2024 (5) TMI 1053 - AT - Central Excise

Penalty u/r 26 of the Central Excise Rules, 2002 imposed on the appellants as company - appellant failed to verify the payment of excise duty in the invoice - HELD THAT - From plain reading of the legal provisions contained in Rule 26, it transpires that the penalty under this rule can be imposed in specified situations given therein. One such situation is, that a person who does any act in acquiring possession or who in any manner deals with, the excisable goods which he knows that these are liable to confiscation can be imposed with penalty. The second situation is in respect of person, who is liable to pay duty upon issue of excise invoices, but issues such invoice without delivery of goods or issues it wrongly to enable the recipient to claim undue benefit. Thus, these provisions make it essential that a person should have the knowledge of the fact that the subject goods are being liable to confiscation. As the acquisition of such knowledge is related to individual persons, it is apparent that such penalty under Rule 26 ibid is applicable on individual persons and not on legal person. Further, in the present case, the appellants are not the person, who are issuing excisable invoices for the CDs/DVDs. The only allegation on the appellants is that they did not verify the payment of excise duty in the invoice. It is seen from the contract entered with M/s M/s KRCD (India) Pvt. Ltd., that the price is inclusive of all excise duty and other taxes. Inasmuch as the appellants have specifically indicated in contract that the price is inclusive of excise duty, there does not appear to be any ground for the appellants to believe that the DVDs or CDs have been supplied without payment of excise duty. Thus, on the above basis also, the imposition of penalty under Rule 26 is not sustainable. The issue is no more in dispute as in a number of orders, the Tribunal has held that penalty under Rule 26 can be imposed only on individuals and not on company - in the case of Kakateeya Fabs (P) Ltd. 2017 (9) TMI 13 - CESTAT NEW DELHI , the Tribunal has held that that penalty under Rule 26 cannot be imposed on company firm or organization. The impugned order to the extent it has imposed penalty under Rule 26 of Central Excise Rules, 2002, on the appellants is not legally sustainable - the impugned order set aside - appeal allowed.

Summary

Issues Involved:

1. Imposition of penalty under Rule 26 of the Central Excise Rules, 2002 on a company.
2. Knowledge and intent to evade central excise duty.
3. Applicability of Rule 26 to legal entities.

Issue-wise Detailed Analysis:

1. Imposition of penalty under Rule 26 of the Central Excise Rules, 2002 on a company:

The appellants, M/s Zapak Digital Entertainment Ltd., contested the imposition of a penalty under Rule 26 of the Central Excise Rules, 2002, arguing that such penalties can only be imposed on individuals and not on a company. They cited several Tribunal decisions supporting their stance, including Kakateeya Fabs (P) Ltd., Simplex Infrastructures Ltd. Vs. CCE, Bhopal, Zapak Digital Entertainment Ltd. Vs. CCE, Mumbai, and Apple Sponge and Power Ltd. Vs. Commissioner of Service Tax, Audit-I, Mumbai. The Tribunal agreed with this contention, referencing the legal provisions of Rule 26, which specify that penalties can be imposed on individuals who knowingly deal with excisable goods liable for confiscation. The Tribunal found no grounds to impose the penalty on the appellants, as the rule is intended for individuals, not legal entities.

2. Knowledge and intent to evade central excise duty:

The show-cause notice accused the appellants of knowingly selling excisable goods without payment of central excise duty, thus aiding and abetting the manufacturer, M/s KRCD (India) Pvt. Ltd., in evading duty. The learned Commissioner had previously found that the appellants, along with M/s KRCD and M/s Red Hat India Pvt. Ltd., were aware that the CDs/DVDs were excisable and had evaded duty systematically. However, the Tribunal noted that the purchase orders from the appellants to M/s KRCD explicitly stated that prices were inclusive of excise duty, indicating no deliberate intention to evade duty. The Tribunal found no evidence that the appellants had knowledge of nonpayment of duty, thus negating the basis for the penalty.

3. Applicability of Rule 26 to legal entities:

The Tribunal examined Rule 26 and concluded that penalties under this rule are applicable to individuals who have knowledge of the excisable goods being liable for confiscation. The Tribunal cited several cases, including Kakateeya Fabs (P) Ltd. and Zapak Digital Entertainment Ltd., where it was held that Rule 26 penalties are not applicable to companies. The Tribunal emphasized that legal entities, such as companies, cannot possess the requisite knowledge or intent ascribed to natural persons. Therefore, the penalty imposed on the appellants under Rule 26 was deemed legally unsustainable.

Conclusion:

The Tribunal set aside the impugned order to the extent it imposed a penalty on the appellants under Rule 26 of the Central Excise Rules, 2002, and allowed the appeal in favor of the appellants. The decision reaffirmed that penalties under Rule 26 are intended for individuals and cannot be imposed on legal entities like companies. The Tribunal's judgment emphasized the necessity of individual knowledge and intent in the imposition of such penalties.