2024 (11) TMI 609 - AT - Central Excise

Confiscation of goods - imposition of penalty under Rule 25 of CER, 2002 - HELD THAT - As far as the confiscation of goods and imposition of penalty under Rule 25 are concerned, following the decision of Gujarat High Court in COMMISSIONER OF C. EX. CUSTOMS VERSUS SAURASHTRA CEMENT LTD. 2010 (9) TMI 422 - GUJARAT HIGH COURT , the Delhi High Court held in COMMISSIONER OF CENTRAL EXCISE DELHI-II VERSUS GANPATI ROLLINGS PVT. LTD. ANR. 2016 (6) TMI 157 - DELHI HIGH COURT that Section 11AC is a condition precedent for taking action under Rule 25. Section 11AC provides for penalty for not paying or short paying duty by reason of fraud, collusion, wilful misstatement or suppression of facts. No demand of duty was confirmed in the impugned order nor was any penalty imposed under section 11AC. Therefore, confiscation of goods and imposition of penalty under Rule 25 need to be set aside. A plain reading of Rule 26 shows that it is a consequence of the confiscation. This penalty also needs to be set aside. The impugned order is set aside qua the appellants - appeal allowed.

Summary

Issues:
1. Eligibility for Small Scale Industries (SSI) exemption.
2. Confiscation of goods and imposition of penalties under Rule 25 and Rule 26 of Central Excise Rules, 2002.

Eligibility for SSI Exemption:
The appellant, a small-scale industry manufacturing mobile chargers under the brand name ERD, was exempt from central excise duty due to the SSI exemption for goods up to Rs. 1.5 crores. However, this exemption does not apply if goods bear another person's brand name. The appellant was found selling goods under the brand name ERD, registered to a director of the firm. After a search and show cause notice, the Tribunal confirmed the SSI exemption but remanded other issues to the Commissioner.

Confiscation of Goods and Penalties under Rule 25 and Rule 26:
The Commissioner, in the impugned order, dropped the duty demand but confiscated goods under Rule 25 and imposed fines and penalties. The appellant argued that confiscation under Rule 25 is subject to Section 11AC of the Act, which was not invoked in the order. Citing relevant case law, the appellant contended that Section 11AC is a condition precedent for action under Rule 25. As no penalty was imposed under Section 11AC, the confiscation of goods and penalties under Rule 25 and Rule 26 were challenged. The department conceded the non-invocation of Section 11AC.

The Tribunal analyzed the legal provisions and case law, emphasizing that Section 11AC mandates penalties for non-payment of duty due to fraud, collusion, or suppression of facts. As no duty demand or penalty under Section 11AC was confirmed in the order, the confiscation of goods and penalties under Rule 25 and Rule 26 were set aside. Rule 26 penalties were considered a consequence of confiscation, further warranting their setting aside. Consequently, both appeals were allowed, and the impugned order was set aside for the appellants.