2012 (8) TMI 826 - AT - Central Excise

Penalty under Rule 26 - Confiscation of goods - Held that - Penalty imposed on the appellant under Rule 26 of the Central Excise Rules, 2002 is unwarranted for more than one reason. Firstly, the appellant herein in his statement before the authorities has categorically stated that he is SSI manufacturer of goods and does not avail Cenvat credit of duty paid on raw materials. It is also on record that the appellant herein had procured formaldehyde from M/s. Windson Chemical Industries only on the ground that the input supplier had quoted rates lower than the market rates. There is no dispute as to the receipts of the goods in the factory premises of the current appellant. In my considered view, if an assessee is procuring a material which is quoted lower than a market rate, it is indeed a business decision made by him to avail the benefit of lower rate of the inputs. This cannot be faulted inasmuch as there being a categorical admission of the appellant as to the receipt of the material and payments thereto made in cheque as well as in cash. In the absence of any such contrary evidence, in my considered view, the penalty imposed on the appellant is unwarranted. Secondly, I find that the show cause notice in this case seeks to impose penalty on M/s. Pragati Polymers which is a partnership firm while the adjudicating authority has imposed penalty on the current appellant Shri V.N. Patel, who is a partner of the said Pragati Polymers, in the entire show cause notice, there is no whisper or allegation as to the current appellant being put on notice that penalty is sought to be imposed on him and he should give reply for the same. In the absence of any such show cause notice to the appellant, the imposition of the penalty on the appellant is non est, as there being no show cause notice issued to the appellant as an individual - Decided in favour of assessee.

Summary

Issues:
- Imposition of penalty under Rule 26 of the Central Excise Rules, 2002
- Applicability of penalty on the appellant as a partner of a partnership firm without proper notice

Analysis:

Imposition of Penalty under Rule 26 of the Central Excise Rules, 2002:
The appeal was filed against the order dismissing the appellant's appeal against the penalty imposed by the adjudicating authority. The lower authorities found the appellant liable for dealing with goods subject to confiscation as the original supplier was not the manufacturer of the goods, and the appellant was aware of this fact. The authorities also noted that the appellant paid for the purchases in cash and cheque. However, the appellate tribunal found the penalty unwarranted for multiple reasons. Firstly, the appellant, a small-scale manufacturer, procured goods at lower rates from a supplier and had receipts of the goods in the factory premises. The tribunal considered this a valid business decision to benefit from lower input costs. The tribunal also highlighted that the appellant had accounted for the material and payments properly, undermining the revenue's argument about cash payments. Secondly, the show cause notice aimed at penalizing a partnership firm, but the penalty was imposed on the individual appellant without proper notice. The tribunal deemed this imposition of penalty on the appellant as non est due to the absence of a show cause notice issued directly to him.

Applicability of Penalty on the Appellant as a Partner of a Partnership Firm without Proper Notice:
The tribunal emphasized that the penalty imposed on the appellant, a partner in a partnership firm, was invalid due to the lack of a specific show cause notice directed towards him individually. The show cause notice targeted the partnership firm, and there was no mention or allegation in the notice regarding the imposition of a penalty on the appellant as an individual. This absence of a show cause notice to the appellant as an individual rendered the penalty non est, as proper procedure was not followed in notifying and involving the appellant in the penalty proceedings. Consequently, the tribunal set aside the impugned orders and allowed the appeal, highlighting the procedural irregularity in imposing the penalty on the appellant without individual notice.

This comprehensive analysis of the legal judgment showcases the issues of penalty imposition under the Central Excise Rules, 2002, and the procedural flaw in penalizing the appellant as a partner without proper notice, leading to the decision to set aside the penalty and allow the appeal.