2024 (9) TMI 1301 - HC - Central Excise

Clandestine removal - Penalty u/r 26 of the Central Excise Rules, 2002 - Appellant was the in-charge Managing Director - error in law in upholding the Order in Original and confirming the penalty under Rule 26 of the Central Excise Rules, 2002, without specifying which particular clause of Rule 26 - penalty under Rule 26 can be imposed without there being any proposal and order for the confiscation of the goods in question or not - reliance placed upon the statement partly - mens rea. HELD THAT - On bare perusal of the Rule 26, it is clear that any person who is in any way concerned in removing the excisable goods which he knows or has reason to believe are liable to confiscation under the Act or the Rules shall be liable to a penalty. Admittedly, in the facts of the case, the appellants were concerned with the removal of the goods by the Company and from the statement of Mr. Narendrabhai Solanki which was recorded during the course of investigation, there is a clear admission on his part. It cannot be said that the Adjudicating Authority or Tribunal has committed any error in invoking Rule 26 of the Rules for levy of the penalty. The contention raised on behalf of the appellants that the adjudicating authority has failed to point out which of the Sub-rule is applicable in the facts of the case is without any basis inasmuch as on perusal of Rule 26 of the Rules, it is clear that the Sub-rule (2) would never be applicable to the facts of the case as it pertains to the person who issues invoices or any other documents. The reliance placed on the decision of the Hon ble Apex Court in case of the Amrit Foods 2005 (10) TMI 96 - SUPREME COURT would not be applicable in the facts of the case as the appellants were put to notice as to the exact nature of contravention for which the appellants were made liable for penalty under Rule 26 of the Rules. As the show-cause notice and the Order-in-Original have explained in detail about the nature of the offence for which the penalty is levied, it cannot be said that there is a breach of any of the requirement for levy of penalty by the respondent-authority. With regard to the contention raised on behalf of the two appellants namely, Devendra Ambalal Thakkar and Jaykant Ambalal Patel, it is required to be noted that both of them have abstained from investigation and have not co-operated for recording their statements and in spite of that the respondent-authority is not supposed to make further inquiries when the facts are not in dispute to the effect that both of them were holding the charge of the President and the Vice-President who having knowledge of the affairs of the Company. Considering the concurrent findings of fact arrived at by the both the authorities below, we are of the opinion that no question of law, much less any substantial question of law arises from the impugned orders passed by the CESTAT. The appeals therefore being devoid of any merit, are accordingly dismissed.

Summary

Issues Involved:
1. Imposition of Penalty under Rule 26 of the Central Excise Rules, 2002.
2. Specificity of the Clause Contravened under Rule 26.
3. Imposition of Penalty without Proposal for Confiscation of Goods.
4. Reliance on Partial Statements by the Appellate Tribunal.
5. Mens Rea Requirement for Penalty under Rule 26.

Detailed Analysis:

1. Imposition of Penalty under Rule 26 of the Central Excise Rules, 2002:
The appellants were penalized under Rule 26 of the Central Excise Rules, 2002, for their involvement in the clandestine removal of sugar without paying the required duty. The company, M/s. Shree Sardar Co-operative Sugar Industries Limited, was found to have issued parallel invoices and concealed the excess clearance in their records. The adjudicating authority, in its Order-in-Original, observed that the illicit clearance of sugar was carried out with the active knowledge and connivance of the senior functionaries, including the Managing Director, other Directors, President, and Vice-President. The CESTAT upheld this penalty, emphasizing that the systematic act of clandestine removal could not have been executed without the knowledge of the company's board, which included all the directors.

2. Specificity of the Clause Contravened under Rule 26:
The appellants argued that the Appellate Tribunal erred in upholding the penalty without specifying which particular clause of Rule 26 had been contravened. The adjudicating authority and the Tribunal, however, found that the appellants were clearly involved in the removal of goods, which they knew were liable to confiscation under the Act. The Tribunal held that the appellants were put to notice about the invocation of Rule 26(1), and merely not mentioning the specific sub-rule did not invalidate the penalty imposition.

3. Imposition of Penalty without Proposal for Confiscation of Goods:
The appellants contended that the penalty under Rule 26 could not be imposed without a proposal and order for the confiscation of the goods in question. The adjudicating authority raised a demand for the recovery of the evaded duty but did not order the confiscation of the goods. The Tribunal rejected this argument, stating that the appellants were involved in the removal of goods liable to confiscation, which justified the penalty under Rule 26.

4. Reliance on Partial Statements by the Appellate Tribunal:
The appellants claimed that the Tribunal relied on statements that suited the adjudicating authority's version while ignoring parts favorable to the appellants. The Tribunal, however, found that the statements of Mr. Narendrabhai Solanki, the In-charge Managing Director, and other employees clearly indicated the practice of overselling sugar and maintaining two sets of records. These statements were not retracted and were corroborated by other documentary evidence. The Tribunal concluded that the appellants were aware of and involved in the clandestine removal of goods.

5. Mens Rea Requirement for Penalty under Rule 26:
The appellants argued that no mens rea (guilty mind) was established for the imposition of the penalty under Rule 26. The Tribunal found that the appellants' knowledge and involvement in the clandestine removal of goods were evident from the statements and documentary evidence. The systematic modus operandi of overselling sugar without paying the required duty indicated a deliberate and conscious decision by the company's board, including the appellants. Therefore, the Tribunal upheld the penalty, rejecting the argument that mens rea was not established.

Conclusion:
The High Court dismissed the appeals, affirming the concurrent findings of the adjudicating authority and the Tribunal. The court held that the appellants were clearly involved in the clandestine removal of goods, and the penalty under Rule 26 was justified. The court found no substantial question of law arising from the impugned orders and dismissed the civil applications as well.