2008 (2) TMI 302 - AT - Central Excise

Fraud by 100% EOU - If allegation of clandestine activity is not disputed, Penalty can t be challenged mere on ground of wrong mention of Rule in SCN penalty on raw material supplier cannot be imposed, when he was not aware of deception carried by recipient EOU (regarding forged CT-3 certificate and re-warehousing certificates) appellant s (EOU) plea that goods received against forged CT-3 certificate had not been used so duty should be demanded from supplier of inputs, is not acceptable

Issues Involved:
1. Liability for duty payment on duty-free raw materials procured against forged CT-3 certificates.
2. Applicability of penalties under Rule 173Q of Central Excise Rules, 1944 to a 100% EOU.
3. Validity of penalties imposed on individuals involved in the fraudulent activities.
4. Penalties imposed on suppliers of raw materials.
5. Penalty on an individual for alleged involvement in introducing the purchaser of diverted raw materials.

Detailed Analysis:

1. Liability for Duty Payment:
The primary issue revolves around M/s Hytaisun Magnetic Ltd. (HML), a 100% EOU, which procured duty-free raw materials against forged CT-3 certificates. The raw materials were not used for the intended purpose of manufacturing goods for export. The Tribunal found that the liability to pay duty rests on HML, as the goods were procured against invalid CT-3 certificates and were not used as per the conditions of Notification No.1/95-CE. The Tribunal referred to similar cases, such as Santogen Textile Mill Ltd. & Others Vs. CCE, Mumbai, where the duty was rightly demanded from the 100% EOU and not the supplier.

2. Applicability of Penalties under Rule 173Q:
HML contended that Rule 173Q of Central Excise Rules, 1944, is not applicable to a 100% EOU. The Tribunal agreed that Rule 173Q does not apply to manufacturers under Chapter VA but held that the wrong quoting of the rule does not invalidate the penal proceedings. The Tribunal directed the adjudicating authority to reconsider the penal liability under the correct provision of law during the de-novo proceedings.

3. Validity of Penalties on Individuals:
Penalties were imposed on Shri B.A. Patel, Shri Snehal Patel, and Shri Vishnu Patel for their active involvement in the fraudulent activities. The Tribunal found that these individuals were deeply involved in forging CT-3 certificates and re-warehousing certificates, and thus, upheld the penalties. However, the exact quantum of penalties was remanded to the adjudicating authority for reconsideration in line with the re-quantified duty demand.

4. Penalties on Suppliers of Raw Materials:
The penalties imposed on M/s GSFC, M/s Gujarat Carbon & Industries Ltd., M/s L.G. Polymers (I) Ltd., and M/s Reliance Industries Ltd. were set aside. The Tribunal noted that the suppliers acted in good faith and had no knowledge of the forged nature of the CT-3 certificates and re-warehousing certificates. The Commissioner's observation that the fraudulent activities were so well-planned that no one could detect the forgery supported this decision.

5. Penalty on Individual for Alleged Involvement:
The penalty on Shri S.K. Ray, General Manager of M/s Reliance Industries Ltd., was also set aside. The Tribunal found that the penalty was based solely on the statement of a co-accused, which is insufficient to penalize an individual. Additionally, introducing someone to another person cannot be grounds for holding that the introducer has aided and abetted in committing an offence.

Conclusion:
The appeals of M/s HML, Shri B.A. Patel, Shri Snehal Patel, and Shri Vishnu Patel were remanded for de-novo consideration, while the penalties on the other appellants were set aside. The Tribunal emphasized the need for proper verification and application of the correct legal provisions in the adjudication process.

← Previous Next →