the appellants M/s. Suraj Medical Agencies, Sh. Roshan Lal Kawatra, Sh. Kashmir Chand and Sh. Ashok Kumar. Thus the balance of convenience is in the favour of the Revenue for imposition of penalty on these persons. Accordingly I differ with the findings recorded by learned Member (Judicial). And to avail the facility to hear the appeals, it is necessary that all these appellants M/s. Suraj Medical Agencies, Sh. Roshan Lal Kawatra, Sh. Kashmir Chand and Sh. Ashok Kumar are directed to deposit 50% of the penalty imposed upon them by the Commissioner under Rule 26 of the Central Excise Rules, 2002. Ordered accordingly consequently balance amounts of penalty shall remain waiver if penalties are deposited within six weeks and compliance reported within four weeks thereafter.

Summary

Issues Involved:
1. Requirement of pre-deposit of penalties under Rule 26 of the Central Excise Rules, 2002.
2. Applicability of Rule 26 to firms and companies.
3. Prima facie findings of involvement in clandestine manufacture and clearance of goods.
4. Legal precedents and interim orders impacting the imposition of penalties.

Issue-wise Detailed Analysis:

1. Requirement of Pre-deposit of Penalties:
The appellants sought waiver of pre-deposit of penalties imposed under Rule 26 of the Central Excise Rules, 2002. The Tribunal initially directed M/s. Gold Star Pharmaceuticals Pvt. Ltd. to deposit Rs. 1.15 crores, failing which their appeal was dismissed. The stay petitions of the other appellants were then listed for fresh decision. The appellants argued for waiver based on financial conditions and legal grounds, citing that Rule 26 penalties cannot be imposed on firms, as supported by the Tribunal's decision in Woodmen Industries v. CCE, Patna.

2. Applicability of Rule 26 to Firms and Companies:
The Tribunal's decision in Woodmen Industries, upheld by the Supreme Court, stated that penalties under Rule 26 could only be imposed on natural persons. However, the Member (Technical) disagreed, referencing the Delhi High Court's decision in Sunil Mittal v. CCE and the Supreme Court's ruling in Standard Chartered Bank, which held that companies could be penalized under Rule 26. The Member (Technical) concluded that the term "person" in Rule 26 includes juristic persons like companies and firms.

3. Prima Facie Findings of Involvement:
The appellants were allegedly involved in clandestine manufacture and clearance of medicaments by M/s. Gold Star Pharmaceuticals Pvt. Ltd. Statements from chemists and employees indicated excess production and illegal clearances. The Tribunal noted that both M/s. Gold Star Pharmaceuticals Pvt. Ltd. and M/s. Suraj Medical Agencies were family concerns, and penalties were imposed based on their active involvement in the illegal activities.

4. Legal Precedents and Interim Orders:
The Member (Judicial) relied on the interim order of the Calcutta High Court in Prompt Castings Pvt. Ltd., which stayed the recovery of penalties under Rule 26, deeming it prima facie ultra vires of Section 11AC of the Central Excise Act. However, the Member (Technical) emphasized that the interim order did not provide a final ratio and referenced other judgments supporting the imposition of penalties on companies.

Majority Decision:
The Third Member (Technical) agreed with the Member (Technical), holding that penalties under Rule 26 could be imposed on firms and companies. The majority decision directed the appellants to deposit 50% of the penalties imposed as a condition for hearing their appeals.

Conclusion:
The Tribunal concluded that penalties under Rule 26 could be imposed on both natural and juristic persons, including firms and companies. The appellants were required to deposit 50% of the penalties imposed to proceed with their appeals, considering their active involvement in the clandestine activities and the legal precedents supporting such penalties.