2019 (4) TMI 325 - HC - Central Excise

Clandestine removal - chewing tobacco - Retraction of statements - penalty on firm as well as on employees - Held that - We have gone through the order passed by the first appellate authority wherein, statement of the family members of the employees and others have been recorded from which, we find that the particular trade in which, the assessee was engaged, viz., manufacture of chewing tobacco is a cottage industry in and around the said area. The statement of one of the employee's wife, viz., Mr.M.Chandramohan who appears to be a non literacy woman states that she did not know wherefrom her husband brings the tobacco and she only put them into the plastic pouches and seal them with a candle. Therefore, certain leverage can be granted to the assessee, considering the nature of trade and the trading practices which have been violated. Therefore, this Court is of the view that the penalty imposed on the firm has to be vacated in toto. The appeal filed by the assessee is partly allowed and the penalty imposed on the assessee-firm is deleted - the demand of duty stands confirmed.

Summary

Issues:
1. Validity of the extended period for demand of duty
2. Enforceability of the order under Section 11(2A)(a) of the Central Excise Act, 1944
3. Ignoring statements obtained during investigation

Validity of the extended period for demand of duty:
The appellant challenged the order of the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai, under Section 35G of the Central Excise Act, 1944. The substantial questions of law involved the validity of the extended period applied against the appellant Firm and the enforceability of the order under Section 11A(1) of the Act. The Tribunal confirmed the demand of duty based on allegations of clandestine removal of chewing tobacco. Statements obtained from employees and the Managing Partner formed the basis of the show cause notice. The Assessing Officer confirmed the proposal in the notice, levying penalties and interest. On appeal, the first appellate authority confirmed the duty demand but reduced the penalties based on judicial discretion. The Tribunal upheld the duty demand but restored the penalties imposed by the Assessing Officer. The appellant contended that the retraction of statements was not considered properly. The High Court, under Section 35G, declined to interfere with the Tribunal's findings on the duty demand.

Enforceability of the order under Section 11(2A)(a) of the Central Excise Act, 1944:
The Tribunal exceeded its jurisdiction by restoring the penalties imposed on the employees without any appeal from the Revenue against the first appellate authority's decision to reduce penalties. The appellant argued that the Tribunal lacked jurisdiction to reinstate the penalties. The High Court agreed that in an appeal filed by the assessee, challenging penalties without a Revenue appeal was not permissible. The Tribunal's decision to restore the penalties imposed by the Assessing Officer was deemed excessive. The appellant's financial difficulties and the nature of the cottage industry in which the business operated were considered. The penalties on the firm were vacated entirely, while the duty demand was upheld.

Ignoring statements obtained during investigation:
The appellant raised the issue of ignoring statements obtained during the investigation. The High Court noted that the first appellate authority's order was well-reasoned, considering statements, retractions, and registers. The Tribunal found the retractions to be attempts to evade earlier statements, indicating loyalty to superiors. The High Court observed that the Tribunal's restoration of penalties exceeded its jurisdiction. However, considering the nature of the trade and trading practices, the High Court vacated the penalties on the firm entirely. The duty demand was confirmed, and the appeal was partly allowed, deleting the penalties on the firm.

In conclusion, the High Court upheld the duty demand but vacated the penalties on the firm, citing financial challenges and the nature of the industry. The Tribunal's decision to reinstate penalties without a Revenue appeal was deemed beyond its jurisdiction, leading to the penalties being removed entirely.