2010 (3) TMI 218 - HC - Central Excise

Recovery of duty from directors - This petition filed under Article 226 of the Constitution of India is directed against the order dated 19th June, 2009 directing the petitioners to pre-deposit 50% of the Cenvat Credit amounting to Rs.30,83,065/-(less Rs.2,00,000/- already paid) and 50% of the penalties of Rs.30,83,065/- and Rs.30,00,000/- - the petitioners could deposit only Rs.21,00,000/-towards Cenvat Credit liability and could not comply with the order with regard to the penalties. With the result, vide order dated 7th October, 2009, the order of stay came to be vacated and the appeals were dismissed for noncompliance of the order dated 19th June, 2009 Held that We are of the opinion that duty demand of the company cannot be recovered from the director in the absence of statutory provisions in the Central Excise Act, 1944 - So far as penalty is concerned, the same was not recoverable from the Company so long as the Company was under the umbrella of section 22 of the SICA. Consequently, the Tribunal was not justified in directing pre-deposit to the extent of 50% of the penalty in its impugned order dated 19th June, 2009. To that extent the impugned order is liable to be set aside being bad and illegal. attachment order quashed and set-aside

Summary

Issues:
Challenge against order directing pre-deposit of Cenvat Credit and penalties, Compliance with pre-deposit order, Legality of attachment of properties, Liability of Director for company's duty liability and penalty, Imposition of personal penalty on Director, Applicability of SICA provisions, Recovery of central excise duty, Validity of pre-deposit order, Legality of attachment order, Interpretation of rule 26 of Central Excise Rules.

Analysis:
1. The petition challenged an order directing pre-deposit of 50% of Cenvat Credit and penalties, following an order dated 19th June, 2009. The petitioners were required to deposit the specified amounts within a stipulated period, failing which consequences were to follow. The petitioners only deposited a portion of the required amount, leading to the vacation of the stay order and dismissal of appeals for noncompliance with the order.

2. The petitioner argued that as per the Sick Industrial Companies Act, the company was declared sick, and thus, the conditions of section 22 of the Act should have been considered. The petitioner contended that no order for pre-deposit could have been passed against them, especially considering the company's status under the SICA. The petitioner also challenged the attachment of the company's properties by the department, citing section 22(1) of the SICA as a bar against such actions.

3. The petitioner further argued that the duty liability of the company cannot be imposed on the director unless there is a specific statutory provision to that effect. Citing previous court judgments, the petitioner contended that the duty liability is not recoverable from the director in the absence of such provisions. Similarly, the imposition of a personal penalty on the director was challenged under rule 26 of the Central Excise Rules.

4. On the contrary, the Revenue contended that the central excise duty collected by the petitioners from customers was recoverable, justifying the pre-deposit order. The Revenue argued that the Tribunal's direction for pre-deposit was valid and that the dismissal of the appeal and attachment of properties were justified due to noncompliance. The Revenue relied on legal precedents to support their position.

5. The court, after considering the arguments, found that the duty liability was not recoverable from the director of the company and that the penalty imposed on the director was not justifiable under the Central Excise Rules. The court also noted that the company being under the SICA's protection, the attachment of its properties was not legal. Consequently, the impugned orders directing pre-deposit and the attachment of properties were quashed, and the appeal was restored to the Tribunal for further consideration.

6. In conclusion, the court ruled in favor of the petitioners, setting aside the impugned orders and directing a fresh hearing of the appeal on its merits. The rule was made absolute with no order as to costs, bringing an end to the legal proceedings in this matter.