2024 (12) TMI 1191 - AT - Central Excise

Levy of penalties u/r 26 of Central Excise Rules, 2002 - non-payment of duty by the manufacturer of goods on job work basis by M/s Paras Trading Company - HELD THAT - As per the facts of the case, it is found that M/s Paras Trading Company was involved in direct sale on principal to principal basis as well as on job work on behalf of the Rcuhi Soya Industries as well as Cargill India Pvt Ltd. The appellant was under bona fide belief that the direct sale is covered under SSI exemption for the reason that as per their bonafide belief job work goods being not dutiable in their hands is not includible in the aggregate value of the overall clearances of the goods. For this reason M/s Paras Trading Company has not discharged the duty. It is also found that the issue of excise duty liability on the job work was under serious dispute as there were conflicting judgments and subsequently this CESTAT s Larger Bench in the case of THERMAX BABCOCK AND WILCOX LTD., THERMAX LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-I 2017 (12) TMI 266 - CESTAT MUMBAI settled the issue holding that job worker is liable to pay duty even the goods is manufactured on job work basis. The larger bench judgment was delivered subsequent to the passing of the impugned order in the present case. It is also observed that M/s Paras Trading Company has made legitimate transaction by issuing of invoices and all the transactions and payment particulars are recorded in their books of accounts. This is not case of clandestine removal such as removal of goods without issuing any documents. Therefore, there is no doubt that the appellant has rightly entertained the bona fide belief even though they were liable to pay the excise duty. When the goods were received by the principal manufacturers under proper documents, if any lapse on the part of the job workers the same cannot be attributed to the principal manufacturer or even to their employees. Therefore, irrespective of any offence whether or not committed by the M/s Paras Trading Company these two appellants cannot be penalized under Rule 26 - the appellants are not liable for penalty under Rule 26 of Central Excise Rules, 2002. The penalties on all the present appellants are set aside - Appeals are allowed.

Summary

Issues:
Penalties imposed under Rule 26 of Central Excise Rules, 2002 for aiding and abetting duty evasion by M/s Paras Trading Company.

Analysis:
The judgment dealt with appeals against penalties imposed under Rule 26 of Central Excise Rules, 2002. The penalties were imposed due to nonpayment of duty by M/s Paras Trading Company, a job worker for principal manufacturers. The appellants included individuals from the principal manufacturers and the job worker entity. The key argument presented was the lack of mala fide intention on the part of M/s Paras Trading Company, as they believed the duty was not applicable to them based on job work arrangements. The confusion regarding duty payment by job workers was highlighted, which was later clarified by a Larger Bench judgment in the case of Thermax Babcock & Wilcox Ltd. The judgment emphasized that the job worker is liable to pay duty even if goods are manufactured on a job work basis.

The judgment differentiated between the roles of the appellants. For the appellant associated with M/s Paras Trading Company, it was noted that there was no mala fide intention in non-payment of excise duty. Legitimate transactions were conducted, and no clandestine removal of goods occurred. The bona fide belief held by the appellants regarding duty liability was acknowledged, especially considering the conflicting judgments prior to the clarification by the Larger Bench.

Regarding the appellants who were employees of principal manufacturers, it was emphasized that they were not directly responsible for the duty liability of the job worker. Even if lapses occurred on the job worker's part, it could not be attributed to the principal manufacturers or their employees. The judgment concluded that these appellants could not be penalized under Rule 26, as they were not involved in the duty evasion committed by M/s Paras Trading Company. Ultimately, the penalties on all appellants were set aside, and the appeals were allowed with consequential relief.

In conclusion, the judgment provided a detailed analysis of the circumstances surrounding the penalties imposed under Rule 26 of the Central Excise Rules, 2002. It considered the roles and beliefs of the appellants, the clarification provided by the Larger Bench judgment, and the absence of mala fide intentions in the non-payment of excise duty. The decision highlighted the distinction between the job worker entity and the employees of principal manufacturers, ultimately leading to the setting aside of the penalties on all appellants.