2010 (10) TMI 218 - AT - Central Excise

Penalty on director - settlement of dispute of main noticee by Settlement Commission - cases against all co-noticees as regards imposition of penalty would come to an end - penalty stand imposed on the main noticee, stand waived by Settlement Commission - Whether the penalty stand imposed on the main noticee, who had approached Settlement Commission or the same stand waived by Settlement Commission, cannot be made the criteria for deciding the legal proposition i.e. as to whether the co-noticees would still be open to imposition of penalty when the case of main noticee stand settled before Settlement Commission. Further, the fact that Settlement Commission has observed that their order is only in respect of main noticee, cannot disturb the legal position settled by catena of judgments referred Appeal allowed - decided in favor of appellant.

Issues:
Challenge against penalty imposition under CENVAT Credit Rules, 2002 read with Central Excise Rules due to wrong availment of credit. Interpretation of Settlement Commission's order granting immunity but reducing penalty for the main noticee and its impact on co-noticees. Application of legal precedents regarding penalty imposition on co-noticees when main noticee settles dispute before Settlement Commission.

Analysis:
The appellant contested the penalty of Rs. 1 lakh imposed on him under Rule 13 of CENVAT Credit Rules, 2002, in connection with the wrong availment of credit by M/s. Komal Automiser Pvt. Ltd. The dispute arose when a show cause notice was issued to the company, proposing a penalty on the appellant, who is a Director of the company. M/s. Komal Automiser Pvt. Ltd. approached the Settlement Commission, which directed them to pay the full duty with interest and reduced the penalty to Rs. 2.5 lakhs.

The original adjudicating authority proceeded to impose the penalty on the appellant despite the main noticee settling the dispute before the Settlement Commission. The appellate authority upheld the penalty, stating that the settlement of the main noticee did not grant immunity to the appellant. The Commissioner (Appeals) observed that previous judgments where penalties on main noticees were waived entirely did not apply as in this case, a penalty of Rs. 2.5 lakhs was imposed on the main noticee. The Settlement Commission's order clarified that immunity did not extend automatically to other noticees not before the Commission, leading to the penalty being upheld.

During the hearing, the appellant argued that based on legal precedents, when the main noticee settles the dispute before the Settlement Commission, no penalty can be imposed on co-noticees. Citing the Supreme Court's decision in UOI v. Onkar S. Kanwar and various Tribunal judgments, the appellant contended that the penalty on co-noticees should be waived in such cases. The Tribunal in a previous case held that when the main noticee settles the dispute, penalties on co-noticees should cease, irrespective of whether the main noticee's penalty was waived or imposed.

The Tribunal found that the Settlement Commission's order only applied to the main noticee and did not automatically extend immunity to co-noticees. Relying on legal precedents, the Tribunal set aside the penalty imposed on the appellant, emphasizing that the settlement of the main noticee should result in the cessation of penalties on co-noticees. The appeal was allowed with consequential relief, highlighting the importance of following established legal principles in such cases.

This judgment clarifies the application of penalty provisions under CENVAT Credit Rules and Central Excise Rules concerning co-noticees when the main noticee settles a dispute before the Settlement Commission. It underscores the significance of legal precedents in determining the liability of co-noticees in penalty imposition scenarios following the settlement of the main noticee's case.

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