Custom, Excise & Service Tax Tribunal
M/S. Sujana Steels Ltd vs Commissioner Of Central Excise, ... on 4 April, 2014
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
E/MISC/00132/2011 and E/00165/2003
[Arising out of Order-in-Appeal No.195/2002 (M-II), dated 26.12.2002 passed by the Commissioner of Central Excise (Appeals), Chennai]
1. Whether Press Reporters may be allowed to see the Order
for publication as per Rule 27 of the CESTAT
(Procedure) Rules, 1982? :
2. Whether it should be released under Rule 27 of the
CESTAT (Procedure) Rules, 1982 for publication in
any authoritative report or not? :
3. Whether the Member wishes to see the fair copy of
the Order? :
4. Whether Order is to be circulated to the Departmental
Authorities? :
M/s. Sujana Steels Ltd.
Appellant
Versus
Commissioner of Central Excise, Chennai-I
Respondent
Appearance:
Shri B. Venugopal, Adv.
Shri P. Arul, Supdt.-AR For the Appellant For the Respondent CORAM:
Honble Shri P.K. Das, Judicial Member Date of hearing : 04.04.2014 Date of pronouncement 04.07.2014 Final Order No. 40367 / 2014 The appellant filed Miscellaneous Application for additional Grounds of Appeal, which would be taken into consideration at the time of appeal hearing, if necessary.
2. The appellant filed this appeal against the imposition of penalty of Rs.10 lakhs under Rule 209A of the erstwhile Central Excise Rules, 1944.
3. The relevant facts of the case, in brief, are that the appellants were engaged in the manufacture of Iron and Steel products. They were importing Re-rolled Scraps for use in the manufacture of their final products and also undertaking trading business. On 07.08.1996, the Officer of the Directorate-General of Anti-Evasion conducted search in the office and business premises of one M/s. Chamak Holding Ltd. (in short M/s. Chamak), a manufacturer of Re-rolled products of steel and seized several records, also recorded statements. It was found that the said M/s. Chamakwas removing Re-rolled products clandestinely without payment of central excise duty.
3.1 On the basis of information, on 31.10.1996, a search was conducted at the appellants premises and records were seized, statements recorded. A Show Cause Notice dated 20.03.1998 was issued proposing demand of duty of Rs.12,30,308/- along with interest and penalty on M/s. Chamak and its Managing Director. It has also proposed a penalty on the appellant under Rule 209A of the erstwhile Central Excise Rules, 1944 for their involvement in the evasion of the duty by M/s. Chamak. Adjudicating authority confirmed the demand of duty Rs.12,30,308/- and imposed penalty of equal amount under Rule 173Q of the said Rules on M/s. Chamak and also imposed penalty of Rs.1,25,000/- on Shri R.K. Sonthalia, Managing Director of M/s. Chamak. There is a penalty of Rs.10 lakhs on the appellant under Rule 209A of the said Rules. The adjudicating authority observed that the appellant diverted huge quantities of shredded scrap without any bills and documents to M/s.Chamak Holding Ltd., and facilitated to manufacture and clearance of Re-rolled products clandestinely.
3.2 M/s. Chamak and its Managing Director filed application before the learned Settlement Commission and settled the case by Final Order No.17/2007-Cx., dated 23.04.2007. The learned Settlement Commission finally settled the case total duty liability of Rs.10,69,833/-, which was paid by M/s. Chamak. It has also granted immunity from confiscation, penalty and prosecution to M/s. Chamak.
3.3 But, the appellant, filed appeal before Commissioner (Appeals). By the impugned order, the Commissioner (Appeals) upheld the adjudication order and rejected the appeal filed by the appellant.
4. The learned Counsel on behalf of the appellant submits that the adjudicating authority had not given proper opportunity of hearing, as well as, relied upon documents were not supplied.. He submits that these issues were raised before the Commissioner (Appeals), who has not considered. He submits that both the orders were passed in gross violation of the principles of natural justice.
4.1 It has been alleged in the Show Cause Notice that the appellant had supplied the goods to M/s. Chamak, who manufactured the goods and cleared clandestinely without payment of duty. It is submitted that they have not dealt with the goods, in any manner, which were manufactured and clandestinely removed by M/s. Chamak, as alleged. Rule 209A of the erstwhile Rules, would apply in the case, where any person deals with any excisable goods, liable to confiscation. In the present case, the appellants had no connection with the goods manufactured by M/s. Chamak and penalty under Rule 209A of the erstwhile Rules against the appellant, cannot be invoked.
4.2 He further submits that the Larger Bench of the Tribunal in the case of Steel Tubes of India Ltd. Vs Commissioner of Central Excise, Indore reported in 2007 (217) E.L.T.506 (Tri.-LB) held that penalty under Rule 209A of the erstwhile Rules would not apply against the company and the penalty on the appellant, being a Public Limited Company is liable to be set aside on this ground also.
5. On the other hand, the learned Authorised Representative on behalf of the Revenue reiterates the findings of the Commissioner (Appeals). He submits that sufficient opportunities were given to the appellant for attending hearing by the adjudicating authority, which was duly recorded in the impugned order. He submits that the adjudicating authority had sent various letters to collect the documents, which were refused by them and, therefore, there is no violation of principles of natural justice.
5.1 He submits that Rule 209A of the erstwhile Rules is pari materia to Rule 26 of the Central Excise Rules, 2002. He relied upon the decision of the Honble Punjab and Haryana High Court judgment in the case of Vee Kay Enterprises Vs Commissioner of Central Excise reported in 2011 (266) E.L.T.436 (P&H). He also relied upon the decision of the Tribunal in the case of Commissioner of Central Excise, Ahmedabad Vs Navneet Agarwal reported in 2012 (276) E.L.T.515 (Tri.-Ahmd.) and Amex Alloys Pvt. Ltd. Vs Commissioner of Central Excise & Service Tax, Coimbatore reported in 2013 (296) E.L.T. 229 (Tri.-Chennai).
6. After hearing both sides and on perusal of the records, I find that the submissions of the learned Counsel of the appellant are mainly on two counts. Firstly, penalty under Rule 209A cannot be invoked to the Company. Secondly, penalty under Rule 209A cannot be imposed on a person, who has not dealt with goods, liable for confiscation. For the purpose of proper appreciation of the case, Rule 209A is reproduced below:-
209A. Penalty for certain offences 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 these Rules, shall be liable to a penalty not exceeding the duty on such goods or ten thousand rupees, whichever is greater. 6.1 It is contended by the learned Counsel that the word person as mentioned in Rule 209A of the erstwhile Rules would not cover a Public Limited Company, the appellant herein, as held by the Larger Bench of the Tribunal in the case of Steel Tubes of India Ltd. Vs Commissioner of Central Excise, Indore reported in 2007 (217) E.L.T.506 (Tri.-LB). It has been held that Rule 209A is providing penalty to a person to be held responsible for act , or natural person, by lifting such corporate veil acting beyond the offence, such as, the Manager is liable to penalty and not the Corporation, who has no mind of its own and cannot knowingly deal with confiscation of the goods. The relevant portion of the said decision is reproduced below:-
9.? As regards the second issue in reference it can be noticed that the Rule 209A pre-supposes a knowledge as to the liability of the confiscation of the goods which being transported etc. It was argued extensively by the authorized representative for the department that the expression Any person would include any company or association or body of individual, whether incorporated or not. Reliance was also placed on the definition of the word person in Section 3(42) of The General Clauses Act, 1897, for this proposition. Undoubtedly the expression Any person would include a natural and unnatural person i.e. it would include in its ambit any company or corporation or body of individual/s. The moot question is that whether such unnatural body corporate has its own mind, to have knowledge that the goods are liable for confiscation. It is common knowledge that a corporation/company is run by a Board of Directors, who are individuals. They are the trustees of the shareholders of the corporation/company. The decisions taken by the Board of Directors would be for the company but it will not be a decision of the corporation/company. In a given situation, if the Board of Directors decide between themselves, and pass a resolution to engage in the act of evasion of the duty on excisable goods it would be an act of individuals who did so for their personal gain. The corporation/company, stands to no gain out of misdemeanors of the individuals i.e. Board of Directors. In the eyes of law, the corporate entity being a person would be held responsible for the act of the natural persons. But in order to punish the guilty individuals, the veil of corporate entity had to be lifted to understand the correct picture. Precisely for these reasons only the provisions of Rule 209A came in to statute, in order to punish the guilty acting behind the veil of corporation/company. If in a given situation a parcel booking clerk of the Indian Railways, in order to have some personal gain, colludes with others to book the goods without any duty paying documents (though he has knowledge that the goods have to be booked on the basis of duty paying documents) and the goods are seized by the authorities at the destination point, can the Indian Railways be penalized under the provisions of Rule 209A of the Central Excise Rules, 1944? The resounding answer would be NO as Indian Railways is not having any knowledge that the goods so booked are liable for confiscation. The booking clerk is in knowledge and hence he is liable to be penalized under the said Rule 209A. Accordingly, we find that the conclusion reached by the Tribunal in the case of Indian Roadways Corporation Ltd. (supra) is also correct and does not require any reconsideration. 6.2 The Honble Supreme Court in the case of Madhumilan Syntex Ltd. Vs Union of India reported in 2007 (210) E.L.T.484 (S.C.) held that the company is not a natural person but legal or juristic person, cannot be ordered to suffer imprisonment, other consequences but would ensue e.g., payment of fine etc. The relevant portion of the said decision is reproduced below:-
23.? It is no doubt true that company is not a natural person but legal or juristic person. That, however, does not mean that company is not liable to prosecution under the Act. Corporate criminal liability is not unknown to law. The law is well settled on the point and it is not necessary to discuss it in detail. We may only refer to a recent decision of the Constitution Bench of this Court in Standard Chartered Bank & Ors. v. Directorate of Enforcement & Ors., (2005) 4 SCC 530 : JT (2005) 5 SC 267. In Standard Chartered Bank, it was contended on behalf of the company that when a statute fixes criminal liability on corporate bodies and also provides for imposition of substantive sentence, it could not apply to persons other than natural persons and Companies and Corporations cannot be covered by the Act. The majority, however, repelled the contention holding that juristic person is also subject to criminal liability under the relevant law. Only thing is that in case of substantive sentence, the order is not enforceable and juristic person cannot be ordered to suffer imprisonment. Other consequences, however, would ensue, e.g. payment of fine etc. In view of the above decision of the Honble Supreme Court in the case of Madhumila Syntex (Supra), in my considered view the person as mentioned in Rule 209A would cover the company for the purpose of imposition of penalty. Hence, the submission of the learned Counsel on this issue cannot be accepted.
7. The other contention of the learned Counsel is that the appellant did not acquire possession of the goods in any manner as mentioned in Rule 209A and, therefore, penalty cannot be imposed. The allegation is that the goods were sold by the appellant to M/s. Chamak without any documents to manufacture final products and to remove clandestinely. The contention of the learned Counsel is that the appellant-Company was not involved in any manner for manufacturing and clandestine removal of the goods and imposition of penalty under Rule 209A is not warranted.
7.1 The expressions in any other manner deals with, any excisable goods, which he knows or has reason to believe are liable to confiscation in Rule 209A, have wide amplitude. The words in any other manner particularly indicate that there is no requirement of dealing of the goods directly, otherwise, Rule 209A would become meaningless. In the present case, the appellant-Company diverted huge quantities of shredded scrap without any document to M/s. Chamak for the purpose of manufacturing and clearance of Re-rolled products clandestinely.
7.2 In the case of Vee Kay Enterprises (supra), the Honble Punjab and Haryna High Court, while dealing with Rule 26(1) of the Central Excise Rules, pari material to Rule 209A of the erstwhile Rules, observed as under:
6. Alternatively,? it was submitted even if the appellant was liable to pay duty it did not stand on the same footing as person who wrongly availed of the credit and doctrine of proportionality was required to be applied by taking into account the extent of culpability. In this regard reliance has been placed on order of this Court dated 5-7-2010 in CEA No. 125 of 2010, Commissioner of Central Excise, Chandigarh-I v. M/s. Lalit Steel and Agro Industries making distinction in the matter of quantum of penalty between person who wrongly availed of the cenvat credit and the person who merely issued invoice on the basis of which cenvat credit was wrongly availed. To consider the rival submissions, we may refer to the relevant rules which are as under :-
Rule 25-Confiscation and Penalty (1) Subject to the provisions of Section 11AC of the Act, if any producer, manufacturer, registered person or a warehouse or a registered dealer;-
(a) remove any exciseable goods in contravention of any of the provisions of these rules or the notifications issued under these rules; or
(b) does not account for any exciseable goods produced or manufactured or stored by him; or
(c) engages in the manufacture, production or storage or any exciseable goods without having applied for the registration certificate required under section 6 of the Act; or
(d) contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty, then, all such goods shall be liable to confiscation and the producer or manufacturer or registered person of the warehouse or a registered dealer, as the case may be, shall be liable to a penalty not exceeding the duty on the exciseable goods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or clause (c) or clause (d) has been committed, or [rupees two thousand] whichever is greater.
(2) An order under sub-rule (1) shall be issued by the Central Excise Officer, following the principles of natural justice. Rule 26 :- Penalty for certain offences :
(1) 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 these rules, shall be liable to a penalty not exceeding the duty on such goods or [two thousand rupees], whichever is greater.
(2) Any person, who issues-
(i) an excise duty invoice without delivery of the goods specified therein or abets in making such invoice; or
(ii) any other document or abets in making such document, on the basis of which the user of said invoice or document is likely to take or has taken any ineligible benefit under the Act or the rules made thereunder like claiming of CENVAT Credit under the CENVAT Credit Rules, 2004 or refund, shall be liable to a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater.
7. Learned counsel? for the revenue supported the impugned order.
8. Question for? consideration is whether penalty could be levied on the person who did not actually deliver the goods and merely issued a fake invoice which enabled wrong availing of cenvat credit and the extent of penalty which could be levied.
9. As regards? applicability of provisions introduced on 1-3-2007 to alleged acts committed prior to the said date, the matter is covered by orders of this Court referred to above which are not shown to be distinguishable. Accordingly, we hold that the amended provisions will not apply to the acts committed prior thereto.
10. Inspite of? non-applicability of Rule 26(2), penalty could be levied as the appellant was concerned in selling or dealing with the goods which were liable to confiscation inasmuch as the appellant claimed to have sold the goods in respect of which the cenvat credit was taken. In such a case, Rule 25(1)(d) and 26(1) are also applicable. The person who purports to sell goods cannot say that he was not a person concerned with the selling of goods and merely issued invoice or that he did not contravene a provision relating to evasion of duty. The appellant issued invoices without delivery of goods with intent to enable evasion of duty to which effect a finding has been recorded and which finding has not been challenged. We are, thus, unable to hold that appellant was not liable to pay any penalty. 7.3. In the present case, the appellant diverted the imported scrap without any documents for manufacturing of excisable goods by M/s. Chamak, who clandestinely removed without payment of duty. So, the appellant company by supplying the goods without documents made easier to M/s. Chamak in manufacturing and clearing the goods clandestinely which are liable to confiscation under the Act or Rules. Hence, imposition of penalty under Rule 209A is warranted. Thus, both the issues raised by the learned Counsel are not sustainable. The learned Counsel had not contested the imposition of penalty on merit.
8. In view of the above discussions, I do not find any substance in the submission of the learned Counsel. Accordingly, the impugned order passed by the Commissioner (Appeals) is upheld. The appeal filed by the appellant is rejected. The Miscellaneous Application for additional grounds is disposed of.
(To be pronounced in Open Court on )
(P.K. DAS)
JUDICIAL MEMBER
ksr
DRAFT
Remarks
I
II
III
Date of dictation
04.04.2014
Draft Order - Date of typing
07-05-2014
02-06-2014
06.06.2014
DFA-4 -10.06.2014
DFA-5
11.06.2014
DFA-6
02.07.2014
Fair Order Typing
04.07.2014
File received for correction
Date of numbering and date of dispatch
04/07/2014
File received for correction (2)
E/MISC/00132/2011 and E/00165/2003
2