2016 (4) TMI 1071 - HC - Central Excise

Imposition of penalty - Violation of Rule 209A of the Central Excise Rules, 1944 - Import of scrap into India and sold it locally - Held that - the appellant was an importer and cleared the goods after payment of duty of excise. Rule 209A imposes three requirements to be satisfied before a penalty could be imposed. Those requirements are (1) that the person concerned should have acquired possession of or in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing or in any other manner dealing with the goods; (2) that such goods must be excisable goods and (3) that he must have knowledge or reason to believe that those goods are liable to be confiscated under the Central Excise Act or the rules. Let us assume that first requirement is satisfied but the goods were not excisable goods. The appellant is only an importer. Even according to the show cause notice or the orders of the authorities, the appellant is not engaged in any manufacturing activity. The goods did not become excisable goods at the hands of the appellant. It is only at the hands of the Company Chamak Holdings Limited, that the goods became excisable goods due to the manufacturing activity undertaken by that company. Therefore, the second requirement is not satisfied. The third requirement is also not satisfied since the goods were not liable for confiscation at the hands of the appellant. The appellant is not alleged to have defaulted in payment of customs duty or evaded the payment of excise duty or alleged to have cleared the goods out of the port clandestinely. Therefore, so long as the goods remained with him, they are not liable for confiscation. They would have become liable for confiscation after the purchaser manufactured the finished goods and sold them without invoices, thereby escaping payment of duty of excise. Therefore, the third limb of the rule is also not satisfied. Hence, the order of the authorities are unsustainable. - Decided in favour of appellant

Summary

Issues:
1. Interpretation of Rule 209A of the Central Excise Rules, 1944 regarding the imposition of penalty on a juristic person.
2. Application of Rule 209A in a case where the person has not dealt with goods liable for confiscation.
3. Consideration of settlement orders passed against the main noticee in penal proceedings.

Analysis:

Issue 1:
The appellant challenged the imposition of a penalty under Rule 209A of the Central Excise Rules, 1944. The Tribunal upheld the penalty, leading to the appeal. The key contention was whether a juristic person can be penalized under Rule 209A for dealing with goods liable for confiscation. The appellant argued that the Tribunal disregarded a binding judgment. The Court analyzed the requirements of Rule 209A, emphasizing the need for the person to deal with excisable goods and have knowledge of their liability for confiscation. The Court concluded that the appellant, as an importer, did not meet these requirements, rendering the penalty unjustified.

Issue 2:
The case involved a scenario where the appellant, an importer, was penalized under Rule 209A despite not dealing with goods liable for confiscation. The Court noted that the goods in question became excisable only after being processed by another company, not by the appellant. The Court highlighted that for the penalty under Rule 209A to apply, the goods must be excisable and the person must have knowledge of their liability for confiscation. Since the appellant did not fulfill these conditions, the penalty imposed was deemed unsustainable, leading to the appeal being allowed in favor of the appellant.

Issue 3:
The appellant raised a plea regarding the settlement orders passed against the main noticee, arguing that the penal proceedings should abate based on the settlement terms. The Court considered the settlement between the Department and the company that processed the goods purchased from the appellant. The settlement waived penalties and prosecution for the company. The Court emphasized that the appellant, being only an importer, did not engage in manufacturing activities or evade duty. Therefore, the Court concluded that the penal proceedings against the appellant should abate in line with the settlement terms, ultimately ruling in favor of the appellant and closing the case without costs.

This detailed analysis of the judgment highlights the Court's interpretation of Rule 209A and its application in the context of the appellant's case, emphasizing the specific requirements that must be met for the imposition of penalties under the Central Excise Act.