2015 (9) TMI 296 - AT - Central Excise

Clandestine removal of goods - Imposition of penalty - Held that - Appellant No.5 M/s. Vandevi Texturisers (P) Limited and its CEO Appellant No.6 indulged the whole conspiracy with Appellant No. 1, 2 and 3 in hand in gloves in clandestinely disposal of the goods. All were directly involved in disposal of the goods in open market in different roles as stated in the Adjudication order Quantum of penalty are excessive. As regards the imposition of penalty on Shri Rashid Sadatali Saiyed, the Commissioner (Appeals) has already observed that the said person was exploited by Appellant No. 2 and 3 and was under compulsion. It is also noticed that the penalty was imposed on the partnership firm, so, the penalty on Shri Rashid Sadatali Saiyed (Appellant No.4) is not warranted. The Hon ble Gujarat High Court in the case of Pravin N. Shah vs. CESTAT - 2012 (7) TMI 850 - GUJARAT HIGH COURT , held that separate penalty not imposable upon partner of firm because partner is not a separate legal entity and cannot be equated with employee of firm. In that case, the important question of law before the Hon ble Court was, Whether in the facts and circumstances of the case, the Tribunal was right in upholding the penalty of ₹ 10,00,000/- imposed on the appellants under Rule 209A of the erstwhile Central Excise Rules, 1944 now Rule 26 of the Central Excise Rules, 2001 . The Hon ble Court answered to the question in favour of the appellant and set-aside the penalty on the partner. - Penalty imposed on appellant 1 & 2 is reduced - Decided partly in favour of assessee.

Summary

Issues:
- Clandestine removal of duty-free materials
- Proper opportunity of hearing before the adjudicating authority
- Allegations based on statements
- Applicability of penalty under Rule 26 of the Central Excise Rules, 2002
- Joint conspiracy in removing and selling goods in the open market
- Quantum of penalty and imposition on partners of firms

Analysis:
1. Clandestine Removal of Duty-Free Materials:
The case involved the procurement of duty-free raw materials by M/s. Sunshine Overseas from various manufacturers, including M/s. Vandevi, under Central Excise invoices. Investigations revealed that no goods were physically received under CT-3 from M/s. Vandevi, leading to diversion into the domestic market. The adjudicating authority imposed penalties and confirmed the demand for Central Excise duty, supported by evidence of illicit removal and the involvement of multiple parties.

2. Proper Opportunity of Hearing:
Appellant No. 5 contended they were not given a proper opportunity of hearing. However, the Commissioner (Appeals) provided multiple opportunities, which the appellant failed to avail. The Tribunal found no merit in the appellant's argument due to their non-appearance during crucial proceedings.

3. Allegations Based on Statements:
The case was built on statements recorded by DRI officers and corroborative evidence, establishing clandestine removal of duty-free materials in the domestic market. The involvement of the CEO of Appellant No. 5 in the conspiracy was confirmed through statements and test reports, indicating the evasion of duty payments.

4. Applicability of Penalty under Rule 26:
Appellant No. 5 and 6 argued that the case was based on paper transactions only, questioning the application of penalties under Rule 26. However, the Tribunal upheld the penalties, citing evidence of connivance and illicit removal, rendering the cited case laws irrelevant in the current context.

5. Joint Conspiracy in Removing and Selling Goods:
The Tribunal found that Appellant No. 5 and its CEO were actively involved in a joint conspiracy with other appellants to dispose of goods in the open market. The penalties imposed were deemed justified based on the roles played by each party in the illicit activities.

6. Quantum of Penalty and Imposition on Partners of Firms:
Considering the excessive penalties imposed, the Tribunal reduced penalties on some appellants while allowing the appeal of another based on specific circumstances. The case law precedent highlighted the limitations on imposing separate penalties on partners of firms, leading to adjustments in penalty amounts for certain appellants.

In conclusion, the appeals filed by M/s. Vandevi Texturisers (P) Limited and its CEO were dismissed, with penalties reduced for other appellants based on their individual roles in the clandestine removal and sale of goods. The judgment highlighted the complexities of proving illicit activities and the varying degrees of culpability among the involved parties.