2013 (7) TMI 1041 - AT - Central Excise

Summary

Issues Involved:

1. Duty and Penalty on Appellant No. 1
2. Penalty on Remaining Appellants
3. Quantum of Duty
4. Validity of Penalty Imposed
5. Role and Liability of Brokers
6. Role and Liability of Supplier EOUs and their Directors

Summary:

1. Duty and Penalty on Appellant No. 1:

The first appellant, a 100% Export Oriented Unit (EOU), procured PTY/PFY duty-free using CT-3 certificates, some of which were forged, and diverted the goods to the Bhiwandi market instead of using them in manufacturing. The tribunal upheld the duty liability on the first appellant, rejecting the argument that the duty should be imposed on the supplier EOUs due to forged re-warehousing certificates. The tribunal cited Notification No. 1/95-C.E. and Rule 196 of the Central Excise Rules, 1944, which hold the recipient liable for duty if the goods are not used for the stated purpose.

2. Penalty on Remaining Appellants:

Penalties were imposed on the remaining nine appellants for their roles in the illegal diversion of goods. The tribunal upheld the penalties, noting the active involvement and knowledge of the appellants in the fraudulent activities. The tribunal dismissed the arguments that penalties could not be imposed under Chapter X of the Central Excise Rules, 1944, and that the show cause notice did not specify the sub-clause under which penalties were imposed.

3. Quantum of Duty:

The tribunal rejected the argument that the duty should be calculated as per the main part of Section 3(1) of the Central Excise Act, 1944, instead of the proviso. It held that the proviso to Section 3(1) was applicable as the goods were allowed to be sold in India, and the duty should be equal to the aggregate of the duties of customs on like goods if imported into India.

4. Validity of Penalty Imposed:

The tribunal dismissed the contention that penalties could not be imposed under Rule 209 when the show cause notice invoked Rule 173Q, noting that both rules are identically worded. It also rejected the argument that the penalty could not be imposed without specifying the sub-clause, stating that the violation was clearly covered under Clause (d) of Rule 209/173Q.

5. Role and Liability of Brokers:

The tribunal upheld the penalties on brokers (Appellant Nos. 4, 5, and 6), noting their active role in the diversion of goods, cash handling, and documentation. The tribunal agreed with the Commissioner's findings that the brokers were aware of the illegal diversion and played a crucial role in the scheme.

6. Role and Liability of Supplier EOUs and their Directors:

The tribunal upheld the penalties on supplier EOUs and their directors (Appellant Nos. 7, 8, and 9), noting their knowledge and active participation in the diversion of goods. The tribunal found that they were financially benefited by getting extra money over the normal price. For Appellant No. 10, the tribunal reduced the penalty to Rs. 50,000, considering the limited role and absence of evidence of additional benefit.

Conclusion:

The tribunal dismissed the appeals of Appellant Nos. 1 to 9, upholding the duty and penalties imposed. The penalty on Appellant No. 10 was reduced to Rs. 50,000. Miscellaneous applications and cross-objections were disposed of accordingly.