2017 (5) TMI 871 - AT - Central Excise

Penalty u/r 26 of CER - alleged suppression of facts, clandestine removal and evasion of duty - Held that - As per the provisions of Rule 26 of Central Excuse Rules, 2002, element of personal knowledge or mens rea is an essential prerequisite for imposing the penalty thereunder - There are no specific documentary evidences or even the statements of these two Appellants indicating that they had a guilty mind, and they had personal knowledge and involvement in the evasion of duty/taxes - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Imposition of penalty under Rule 26 of Central Excise Rules, 2002 on the appellants for evasion of Cenvat duty.
- Lack of personal knowledge and involvement of the appellants in the evasion of duty.
- Interpretation of mens rea as an essential prerequisite for imposing penalties under Rule 26.

Analysis:
The judgment by the Appellate Tribunal CESTAT NEW DELHI involved two appeals filed against an Order in Original passed by the Commissioner, Central Excise, Indore, mainly concerning M/s Soni Spat Ltd. The Order imposed penalties on the appellants under Rule 26 of the Central Excise Rules and Rule 15 of the Cenvat Credit Rules, 2004. The appeals were filed by the appellants Shri Manohar Singh Rana and Shri Vijay Soni after the Tribunal dismissed the main appeal concerning M/s Soni Ispat Ltd. The brief facts revealed that the appellants were accused of evasion of Cenvat duty through under-valuation of goods, suppression of production, and illicit clearances without duty payment. Searches by DGCEI led to incriminating documents and the issuance of Show Cause Notices. The Order in Original imposed penalties of Rs. 5 lakhs each on the appellants, leading to their appeals before the Tribunal.

The appellants argued that they lacked knowledge and involvement in the deliberate non-payment of duty or dealing in contraband goods. They contended that as employees, they had no independent role and cited relevant case laws to support their defense. The Department, represented by the ld DR, reiterated the findings in the impugned order. The Tribunal analyzed the case, emphasizing the necessity of personal knowledge or mens rea for imposing penalties under Rule 26. It noted that the penalties were based solely on the statement of the CMD of the assessee company, without specific evidence linking the appellants to the evasion activities. Referring to precedents, the Tribunal concluded that the penalties were unsustainable in the absence of personal knowledge or guilty mind on the part of the appellants.

Ultimately, the Tribunal set aside the penalties imposed on the appellants under Rule 26 of the Central Excise Rules, following the principles established in previous cases. The judgment highlighted the importance of establishing mens rea before penalizing individuals under Rule 26. As a result, both appeals were allowed, and the penalties were dropped, emphasizing the need for concrete evidence linking the appellants to the alleged evasion activities to justify imposing penalties under the Central Excise Rules.