2015 (10) TMI 2350 - AT - Central Excise

Imposition of penalty - Penalty on co-noticees - if the main noticee discharges the duty liability alongwith interest and 25% penalty, whether the proceedings would come to an end in regard to other co-notices also - Held that - in Abir Steel Rolling Mills case 2013 (7) TMI 405 - CESTAT NEW DELHI , the Tribunal has taken the view that if the proceedings have been concluded against the main notice, as provided in these provisions then no further proceedings can be continued against co-noticees. - The interpretation by the Tribunal of the words such person and other persons made in Abir Steel Rolling Mills case is more agreeable to me. The Tribunal in that case, has not only considered that when the proceedings against the manufacturer/assessee stand concluded on payment of disputed amount of duty plus interest and 25% of the duty as penalty, there would be no sense in continuing the proceedings for imposition of penalty under Rule 26 against other persons like traders who had purchased the goods, transporters who had transported the goods cleared by manufacturer/assessee, the directors/employees of the manufacturer/assessee company. The Tribunal has discussed the category of persons that would fall into the group other persons . Further the Board s Circular No. 831/08/06-EX dated 26.7.2006 has also been considered. I concur with the ratio laid in Abir Steel Rolling Mills case, which is squarely applicable to the instant case, the facts in issue being similar. - penalty imposed on the appellants is unsustainable. The same is set aside - Decided in favour of assessee.

Summary

Issues:
Imposition of penalty under Rule 26 of Central Excise Rules, 2002 on co-noticees when the main noticee has paid duty demand along with interest and penalty.

Analysis:
The judgment by the Appellate Tribunal CESTAT New Delhi involved multiple appeals arising from the same impugned order, heard together and disposed of in a common order. The primary issue revolved around the imposition of penalties under Rule 26 of the Central Excise Rules, 2002 on co-noticees when the main noticee had already paid the duty demand along with interest and penalty. The appellants, engaged in manufacturing and packing of edible oils, had purchased goods from another entity in a manner that raised concerns of duty evasion. The main contention was whether the proceedings against co-noticees should conclude once the main noticee settles the duty liability.

The appellants argued that since the main noticee had already paid the duty demand and penalty, the proceedings against co-noticees should also be deemed concluded. They relied on the proviso to sub-section (2) of Section 11A of the Central Excise Act, 1944, which suggests that proceedings against co-noticees should end if the main noticee fulfills the duty liability. On the other hand, the Revenue contended that penalties under Rule 26 were independent proceedings and should not automatically conclude for co-noticees even if the main noticee had paid the dues.

The Tribunal analyzed the provisions of Section 11A and the relevant case laws to interpret the legislative intent behind the proviso. Referring to previous judgments, the Tribunal distinguished between the obligations of the main noticee and co-noticees, emphasizing that penalties under Rule 26 were distinct from duty liabilities under Section 11A. The Tribunal considered the language used in the proviso and concluded that it only applied to those against whom notices were issued under Section 11A and who had paid the duty as per the provisions. Therefore, the Tribunal agreed with the Revenue that payment by the main manufacturer did not automatically absolve co-noticees of penalties under Rule 26.

However, the Tribunal also referenced a different judgment where it was held that the words "other persons" in the proviso should cover co-noticees facing allegations connected to the duty demand against the main noticee. This interpretation aimed to prevent redundant proceedings against individuals linked to the main manufacturer once the duty liability was settled. The Tribunal highlighted the legislative intent to resolve tax disputes promptly and avoid prolonged litigation.

Ultimately, the Tribunal sided with the interpretation that once the proceedings against the main noticee were concluded by payment of duty, interest, and penalty, further penalties under Rule 26 against co-noticees were unwarranted. Citing the precedent set in a similar case, the Tribunal set aside the penalties imposed on the appellants, deeming them unsustainable and allowed the appeals.

In conclusion, the judgment clarified the interplay between duty liabilities under Section 11A and penalties under Rule 26, emphasizing the need to balance the resolution of tax disputes with procedural fairness towards co-noticees in cases of duty evasion.