Offence and Penalties under Central Excise - Central Excise Practice Manual (OLD) - Central Excise

Chapter No. 41 OFFENCE AND PENALTIES UNDER CENTRAL EXCISE The General Clause Act, 1897 in 3(38) defines an offence to mean any act or omission made punishable by any law for the time being in force. The central excise law envisages following two types of punishments: - Punishment of imprisonment and fines for violation of excise law which is imposed by the court of law (or Magistrate). This is called criminal liability. Penalties and confiscation that can be imposed by excise authorities through adjudication. However, option to pay redemption fine (different from fine imposed by Magistrate) in lieu of confiscation of goods can be given in adjudication in order to take back the possession of the goods. This is called civil liability. It has been held that both of the above punishments can be imposed simultaneously. Imprisonment and fine for criminal offences [criminal liability] As per section 9 of CEA, the following types of acts will constitute an offence (or criminal offence): - 1. Contravening any of the provisions of section 8 of CEA , which relates to 'restriction on possession of certain goods in excess of prescribed quantity'. 2. Contravening any of the provisions of section 37(2) - Clause (iii) which relates to 'transit of excisable goods to any part of the country'. Clause (xxvii) which relates to 'registration of person/ unit'. 3. Contravening any provisions of central excise act/ rules in relation to Cenvat credit. 4. Removing or concerning himself in removing any excisable goods in contravention of CE act/ rules. 5. Acquiring possession of or otherwise dealing (includes possession, transporting, storing, keeping etc.) in goods which is liable to confiscation under CE act/ rules. 6. evading payment of duty payable under CEA 7. Failure to supply information which is required under the Act or supplying false information 8. Attempting to commit or abetting commission of an offence regarding evasion of duty or transit of goods or restriction on storage of goods or non-registration of a unit. For the above offences following punishments has been imposed: - Imprisonment upto 7 years and/ or fine, if, (a) duty leviable exceeds ₹ 50 lakhs or (b) a person already convicted for offence under CEA is convicted again. Imprisonment upto 3 years or fine, if, duty leviable is less than ₹ 50 lakh.The imprisonment should be minimum for 6 months unless there are special reasons for granting lesser punishment. According to section 9(3) , if accused is convicted first time or he is a secondary party or he is too young, will not be considered as special case. Points to be noted regarding criminal offences: - Presence of guilty mind is essential for imposing criminal offence. Such mental state shall be presumed by the court. Burden of proof of non-existence of guilty mind is on the accused. As per section 9AA of CEA , every person who is in-charge of or was responsible for affairs of the company is deemed to be guilty of the offence. Normally, Managing director in case of the company and partners (only working partners) in case of the partnership firm are deemed to be in-charge. However they can prove that offence was committed without their knowledge or they have exercised all due diligence to prevent such offence. Company means any body corporate and includes a firm or other association of individuals, and director in relation to firm means a partner of the firm. Prosecution should be launched only with prior approval of Chief Commissioner of central excise or in certain cases by director general of central excise Intelligence. Prosecution should not be launched in cases of technical defaults or where demand is solely based on difference of opinions about interpretation of Statue. Opportunity of personal hearing is not required to be given before grant of sanction of commissioner to file criminal prosecution. As per section 9A of CEA , offences under central excise are made non-cognizable except in case of, where duty liability is exceed ₹ 50 lacs and offence is related to evasion of duty or utilisation of credit. In these cases, offence shall be cognizable and non-bailable. -Compounding by the Chief Commissioner of Central Excise of such offences is allowed. Penalty and confiscation of goods for offences [civil liability] PENALTY I. Penalty under Rule 25 of Central Excise Rules, 2002 As per Rule 25 of Central Excise Rules, 2000, following are regarded as offences: - 1. Removal of excisable goods in contravention of any of the rules and notification issued , 2. Non-accountal of any excisable goods produced or manufactured or stored, 3. Engaging in manufacture, production or storage of excisable goods without applying for registration certificate under section 6 of CEA. 4. Contravention of any provisions of Central excise rules or notifications issued under these rules with intent to evade payment of duty. For the above offences following punishments has been imposed: - Confiscation of contravening goods. Penalty upto duty payable on such contravening goods or ₹ 5000 whichever is higher. Points to be noted with respect to Rule 25 - Rule 25 is applicable only to manufacturer, producer, registered person of a warehouse or registered dealer. Notice imposing penalty must indicate the clause under which duty is payable, otherwise penalty may not be sustainable. Non-accountal of goods will only be in respect of final goods manufactured and not of the raw material. Penalty under rule 25 cannot be imposed unless duty payable is quantified. - Principal of natural justice will be followed by the Central Excise Officer. II. Penalty under section 11AC of CEA In case of Fraud, wilful mis-statement or suppression of facts etc. Under this section a mandatory penalty equal to the duty not levied or short levied or short paid or not paid or erroneously refunded is payable if such non-payment is by reasons of fraud, willful misstatement, collusion, suppression etc. However, if the duty as determined under sub-section (10) of section 11A, interest and penalty are paid within 30 days from communication of order, mandatory penalty under section 11AC shall be reduced to 25%. Further, in case duty and interest payable under section 11AA is paid within in 30 days of communication of the show cause notice, penalty amount shall be restricted upto 15% of the duty demanded. To avail reduced penalty amount, penalty amount also required to be paid along with duty and interest. Other cases In other cases, if the duty has been determined under sub-section (10) of section 11A, penalty will be restricted up to 10% of the duty amount or ₹ 5,000 whichever is higher. However, if the duty as determined under sub-section (10) of section 11A, interest and penalty are paid within 30 days from communication of order, mandatory penalty under section 11AC shall be reduced to 25%. Further, in case duty and interest payable under section 11AA is paid before issuance of show cause notice or within in 30 days of communication of the show cause notice, no penalty shall be charged and all proceedings in respect of duty and interest shall be deemed to be concluded. Points to be noted with respect to section 11AC of CEA Penalty under section 11AC need not be equal to duty. It can be reduced - - If duty is paid before issue of show cause notice or - If duty is paid after show cause notice but before the passing of adjudication order even in cases of suppression. - Where assessee reverses the Cenvat credit immediately on detection by central excise officers. - If there is no mens rea i.e. if there is no guilty mind. But in case of clandestinely removal of goods penalty will be imposable whether duty is paid before or after issue of notice. [If duty is paid in first two cases voluntarily i.e. before detection by department no penalty might be imposable (Sri selvakumar v. CCE2005 (188) ELT 334). Similar view in case of interest.] Penalty under section 11AC cannot be imposed unless duty payable is quantified. Provisions of section 11AC override the provisions of rule 25. III. Penalty under rule 26 of CEA (also called personal penalty) As per Rule 26 of CEA, -any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or Rules, shall be liable to a penalty upto the duty payable on such goods or ₹ 5000, whichever is greater. -any person who issue or abate in making an excise duty invoice without delivery of the goods or in case on the basis of these invoices , person claim any duty benefits in the form of Cenvat credit or refund, shall be liable to a penalty upto the duty payable on such goods or ₹ 5000, whichever is greater. Points to be noted with respect to rule 26 As per this rule, a director or partner or an employee or transporter will be personally liable to penalty if he is individually involved in clandestine removal etc. Above mentioned persons can be held personally liable only if department shows as to how and to what extent a particular person is liable. Personal penalty on Managing Director can be imposed only if there is material on record to reflect upon his active involvement in the alleged offence. Personal liability of penalty cannot be imposed on Director when he was not looking after day to day affairs of the company. Personal liability of penalty cannot be imposed on the Secretary of the company as he is not supposed to look after the day to day affairs of the company. Personal liability of penalty cannot be imposed on the employee of the company as he works under instructions of employer and has no dealings with the contraband goods. However, if it is proved that the employee is personally involved in the offence, penalty can be imposed on him. In case of partnership firm, once penalty is imposed on the firm, penalty on partners cannot be imposed as imposing penalty on firm means imposing penalty on partners. Every partner is responsible for the acts of the firm. Hence if penalty cannot be recovered from the firm, it can be recovered from a partner. In case of deceased person, personal penalty cannot be imposed on the deceased or on his legal heirs, after death. In case of sole proprietorship also, penalty can be imposed either on the concern or on the proprietor. In case of transporter, penalty cannot be imposed on him for contraband goods, if the goods are received in normal course of his business for transport. However if he is knowingly involved in transportation of contraband goods, penalty is imposable. Registered owner of truck cannot be liable to penalty if there is no evidence that he had knowledge of contraband goods being transported through his truck. IV. Penalty under Rule 27 of CEA (residual penalty) Rule 27 provides for imposition of a general penalty upto ₹ 5000 plus confiscation of goods in respect of which the offence is committed. This is attracted when no other specific penalty is provided for. CONFISCATION OF GOODS AND FINE IN LIEU OF CONFISCATION As discussed above, rule 25 of CEA provides for confiscation of goods if any of the four offences mentioned under rule 25 above are committed. As per section 12 of CEA , some of the sections of the customs act are made applicable to central excise act. In addition to the goods, following conveyances are also liable to confiscation under section 115(1) of customs Act: - Any conveyance from which goods are thrown over board or destroyed to prevent seizure by officer of customs. Conveyance which is required by customs officers to land or stop for inspection but fails to do so. Conveyance by which warehoused goods are cleared for export, but goods are unloaded without permission. Conveyance carrying imported goods which has entered India and is afterwards found missing either in part or in full, unless the master of the vessel is able to account for the loss of or deficiency in goods. Points to be noted regarding confiscation of conveyance or goods Conveyance used for transporting of contravening goods will not be liable to confiscation, if the owner of conveyance proves that the conveyance was used without the knowledge or connivance of the owner, his agent or person in charge of the conveyance. If the owner of vehicle is not connected directly with smuggling, absolute confiscation is not justified and option to pay redemption fine not exceeding market price of the goods at the date on goods are seized should be given for e.g. in case owner had no knowledge of the contraband goods, though had such knowledge. Further provided that option to redeem can be given only to owner and not to financial institution to which truck is hypothecated. Burden of proof about that owner of vehicle had the knowledge of contravening goods is on the Department. If goods are provisionally released under bond, they can be confiscated again and redemption fine can be imposed on them. Goods disposed of in contravention of provisions can be confiscated from innocent purchaser. In this case redemption fine can be reduced. As per section 118 of customs act, the packages in which contravening goods are packed are also liable for confiscation. However, if such containers in which goods are packed are obtained on hire than such container will not be liable to confiscation, goods should be destuffed from the container and the container should be released. As per section 119 of customs act, goods used for concealing contravening goods are liable for confiscation. This section will not apply if goods are used only to cover the contraband goods. Conceal implies deliberate and intentional attempt while cover means the owner of such goods are unaware that his goods are being used to cover the smuggled goods. As per section 120 of customs act, if the contravening goods are mixed with other goods and if they cannot be separated, whole of such goods are liable to confiscation. Further if the owner proves that he had no knowledge that the goods included contravening goods, than in such a case only contravening goods will be liable to confiscation. As per section 121 of customs act, if the contravening goods are found to have been sold, sale proceeds of such sale are liable to confiscation. The same goods cannot be confiscated more than once under different provisions of the same act. If confiscated goods are not redeemed, no duty liability is payable. Procedure under confiscation As per section 124 of customs act, before confiscating the goods, show cause notice must be issued to the owner of the goods giving reasons and grounds for such confiscation. If notice is not issued confiscation is not sustainable. It is not necessary that notice must be served to the owner of the goods only, it can issued to any person responsible for alleged contravention. The owner of the goods shall be given an opportunity of being heard by making representation. As per rule 28 of CEA, on confiscation goods becomes property of central Government. As per rule 29 of CEA, if assessee opts not to pay fine in lieu of confiscation, the goods will be sold or destroyed or disposed off in such a manner as the commissioner may direct. As per rule 30 of CEA, if assessee opts to pay fine in lieu of confiscation, he may be asked to pay storage charges for storing such goods by the excise officer. Redemption fine in lieu of confiscation Section 125 of customs act provides that whenever goods are confiscated, the adjudicating officer may give option to owner of goods to pay fine in lieu of confiscation. This is called redemption fine. Wrong confiscation of goods If goods which are confiscated are set aside by tribunal, the person is eligible to get back the goods. If however such goods are sold by the authorities, market value of such goods as on date of setting aside of the order of confiscation is payable to the owner of the goods (and not just sale proceeds). Principles in imposition of penalty A penalty will ordinarily be imposed in cases where the party acts deliberately in defiance of law, but not in cases where there is a technical or venial breach of the provisions of the act or where the breach flows from bona-fide belief that the offender is not liable under the act. Thus provision should be invoked only in case of habitual offenders. Imposition of penalty is illogical when appellant had nothing to gain by evading payment of duty [P B Pharmaceuticals v. CCE 2003(153) ELT 14(SC)]. For e.g. no penalty if assessee was not aware of withdrawal of exemption as there is no intention to evade duty. If issue is relating to interpretation of a provision, penalty u/s 11AC is not imposable. For e.g. difference in opinion about classification of product, if conflicting decisions were expressed by two benches of tribunal etc. If the assessee finds the mistake and corrects himself, it is a mitigating factor and lenient view should be taken in imposing penalty, Penalty cannot be imposed on a bona-fide purchaser of goods, if there is no evidence against him. Compounding of offences Compounding means that the accused and the complainant have come to the terms and dispute between parties has been settled and the complainant agrees not to prosecute the accused. Section 9A(2) of CEA, provides that an offence can be compounded by Chief Commissioner of central excise. If offence is committed at more than one places, chief commissioner having jurisdiction over such place where value of goods seized or duty evaded is more than others will be the compounding authourity On compounding person gets an immunity from the prosecution and penalty proceedings but he would have to pay duty, interest and compounding fee. Once the matter is compounded, neither department nor assessee can challenge the compounding order by filing appeal. Procedure for compounding of offence Application for compounding can be made either before or after the institution of prosecution by the assessee. Officers of excise and customs cannot apply for compounding. On receipt of application, the compounding authority will call for report from jurisdictional commissioner. Such report shall be sent within one month. After receipt of report, the compounding authority will either grant immunity from prosecution or reject the application. If prosecution is already pending, immunity granted is subject to acceptance by the court. If court rejects the order of compounding, prosecution will continue. On receipt of order, the applicant shall pay the compounding amount within 30 days and submit the proof of payment. It is not refundable except when the court rejects the grant of immunity. Points to be noted in respect of compounding Immunity will be withdrawn if compounding amount is not paid or if it is found that applicant had had concealed particulars. Technical offences can be compounded more than once but substantive offences can be compounded only once. There is life time ceiling of Rs. one crore of value of goods on compounding.