2016 (3) TMI 299 - AT - Central Excise

Penalty under Section 11AC - Held that - The demand of duty alongwith interest and penalty on the assessee is upheld as the appellants are not contesting. As the assessee already paid penalty 25% of the duty alongwith the entire amount of duty and interest before issuance of show cause notice, they are entitled the option as provided under Section 11AC of the Act 1944 and there is no need to pay the balance amount of penalty subject to verification of deposit of ₹ 17,72,000.00, which may be adjusted against the duty. The partner of the partnership firm had already paid the duty before issue of the show cause notice in order to avoid legal proceedings. In such situation, imposition of separate penalty on the partner of the firm is not justified.

Summary

Issues:
1. Imposition of duty, interest, and penalty on the assessee and other units.
2. Validity of penalty imposition on the partner of the partnership firm.
3. Imposition of penalty on the proprietors of the other units.
4. Application of Section 11AC of the Central Excise Act 1944.

Analysis:
1. The appeals before the Tribunal stemmed from a common order involving M/s Sharp Engineers, a partnership firm engaged in manufacturing. Central Excise officers proposed duty demand for clubbing clearance values of other units with the assessee, leading to a significant duty amount. The assessee paid the duty, interest, and penalty to avoid legal complications. Subsequently, a show cause notice was issued for additional duty, interest, and penalties on the assessee and the other units' proprietors. The Adjudicating Authority confirmed the duty demand and penalties. The Commissioner (Appeals) upheld this decision, prompting the appeals to the Tribunal.

2. The appellants contended that since they paid the entire duty, interest, and a penalty of 25% before the show cause notice, no further penalty under Section 11AC should apply. They argued that penalizing the partner of the partnership firm separately was unjustified, citing a Gujarat High Court case. The Tribunal agreed, stating that once a partnership firm is penalized, imposing a separate penalty on a partner is unwarranted as the partner is not a distinct legal entity.

3. The Revenue justified penalties on the other units' proprietors, claiming they were not dummy units but individual proprietors. However, the Tribunal held that there is no legal distinction between a proprietor and a proprietorship firm. Relying on precedent, the Tribunal concluded that penalties cannot be indirectly imposed on the proprietors of the proprietorship firm, thereby setting aside the penalties on the other appellants.

4. The Tribunal modified the impugned order, upholding the duty, interest, and penalty on the assessee. Since the assessee had already paid the penalty and interest, they were entitled to the option under Section 11AC without the need to pay additional penalties. The penalties on the other appellants were annulled, and the appeal by the assessee was disposed of accordingly.

This detailed analysis of the judgment highlights the issues of duty demand, penalty imposition, and legal interpretations regarding partnership firms and proprietorship units, providing a comprehensive understanding of the Tribunal's decision.