2008 (12) TMI 350 - HC - Customs

Maintainability- A show cause notice was issued upon the appellant/s on the ground that the export obligations have not been fulfilled and gold procured duty free has not been accounted for and accordingly duty was sought to be demanded from MMTC/the importer and penalties were sought to be imposed on MMTC and the appellant. Vide order dated 13th April, 2005, the Commissioner of customs confirmed the demand of duty of Rs. 54,47,775/- from MMTC and imposed penalty of Rs. 75,00,000/- upon them. In addition, he imposed penalty of Rs. 25,00,000/- was imposed upon the appellant company and Rs. 25,00,000/- upon its Director. Appellant refer the case to the Tribunal, direct to make pre-deposit. Held that- in modifying the order of the tribunal to the extent of imposition of pre-deposit to the Company, we direct the Director of appellant Company to make the pre-deposit for a sum of further two lakhs and rest will be secured in any form other than cash or bank guarantee, but to the satisfaction of the tribunal. Compliance of further pre-deposit will be made within a period of three weeks from the date of the order. Subject to the pre-deposit, the appellant will be heard on merit.

Issues Involved:
1. Imposition of separate penalties on the company and its Managing Director.
2. Liability of the company for penalties when its assets have been sold and the liability falls on the Managing Director.
3. Decision of common appeals after the deposit of penalty by one of the appellants in similar circumstances.

Detailed Analysis:

1. Imposition of Separate Penalties on the Company and Its Managing Director:
The appellant-company challenged the order of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) which imposed separate penalties on the company and its Director. The Tribunal held that the company and its Director were responsible for accounting for duty-free gold and had rendered the gold liable for confiscation due to their actions and omissions. The Tribunal directed a pre-deposit of Rs. 5,00,000/- from the company and Rs. 1,00,000/- from the Director to proceed with the appeal, emphasizing that the fraudulent nature of the case necessitated this requirement.

2. Liability of the Company for Penalties When Its Assets Have Been Sold:
The core issue was whether the company could be held liable for penalties when its assets had been taken over by U.P. State Financial Corporation, and the liability ostensibly fell on the Managing Director. The High Court found this to be a substantial question of law. The court noted that the imposition of penalties on the company, despite its financial hardships and takeover, required careful consideration. The court acknowledged that the Director had already complied with the pre-deposit requirement, but the company had not due to financial constraints. The court modified the Tribunal's order, allowing the Director to make a further pre-deposit of two lakhs and secure the remaining amount in a form other than cash or bank guarantee, to the satisfaction of the Tribunal.

3. Decision of Common Appeals After the Deposit of Penalty by One of the Appellants:
The appellant argued that common appeals should be decided after the deposit of penalties by one of the appellants in similar circumstances. The High Court did not find this to be the primary substantial question of law but acknowledged its relevance. The court emphasized the need for balancing factors such as financial hardship and the interest of revenue. The court referred to several precedents, including guidelines from the Calcutta High Court, which emphasized that the question of pre-deposit should consider the prima facie case, financial hardship, and the conduct of the parties.

Pre-Deposit Requirement and Its Legal Implications:
The High Court discussed the legal framework governing pre-deposit requirements under Section 129E of the Customs Act, 1992. It clarified that appeals against pre-deposit orders are maintainable under Section 130 of the Act if they involve substantial questions of law. The court emphasized that the phrase "every order passed in appeal" includes orders related to pre-deposit, thus falling within the jurisdiction of the High Court. The court highlighted that the imposition of pre-deposit should not be arbitrary and must consider the financial capacity and hardship of the appellant.

Conclusion:
The High Court concluded that the appeal was maintainable and modified the Tribunal's order to accommodate the financial constraints of the appellant company. The Director was directed to make a further pre-deposit of two lakhs, with the remaining amount secured to the satisfaction of the Tribunal. The appeal was disposed of with these modifications, ensuring that the appellant would be heard on merits subject to compliance with the pre-deposit requirements. The court's decision balanced the interests of revenue with the financial hardships faced by the appellant, providing a fair and just resolution to the dispute.

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