2012 (5) TMI 173 - HC - Central Excise

Levy of penalty under Rule 209 r.w.r. 26 of the Central Excise Rules,2001 directing the proprietor and partner of default companies to pay penalty Held that - Proprietorship firm or proprietor thereof cannot be treated as two different legal entities - Partnership firm is a firm in mercantile usage, however, penalty imposed on the proprietorship or partnership firms would mean penalty on the proprietor or partners thereof - imposition of penalties one on the proprietorship firm and second on the proprietor would amount to imposition of penalty twice, which cannot be sustained in the eyes of law in favour of assessee.

Summary

Issues:
Imposition of penalty under Rule 209A of the Central Excise Rules, 1944 read with Rule 26 of the Central Excise Rules, 2001 on the appellant - proprietor of M/s Asim Enterprises and partner of M/s Makhan Lal Vinod Kumar.

Analysis:
The judgment delivered by the High Court pertains to the appeal filed by the appellant, who is challenging the order passed by the Customs, Excise and Service Tax Appellate Tribunal, upholding the levy of penalty under the Central Excise Rules. The appellant, proprietor of M/s Asim Enterprises and partner of M/s Makhan Lal Vinod Kumar, was directed to pay a penalty of Rs. 10,00,000. The case involves the appellant's involvement in settling the accounts of registered dealers and washer manufacturing units without any physical movement of goods, leading to the imposition of penalties by the Commissioner. The penalties imposed on M/s Asim Enterprises and M/s Makhan Lal Vinod Kumar had already attained finality before this appeal.

The Tribunal, while considering the appeal, confirmed the imposition of penalty on the appellant but reduced it from Rs. 50,00,000 to Rs. 10,00,000. The appellant contended that since penalties were already imposed on M/s Asim Enterprises and M/s Makhan Lal Vinod Kumar, no separate penalty should be imposed on the appellant as it would amount to double penalties, which is impermissible under the law. On the other hand, the Central Government Standing Counsel argued that the appellant's active participation in settling accounts justified the penalty imposition.

The High Court, after considering the arguments, held that a proprietorship or partnership firm cannot be treated as two separate legal entities. The Court referred to a judgment of the Calcutta High Court, emphasizing that in mercantile usage, a firm is not a legal entity like a natural person, and the rights and obligations of a firm are essentially those of the individual partners. Therefore, imposing penalties on both the proprietorship firm and the proprietor would amount to double punishment, which is legally unsustainable. Consequently, the High Court allowed the appeal, setting aside the imposition of penalty on the appellant.

In conclusion, the judgment clarifies the legal principle that penalties imposed on a firm essentially translate to penalties on the individual partners. Therefore, imposing separate penalties on both the firm and the proprietor would constitute double punishment, which is not permissible under the law. The decision provides clarity on the treatment of penalties concerning proprietorship and partnership firms, ensuring a fair application of legal principles.