2012 (6) TMI 583 - AT - Central Excise

Recovery of deemed Cenvat Credit availed through fraudulent bills - penalty under Rule 27 imposed - liability of bank - Held that - The act of discounting export bills or sending export bills for collection as part of normal banking operations by the appellant bank would not render the export goods liable to confiscation and the bank liable to penalty - a banking transaction would not normally violate the Central Excise law or the Rules, especially when the same is carried out as part of the normal banking operations - no penalty can be imposed on the banking company as the maximum penalty under the said Rule is only Rs.5,000 whereas Commissioner imposed a penalty of Rs.5 lakh u/r 27 which show clear non-application of mind and ignorance - in favour of assessee.

Summary

Issues:
- Imposition of penalty under Rule 27 of the Central Excise Act, 2002 on a bank for failure to surrender/credit sale proceeds of goods
- Whether discounting export bills or sending them for collection by the bank renders the goods liable to confiscation and the bank liable to penalty

Analysis:
- Issue 1: Imposition of Penalty under Rule 27
The case involved an appeal against an order imposing a penalty of Rs.5 lakh on a bank for failure to surrender/credit sale proceeds of goods. The Commissioner held the bank liable for penalty under Rule 27 of the Central Excise Act, 2002. The bank argued that they had not received the proceeds of certain bills sent for collection and, therefore, could not remit the sale proceeds to the department. The bank contended that their normal banking activities of purchasing/discounting bills or sending them for collection did not relate to the confiscability of goods under the Act. The bank also highlighted that the maximum penalty under Rule 27 is Rs.5,000, whereas a penalty of Rs.5 lakh was imposed, which was not provided for in the law. The Tribunal, after considering the submissions, found that the imposition of the penalty on the bank was unjustified. The Tribunal ruled that the bank's actions did not violate the Central Excise Act or Rules, especially when conducted as part of normal banking operations. Therefore, the penalty imposed under Rule 27 was deemed unlawful, and the appeal was allowed with consequential relief.

- Issue 2: Liability of Bank for Confiscation of Goods
The second issue revolved around whether the bank's act of discounting export bills or sending them for collection rendered the export goods liable to confiscation and the bank liable to penalty. The Tribunal referred to a previous judgment involving a similar situation where it was held that even if a bank acted imprudently or without proper diligence, it did not render the goods liable for confiscation under the Customs Act. Applying the same logic to the excise law, the Tribunal concluded that the bank's conduct in discounting or sending export bills for collection did not violate the Central Excise Act or Rules, making the goods confiscatable. Therefore, the Tribunal found that no penalty could be imposed on the bank for such actions. The Tribunal criticized the adjudicating authority for imposing a penalty of Rs.5 lakh under Rule 27, which exceeded the maximum limit prescribed by the law. The Tribunal deemed this penalty order as perverse and legally flawed, leading to the setting aside of the penalty imposed on the bank.

This comprehensive analysis of the judgment highlights the issues, arguments presented by the parties, relevant legal principles applied by the Tribunal, and the final decision rendered in favor of the appellant bank.