2015 (12) TMI 592 - HC - Central Excise

Imposition of personal penalty on 3 persons for duty evasion by the manufacturer - Whether the Tribunal is right in imposing penalty of ₹ 5 crores on the Appellant under Rule 26 of the Central Excise Rules, 2002 and Rule 209A of the Central Excise Rules, 1944 - Held that - Rule 209A of the CE Rules 1944 was more or less similarly worded. These are penal provisions that call for a strict interpretation. Therefore, in order that penalty may be levied, it will have to be satisfactorily proved that the ingredients of Rule 26 of the CE Rules 2002 are existent qua the person proposed to be subject to the penalty. In other words, for the purposes of levy of penalty the Department would have to show the actual involvement of the person sought to be penalised in the actions of possessing, transporting, removing, keeping, concealing, selling or purchasing, etc. of the excisable goods, which he knows or has reason to believe are liable to confiscation. - Considering that Mr. Gautam s statements implicating the Appellants were retracted, the CCE and the CESTAT should have produced other independent corroborative evidence. That clearly was not available in the present case. It is the statement of Mr. Gautam that has been relied upon to hold that there was maximum involvement of Mr. Rakesh Kumar Garg in the clandestine activity although as already noticed hereinbefore the statement of Mr. Gautam was a weak evidence. Even in the statement of Mr. Santosh Garg, there was no admission about his being involved in the management or control of AJP. No cross-examination was offered of any of the witnesses whose statements were relied upon in the order of the CCE. There is no question of application of Rule 25 since that applies only to the actual manufacturer of the excisable commodity whereas that is not even the case of the Department vis-a-vis the three Appellants. - entire duty was raised on the basis of the capacity of the packing machines for the period 1st April, 2000 to 31st August, 2002, whereas the Department after having conducted the search on 20th October, 2000 did not, in fact, apprehend a single consignment clandestinely removed after 20th October, 2000 up to 31st August, 2002. - prior to the amendment introducing Section 3A under the Finance Act 2008, empowering the Central Government to charge excise duty on the basis of capacity of production in respect of notified goods (the provision was made effective from 10th May, 2008), there was no provision to levy duty on pan masala or gutka on the basis of the pouch packing machine(s). Considering that the demand was being raised for the past period 1st April, 2000 to 31st August, 2002, the Department had to demonstrate the legal basis for demanding the duty on the basis of the capacity of the pouch packing machines - neither the SCN notice nor the order in original or the impugned order of the CESTAT discussed any evidence regarding purchase and storing and transporting of the huge quantity of raw material of 6,200 MT, which would be required to manufacture the quantity stated to have been produced in excess by AJP. There appears to have been no investigation conducted on this aspect of the matter. Court holds that the requisite evidence necessary for levy of penalty on each of the Appellants under Rule 26 of the CE Rules 2002 was not brought on record by the Department and, therefore, the levy of penalty was in the first place is unsustainable. - amounts deposited by the Appellants during the pendency of these appeals will be returned to them together with any interest accrued thereon. The guarantees furnished by the Appellants shall stand discharged. - Decided in favour of assessee.

Issues Involved:
1. Legality of the penalty imposed under Rule 26 of the Central Excise Rules, 2002 and Rule 209A of the Central Excise Rules, 1944.
2. Reliability and voluntariness of the statements made by Mr. Mahesh Kumar Gautam.
3. Evidence supporting the involvement of the appellants in the alleged clandestine activities of AJP.
4. Justification of the penalty imposed on the appellants by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT).

Detailed Analysis:

1. Legality of the Penalty Imposed under Rule 26 of the CE Rules 2002 and Rule 209A of the CE Rules 1944:
The judgment begins by framing the primary legal question: "Whether the Tribunal is right in imposing penalty of Rs. 5 crores on the Appellant under Rule 26 of the Central Excise Rules, 2002 and Rule 209A of the Central Excise Rules, 1944." Rule 26 stipulates that any person involved in dealing with excisable goods liable to confiscation shall be liable to a penalty. The court emphasized that these are penal provisions requiring strict interpretation. The Department must prove the actual involvement of the person in actions such as possessing, transporting, or removing excisable goods liable to confiscation. The court found that the show cause notice (SCN) merely stated that the appellants were in control of AJP without detailing their involvement in the clandestine activities.

2. Reliability and Voluntariness of the Statements Made by Mr. Mahesh Kumar Gautam:
The court scrutinized the statements made by Mr. Mahesh Kumar Gautam, noting that he retracted his initial statement alleging the involvement of the appellants. He lodged an FIR and produced a medical certificate indicating duress and coercion. The court highlighted that the CCE and CESTAT should have sought independent corroboration of Mr. Gautam's statement, as required by precedents such as K.I. Pavunny v. Assistant Collector of Central Excise. The court found the proximity of the FIR and medical certificate to the statement's recording as a strong indication of its involuntariness.

3. Evidence Supporting the Involvement of the Appellants in the Alleged Clandestine Activities of AJP:
The court examined the evidence against the appellants, noting that Mr. Gautam's subsequent statements did not contain incriminating details against the appellants. The court also considered the lack of cross-examination of witnesses whose statements were relied upon by the Department. The court found that the evidence was insufficient to establish the appellants' involvement in the clandestine activities of AJP. It noted that the Department did not apprehend any clandestine removal of goods post the raid on 20th October 2000, up to 31st August 2002.

4. Justification of the Penalty Imposed on the Appellants by CESTAT:
The court found that the CESTAT's reliance on Mr. Gautam's statement was erroneous and that the requisite evidence for imposing penalties under Rule 26 was not brought on record. The court noted that the entire duty demand was based on the capacity of the pouch packing machines without legal basis for the period in question. The court highlighted the absence of investigation into the purchase, storing, and transporting of the raw materials required for the alleged excess production.

Conclusion:
The court set aside the CESTAT's order imposing penalties of Rs. 5 crores on each appellant, stating that the requisite evidence necessary for such penalties was not established. The amounts deposited by the appellants during the appeals were ordered to be returned with interest, and the guarantees furnished were discharged. The appeals were allowed with no orders as to costs.

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