1981 (5) TMI 31 - HC - Central Excise

Summary

Issues Involved:
1. Imposition of penalty under Rule 173(Q) of the Central Excise Rules, 1944.
2. Applicability of the limitation period under Section 40(2) of the Central Excises and Salt Act, 1944.
3. Vicarious liability of the partnership firm for the acts of its employee.
4. Effect of the judgment of the Criminal Court on departmental penalty proceedings.

Detailed Analysis:

1. Imposition of Penalty under Rule 173(Q) of the Central Excise Rules, 1944:
The petitioner, a registered partnership firm engaged in the manufacture of excisable goods, was penalized Rs. 50,000 under Rule 173(Q) of the Central Excise Rules, 1944. The penalty was imposed due to discrepancies in the deposit amounts as observed by the Accountant General, Central Revenue, Delhi, during an inspection. The firm was found to have manipulated the figures in treasury challans, resulting in lesser deposits than required.

2. Applicability of the Limitation Period under Section 40(2) of the Central Excises and Salt Act, 1944:
The petitioner argued that the penalty proceedings were time-barred under Section 40(2) of the Act, which stipulates a six-month limitation period for initiating legal proceedings. The petitioner contended that the term "legal proceedings" included departmental proceedings, thereby making the penalty proceedings invalid due to the expiration of the limitation period.

The court analyzed the interpretation of "legal proceedings" under Section 40(2) and concluded that the term did not encompass departmental proceedings. The principle of ejusdem generis was applied, wherein the general term "legal proceedings" was restricted to the same category as "suit" and "prosecution," both of which imply proceedings in a court of law. Thus, departmental proceedings were not covered by the limitation period under Section 40(2).

3. Vicarious Liability of the Partnership Firm for the Acts of its Employee:
The petitioner claimed that the partners had no knowledge of the fraudulent acts committed by their clerk, Shri Jawahar Lal Khanna, and thus should not be held vicariously liable. The court referred to Rule 225 of the Central Excise Rules, which holds the producer or manufacturer liable for any removal of goods in contravention of the rules, as if they had removed the goods themselves. This rule establishes the principal liability of the firm for the acts of its employees, thereby making the firm responsible for the fraudulent acts committed by the clerk.

4. Effect of the Judgment of the Criminal Court on Departmental Penalty Proceedings:
The petitioner argued that the judgment of the Criminal Court, which discharged the accused on grounds of limitation, lack of evidence, and absence of mens rea, should prevent the continuation of penalty proceedings. The court held that the judgment of the Criminal Court did not operate as res judicata for departmental proceedings. The criminal and departmental proceedings were deemed separate, with different standards and objectives. The court emphasized that penalty proceedings are quasi-criminal in nature and can be pursued independently of the criminal case outcomes.

Conclusion:
The court dismissed the petition, upholding the penalty imposed under Rule 173(Q) of the Central Excise Rules, 1944. It ruled that the limitation period under Section 40(2) of the Act did not apply to departmental proceedings, and the firm was vicariously liable for the fraudulent acts of its employee. The judgment of the Criminal Court did not preclude the continuation of penalty proceedings, as both were distinct legal processes. The petition was dismissed with no order as to costs.