2021 (3) TMI 845 - HC - Central Excise

Validity of reversal of Order-in-Original passed by the Commissioner of Central Excise, pursuant to an order of remand passed by the Tribunal in the earlier round of litigation - HELD THAT - On a perusal of the Order-in-Original, more particularly, the findings from paragraph 36 to paragraph 39, the same was found to be almost a verbatim repetition of the findings rendered by the Hon'ble Technical Member in the earlier round of litigation before the Tribunal, which was a minority view. On a reading of the order in its entirety, there appears to be a missing link, which was noted by the Tribunal and the Tribunal observed that the Department failed to establish any link about the payment to the assessee-firm's transactions and that the appellant-partner never admitted any clandestine removal and all that he had accepted was the payment to three persons, who were employees of SWC and that there is no evidence placed by the Department to show purchase of the raw material, Oleum. Further, the important aspect that the appellant did not have sufficient storage facility for such huge quantity of LAB, was also noted to be a very relevant factor. Further, the Tribunal rightly noted that the Adjudicating Authority did not follow the directions issued by the Tribunal while remanding the matter for de novo consideration and it reiterated only the statements of persons with regard to the supply of LAB through SWC and failed to address the issue on the procurement of Sulphuric Acid/Oleum. The findings rendered by the Tribunal would clearly show that a thorough fact finding exercise has been done and the missing links have been pointed out by the Tribunal and we find the entire matter to be fully factual and no question of law would arise for consideration in the appeals filed by the Revenue. The onus was on the Department to prove that there was clandestine manufacture and removal by the assessee-firm and this having not been established to the extent required, there was no error or perversity found in the approach of the Tribunal warranting interference. The Tribunal ought to have granted full relief to the appellant-partner, instead of restricting the penalty to ₹ 2,00,000/-. That apart, no reason has been assigned by the Tribunal as to why it did not vacate the entire penalty and thought fit to reduce it to ₹ 2,00,000/- , though the Tribunal had exonerated the assessee-firm entirely. Therefore, the order passed by the Tribunal, insofar as sustaining the penalty to the tune of ₹ 2,00,000/- calls for interference. Application is allowed and the substantial questions of law raised by the appellant-partner are answered in favour of the appellant-partner.

Issues Involved:
1. Imposition of penalty on the partner of a firm despite the firm being exonerated of clandestine removal charges.
2. Applicability of Central Excise Rules against an individual who is not a manufacturer or registered dealer.
3. Validity of penalty imposition on a partner when the firm’s duty demand is set aside.
4. Requirement of specific commissions or omissions to impose penalty under Rule 173Q.
5. Imposition of penalty on a partner not owning the goods ordered for confiscation.

Issue-wise Detailed Analysis:

1. Imposition of penalty on the partner despite the firm being exonerated:
The appellant-partner was penalized ?2,00,000 by the Tribunal despite the firm being cleared of clandestine removal charges. The Tribunal had initially reduced the penalty from ?50,00,000 to ?2,00,000, considering the overall circumstances and the setting aside of the duty demand on the firm. The High Court noted that if the firm was exonerated, the partner should not be penalized, especially since there was no evidence linking the partner to the alleged clandestine activities. The Tribunal's decision to uphold a reduced penalty was found to lack reasoning and was thus overturned, exonerating the partner fully.

2. Applicability of Central Excise Rules against an individual:
The appellant argued that Rules 9(2), 173Q, and 226 of the Central Excise Rules, 1944, could not be invoked against an individual who is not a manufacturer, producer, registered person of a warehouse, or a registered dealer. The High Court agreed, emphasizing that the penalty provisions under these rules require specific roles and responsibilities, which were not attributable to the appellant-partner in this case.

3. Validity of penalty imposition on a partner when the firm’s duty demand is set aside:
The Tribunal had set aside the entire duty demand on the firm, concluding that the charge of clandestine removal was based on assumptions and not sustainable. Given this conclusion, the High Court held that imposing any penalty on the partner was unjustified. The Tribunal's partial relief to the partner by reducing the penalty was found inconsistent with its own findings regarding the firm.

4. Requirement of specific commissions or omissions to impose penalty under Rule 173Q:
The High Court observed that the Tribunal did not specify any commissions or omissions by the appellant-partner that would constitute an offense under Rule 173Q. The absence of such specific findings rendered the penalty imposition invalid. The Tribunal's decision to impose a reduced penalty without detailing the appellant’s specific culpability was thus overturned.

5. Imposition of penalty on a partner not owning the goods ordered for confiscation:
The appellant-partner was not the owner of the goods ordered for confiscation and was not connected with their manufacture, production, or storage. The High Court highlighted that penalties under Rule 173Q require ownership or direct involvement with the goods in question. Since the partner did not meet these criteria, the penalty was deemed inappropriate and was set aside.

Conclusion:
The High Court dismissed the Revenue’s appeals, finding no substantial question of law and upheld the Tribunal's decision to exonerate the firm. However, it allowed the appellant-partner's appeal, setting aside the penalty imposed on him, as the Tribunal failed to provide sufficient reasoning for the partial penalty and did not establish the partner's direct involvement in the alleged clandestine activities.

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