2006 (10) TMI 146 - AT - Central Excise

Penalty - Rule 209A - when goods not available for confiscation - Rule 26 of Central Excise Rules, 2002 - Meaning of Any person for the purpose of penalty - held that - for imposition of penalty under Rule 209A of the Central Excise Rules, 1944, the person must have dealt with the excisable goods with knowledge that they are liable for confiscation. In a given situation, where an assessee is only issuing invoices wherein there is no movement of the goods, they cannot be visited with penalty under Rule 209A - In the eyes of law, the corporate entity being a person would be held responsible for the act of the natural persons. But in order to punish the guilty individuals, the veil of corporate entity had to be lifted to understand the correct picture. Precisely for these reasons only the provisions of Rule 209A came in to statute, in order to punish the guilty acting behind the veil of corporation/company - penalty can not imposed on corporates under rule 209 / Rule 26 of the Central Excise Rules, 2002

Summary

Issues Involved:
1. Correctness of the decision in Shaper Chemicals Ltd. v. Commissioner of Central Excise, Mumbai-VII regarding the imposition of penalty under Rule 209A of the Central Excise Rules, 1944.
2. Correctness of the decision in Indian Roadways Corporation Ltd. v. C.C.E., Rajkot regarding the imposition of penalty under Rule 209A of the Central Excise Rules, 1944.

Issue-wise Detailed Analysis:

1. Correctness of the Decision in Shaper Chemicals Ltd. v. Commissioner of Central Excise, Mumbai-VII:

The Tribunal in the case of Shaper Chemicals Ltd. held that since there were no goods in actual movement and credit was availed only on documents without receipt of any goods, the liability of any goods to confiscation did not arise. The Tribunal stated, "To effect and uphold penalty liability goods should have been found to be liable to confiscation." Since the Revenue itself admitted that there were no goods that actually moved, the liability under Rule 209A due to fraudulent availment of credit could not be upheld. Consequently, all appeals regarding Rule 209A were allowed, setting aside the order of penalty under the rule.

2. Correctness of the Decision in Indian Roadways Corporation Ltd. v. C.C.E., Rajkot:

The Tribunal in the Indian Roadways Corporation case held that a corporation, being a legal entity without a mind of its own, cannot knowingly deal with goods liable to confiscation. The Tribunal noted, "Corporation has no mind of its own. It therefore, cannot knowingly deal with ball bearings knowing that they were liable to confiscation under the Central Excise Act, 1944." It was further observed that the corporation's employee acted beyond the scope of employment, and thus, the corporation could not be held vicariously liable. Therefore, the penalty under Rule 209A on the corporation was set aside.

Rule 209A Interpretation:

The Larger Bench considered the interpretation of Rule 209A, which states, "Any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding three times the value of such goods or five thousand rupees, whichever is greater." The Tribunal noted that the rule involves physical handling of goods and that the person must first acquire possession of the goods.

Relevant Case Law:

The Tribunal referred to the judgment of the Hon'ble High Court of Bombay in Jayantilal Thakkar & Company v. Union of India, which held that the person charged must deal with the excisable goods with knowledge or reason to believe that the goods are liable to confiscation. The High Court stated, "The above text of the notice nowhere made out a case that the petitioners in any way; at any time; had handled the excisable goods muchless dealt with the same with knowledge as required under Rule 209A of the Rules."

Conclusion:

The Tribunal concluded that the decisions in both Shaper Chemicals Ltd. and Indian Roadways Corporation Ltd. were correct and did not require reconsideration. The Tribunal emphasized that for the imposition of penalty under Rule 209A, the person must have dealt with the excisable goods with knowledge that they are liable for confiscation. In cases where there is no movement of goods, penalties under Rule 209A cannot be imposed. The Tribunal also clarified that corporations, being legal entities without a mind, cannot be penalized under Rule 209A unless the individuals acting behind the corporate veil are proven to have knowledge of the goods' liability for confiscation.