2018 (9) TMI 570 - HC - Central Excise

Penalty u/r 26 of CER, 2002 - Clandestine manufacture and removal - Copper Tubes - Whether the impugned order of the Tribunal to the extent of confirmation of penalty under Rule 26 of the Central Excise Rules, 2002 is correct and proper when the appellants had not dealt with the goods physically in any manner and when there was no proposal for confiscation of the goods in the show cause notice and when no goods are held liable for confiscation? Held that - It is seen from Rule 26(1), that the liability to penalty is fastened upon a person (i) who acquires possession of any excisable goods, (ii) who is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing; or (iii) who in any other manner deals with the goods. The argument of the Learned Counsel for the appellants is that Rule 26 can be invoked only when a person has dealt with the goods physically and that since there is no allegation in the notices that the appellants physically dealt with the goods, no penalty can be imposed - this contention does not hold water in the light of the fact that Rule 26 uses the expression in any other manner deals with any excisable goods . The words deals with need not necessarily mean the physical dealing with the goods - If providing blank challans/invoices to a company to enable them to remove the manufactured goods clandestinely, will not fall under the category in any manner dealing with the goods , we do not know what these words deals with would mean. Therefore, the contention based upon Rule 26 does not hold water. Another contention of the learned counsel for the appellants is that there was no proposal for confiscation and that therefore, the decision of the Larger Bench of the Tribunal in the case of Steel Tubes of India Limited, v. CCE, Indore 2006 (10) TMI 146 - CESTAT, NEW DELHI LB would squarely apply - Held that - The Tribunal rightly distinguished the said decision on the ground that the Larger Bench did not focus on the expressions in any way concerned in transporting, removing, depositing, keeping, concealing, selling and purchasing or in any manner deals with any excisable goods . The Larger Bench focused attention in Steel Tubes of India, only on the words any person, who acquires possession . Therefore, the decision was distinguishable and the CESTAT rightly did so. To ward off the penalty, the appellants should have come out clean. No logical explanation is offered as to why and how they parted with blank challans/invoices. Therefore, the question of law has to be answered against the appellants. The appeals are accordingly disposed of, answering the question of law against the appellants, but reducing the penalty to the extent of 50% of the amount ordered by CESTAT and which amount is stated to have been already paid - appeal allowed in part.

Summary

Issues Involved:
Appeals under Section 35G of the Central Excise Act, 1944 challenging a common order passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) regarding the confirmation of excise duty demand, CENVAT credit demand, and penalties imposed on a company and individuals for clandestine clearance of goods.

Detailed Analysis:

1. Investigation Findings and Show Cause Notices:
A company was found to have manufactured and cleared copper tubes without accounting or paying excise duty, with individuals colluding for clandestine clearance. Show cause notices were issued, leading to penalties imposed on the company, its Managing Director, and three individuals, along with two firms.

2. CESTAT Order and Appeals:
Six appeals were filed challenging the CESTAT order, resulting in dismissals for non-prosecution of the company and its Managing Director. Penalties were confirmed for the individuals and one firm, albeit reduced. Two individuals appealed under Section 35G of the Act, questioning the penalty confirmation.

3. Substantial Question of Law:
The appeals raised a substantial question of law regarding the correctness of the penalty confirmation under Rule 26 of the Central Excise Rules, 2002, without physical dealing with the goods and no proposal for confiscation in the show cause notice.

4. Interpretation of Rule 26 and Liability:
Rule 26 imposes penalties on those "dealing with" excisable goods, not limited to physical handling. Providing blank challans/invoices for clandestine removal constitutes dealing with goods, justifying penalties.

5. Application of Precedents and Penalties:
The Tribunal distinguished a precedent focusing on possession, emphasizing broader involvement with goods. Lack of logical explanation for providing blank challans/invoices justified penalty imposition, albeit reduced due to partial payment.

6. Judgment and Penalty Reduction:
While answering against the appellants, penalties were reduced considering the excessive quantum imposed by the Tribunal. Appellants' partial payment led to further reduction, with penalties reduced by 50% of the amount already paid, resulting in the disposal of appeals without costs.

7. Closure and Final Orders:
Miscellaneous petitions were closed, concluding the judgment on penalty reduction based on partial payments made by the appellants, ensuring a fair and just resolution in the matter.