2019 (2) TMI 1168 - AT - Central Excise

Penalty u/r 26 of CER - Clandestine removal - only paper transaction and no physical dealing of the goods - Held that - As per the facts of the case it is established that the supplier M/s. Hema Exports, under the guise of supplying goods to 100% EOU i.e. the present appellants, diverted the goods in the open market with clear intention to evade payment of duty. The diversion of the goods in the open market could not have been possible without the involvement of present appellants.As per the facts of the case it is established that the supplier M/s. Hema Exports, under the guise of supplying goods to 100% EOU i.e. the present appellants, diverted the goods in the open market with clear intention to evade payment of duty. The diversion of the goods in the open market could not have been possible without the involvement of present appellants. From Rule 26, it is clear that, if any person in any manner deals with any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or law shall be liable to penalty - In the present case, the appellants were very much involved in dealing with the goods in diverting by M/s. Hema Exports in the open market. Therefore, even though the goods were not dealt with physically but there is no dispute that the appellants were involved in dealing with the goods in a manner by which the supplier was facilitated in diversion of goods in open market - thus, the ingredients of Rule 26 are existing in the offence committed by the appellants. Penalty on other appellants, who are partners of a partnership firm - Held that - Once the penalty was imposed on a partnership firm, no separate penalty should be imposed on the partners separately for the reason that the partnership firm itself is consisting of partners - penalty on partners set aside. Appeal allowed in part.

Summary

Issues:
Penalty under Rule 26 of Central Excise Rules - Liability of partnership firm and partners

Analysis:
The case involved penalties imposed on appellants under Rule 26 of the Central Excise Rules for dealing with excisable goods without physical receipt. The advocate for the appellants argued that penalties cannot be imposed if there is only a paper transaction without physical dealing of goods. He also contended that once a penalty is imposed on a partnership firm, no separate penalty should be imposed on the partners. The advocate cited relevant judgments to support this argument.

The Revenue, represented by the Deputy Commissioner, reiterated that the appellants were involved in diverting goods in the open market through a supplier, leading to penalties under Rule 26. The supplier had diverted a significant quantity of goods without the appellants physically receiving them, indicating the appellants' involvement in the diversion scheme.

Upon careful consideration, the judge analyzed the facts and the applicable law. The key issue was whether the appellants were liable for penalties under Rule 26. The judge observed that the appellants were indeed involved in dealing with the goods, facilitating the supplier's diversion of goods in the open market. The judge referenced Rule 26, emphasizing that any person dealing with excisable goods believed to be liable for confiscation is subject to penalties. Despite the lack of physical handling, the appellants' involvement in the diversion scheme justified the penalties under Rule 26.

Regarding the partners of the partnership firm, the judge referred to a relevant High Court judgment stating that once a penalty is imposed on the partnership firm, no separate penalty should be imposed on the partners. Following this precedent, the judge set aside the penalties imposed on the partners. Consequently, the appeals filed by the partnership firm were dismissed, while the appeals filed by the individual partners were allowed.

In conclusion, the judgment upheld the penalties on the partnership firm for involvement in diverting goods and set aside the penalties on the individual partners based on established legal principles.