2024 (12) TMI 270 - AT - Central Excise

Levy of Personal Penalty for aiding or abetting duty evasion - Denial of exemption admissibility of Notification No. 12/2012-CE (Sr. No. 108) dated 17.03.2012 in respect of the drugs - plea of the appellant is that the appellant s product i.e. drugs covered under description No. (A) of the Sr. No. 108 of the table appended to the notification which does not carry condition as prescribed for description No. (v) - whether the same would fall under description (A) or (B) of Sr. No. 108 of Notification No. 12/2012-CUS? - Levy of penalty under Rule 26 of Central Excise Rules, 2012 - HELD THAT - The drugs and bulk drugs are one and the same. Therefore, the company M/s. Sterlling Biotech Ltd was entitled for exemption Notification 12/2012-CUS entry Sr. No. 108 description (A) which does not involve any condition such as following the procedure of Central Excise (removal of goods at concessional rate of duty for manufacture of excisable goods) Rules, 2001. Therefore, entire basis of the department that such procedure was not followed is not relevant. Since, the duty demand itself is not prima facie sustainable on the company, there is no question of imposing personal penalty on the employee of M/s. Sterlling Biotech Ltd. who is the appellant herein. The issue involved is pure interpretation of the notification. The company M/s. Sterlling Biotech Ltd had been declaring the entire facts about the availment of the notification and declaring in their ER-1 return the product discretion, notification number, Sr. number of the entry. Therefore, there was no suppression of fact or mala fide either on the part of the company M/s. Sterlling Biotech Ltd or on the part of the present appellant. For this reason, also the penalty on the appellant is absolutely unsustainable. The appellant have relied upon the decision of S K Shah 2008 (7) TMI 433 - HIGH COURT OF GUJARAT AT AHMEDABAD Hon ble Gujarat High Court wherein on the issue of interpretation of notification personal penalty under Rule 26 was held to be not impossible. The penalty imposed on the appellant under Rule 26 is not sustainable. Hence, same is set aside - Appeal is allowed.

Summary

Issues Involved:

1. Denial of exemption under Notification No. 12/2012-CE for specific drugs.
2. Imposition of penalty under Rule 26 of Central Excise Rules, 2012 on an individual for aiding or abetting duty evasion.

Issue-wise Detailed Analysis:

1. Denial of Exemption under Notification No. 12/2012-CE:

The primary issue was whether the drugs manufactured by the appellant, namely Idarubicin hydrochloric acid, Doxorubicin hydrochloric acid, Daunorubicin hydrochloric acid, Epirubicin hydrochloric acid, and Zoledronic Acid, were eligible for exemption under Notification No. 12/2012-CE. The department contended that these drugs fell under description (B) of Sr. No. 108 of the notification, which required compliance with specific procedural rules for exemption. The appellant argued that the drugs were covered under description (A) of Sr. No. 108, which did not impose such conditions, thus claiming unconditional exemption.

The tribunal examined the merits of the case, referencing several judgments, including Cipla Ltd. and Hetero Drugs Ltd., which supported the interpretation that "bulk drugs" and "drugs" are synonymous under the relevant notifications. The tribunal concluded that the drugs in question were indeed covered under description (A) of Sr. No. 108, granting them unconditional exemption. Consequently, the procedural non-compliance alleged by the department was deemed irrelevant, and the duty demand on the company was not sustainable.

2. Imposition of Penalty under Rule 26:

The second issue concerned the imposition of a penalty on Shri K Baser, Vice President of M/s. Sterlling Biotech Ltd., under Rule 26 of the Central Excise Rules, 2012. The penalty was based on the charge of aiding or abetting duty evasion. The appellant argued that there was no mala fide intent or suppression of facts, as the company had consistently declared the notification and product details in their returns.

The tribunal found that the issue was purely interpretational regarding the exemption notification. Citing the judgment in S K Shah, the tribunal emphasized that penalties under Rule 26 could not be imposed in cases involving interpretational disputes, especially when there was no evidence of intent to evade duty. The tribunal concluded that the penalty on the appellant was unsustainable and set it aside.

Conclusion:

The tribunal allowed the appeal, setting aside the penalty imposed on the appellant. It held that the drugs were eligible for exemption under description (A) of Sr. No. 108 of Notification No. 12/2012-CE, and there was no basis for the penalty under Rule 26, given the interpretational nature of the dispute and lack of mala fide intent.