2013 (9) TMI 582 - AT - Central Excise

Penalty under Rule 26 of Central Excise Rules - Whether when the person against whom demand had been raised by way of show cause notice approaches Settlement Commission and get the dispute settled on terms and conditions, as contained in the order, whether the same would bring an end to the penal proceedings against the co-noticee, or not Held that - The co-accused should not be penalized more than the main accused - To simply state if an accused had been acquitted for murder, co-accuse cannot be held guilty for conspiracy to murder - The main person against whom demand was proposed to be confirmed in the show cause notice having approached Settlement Commission and the Settlement Commission having passed the final order directing to deposit the entire duty along with interest and having granted immunity to them from penalty and prosecution - the proceedings against all co-noticees were required to be closed and it was not open to the authorities below to impose penalties on the co-noticee - the penalty on the co-noticee was set aside on the ground that the dispute between the main noticee and the revenue stands settled in Settlement Commission - the order of imposition of penalties was set aside upon the appellants and the appeal was allowed - Decided in favour of Assessee.

Summary

Issues Involved:
1. Imposition of penalty on the appellant under Rule 26 of Central Excise Rules.
2. Settlement of disputes by the main noticee and its impact on co-noticees.
3. Applicability of precedent judgments and Supreme Court decisions.

Issue-wise Detailed Analysis:

1. Imposition of penalty on the appellant under Rule 26 of Central Excise Rules:

The appellant, a merchant-exporter, was penalized for Rs. 5 lakhs under Rule 26 of the Central Excise Rules. The penalty was initially imposed by the original adjudicating authority at Rs. 10 lakhs but was later reduced to Rs. 5 lakhs by the Commissioner (Appeals). The penalties on the Managing Director and the export executive were set aside due to the Managing Director's death and the lack of evidence against the export executive.

2. Settlement of disputes by the main noticee and its impact on co-noticees:

The main noticee, M/s. Sona Processors, approached the Settlement Commission, which directed them to deposit the balance amount of excess deemed Modvat credit along with interest. The Settlement Commission granted immunity to M/s. Sona Processors from penalty and prosecution. The appellant argued that since the main noticee settled the dispute and was granted immunity, the proceedings against all co-noticees should also be closed. They relied on the Tribunal's majority order in S.K. Colombowala v. CC (Import), Mumbai, which held that penalty on co-noticees should be set aside if the main noticee's dispute is settled.

3. Applicability of precedent judgments and Supreme Court decisions:

The Revenue drew attention to a Division Bench order in M/s. K.I. International Ltd., which did not follow the S.K. Colombowala decision, citing the Supreme Court decision in S.P. Chengalvaraya Naidu v. Jagannath. The Division Bench argued that the doctrine of finality does not protect co-noticees who were not part of the Settlement Commission proceedings. However, the Tribunal found that the facts of the Supreme Court case were different and not applicable to the present case. The Tribunal emphasized that the principle established in S.K. Colombowala, supported by other Tribunal decisions and Supreme Court judgments, should apply, ensuring that co-noticees are not penalized more than the main noticee.

Conclusion:

The Tribunal concluded that the penalty on the appellant should be set aside, referencing the precedent set in S.K. Colombowala and related judgments. The Tribunal found that the settlement of the main noticee's case should also conclude the penal proceedings against the co-noticees, including the appellant. The Tribunal's decision was pronounced in the open court, effectively nullifying the Rs. 5 lakhs penalty imposed on the appellant.