Customs, Excise and Gold Tribunal - Delhi
Garware Synthetics vs Commissioner Of Central Excise on 13 July, 1999
Equivalent citations: 2000ECR348(TRI.-DELHI), 2000(116)ELT608(TRI-DEL)
ORDER V.K. Agrawal, Member (T)
1. These are seven appeals filed by M/s. Garware Synthetics Pvt. Ltd. and six others against a common impugned adjudication order dated 31-7-1991 passed by the Collector, Central Excise, Pune.
2. Briefly stated the facts are that during the course of conducting the transit checks in MIDC, Satara on 3-2-1988 the Central Excise Officers of Satara intercepted one Rickshaw trailer loaded with 8 packages of Cast Nylon products manufactured by M/s. Nihal Cast Nylon Pvt. Ltd. (hereinafter referred to as NCNPL). However, the driver produced three delivery challans of M/s. Garware Synthetics Pvt. Ltd. (hereinafter referred to as GSPL). The goods were not accompanied with any Central Excise gate pass. This led to search of the factory and office premises of NCNPL, some fully manufactured and allegedly unaccounted goods and documents were seized and statements of Various persons were recorded under Section 14 of the Central Excise Act. After issuing show cause notice dated 14-12-1988 to 16 parties and affording personal hearing, the Collector passed the following order in the impugned adjudicating order:
(i) Confirmed demand for duty amounting to Rs. 21,42,839-47 p. under Section 11A(1) of the Central Excise Act.
(ii) Confiscated land, building, plant and machinery, etc., belonging to M/s. NCNPL with an option to redeem the same on payment of fine of Rs. 2.5 lakhs.
(iii) Imposed penalties under Rule 173Q of the Central Excise Rules as under :
(a) M/s.NCNPL.....................Rs. 5 lakhs
(b) M/s.GSPL Rs. 5 lakhs
(c) Sh. C.B. Garware, Chairman of NCNPL Rs. 1 lakh
(d) Mrs. A.C. Garware, Director of NCNPL Rs. 25,000
(e) Sh. U.K. Malik, Director of NCNPL Rs. 10,000
(f) Sh. R.A. Nadkarni, Director of NCNPL Rs. 10,000
(g) Sh. J.C. Garware, Director of NCNPL Rs. 10,000
(h) Shri N.C. Garware, Director of NCNPL Rs. 10,000
(i) Sh. P.J. Saldhana, Director of NCNPL Rs. 10,000
3. Shri N.C. Jain, learned Advocate, at the outset mentioned that the appeal filed by M/s. NCNPL has been dismissed by the Appellate Tribunal vide Final Order No. 24/95-C, dated 19-1-1995 for non compliance with the conditions of the stay order and consequential non-compliance with the statutory requirements of pre-deposit. He also mentioned that Shri C.B. Garware had opted for Kar Vivad Samadhan Scheme, 1998 and Appeal No. E/1122/91-C filed by him has been dismissed as withdrawn vide final order No. 204/99-C, dated 26-3-1999. He, therefore, submitted that present seven appeals are in respect of M/s. GSPL and 6 Directors [mentioned at (d) to (i) above in paragraph 2].
4. The learned Advocate submitted that the show cause notice was issued to them alleging that the NCNPL was a split unit of M/s. GSPL (Appellants No.l here) and that the NCNPL had been artificially fragmented to avail of the benefit. In this regard he referred to internal page 3 of the impugned order in support of his submission. He further submitted that the Collector has concluded in the impugned order that both M/s. NCNPL and M/s. GSPLs are one and the same unit; that this is evident from paragraphs 7 and 9 of the findings in the impugned order; that in para 9 the Collector had given his findings to the effect that "the allegations in the show cause notice are proved...." He also referred to paras 2 and 3.2 of the findings wherein it was mentioned that NCNPL has been set up deliberately by GSPL to avoid taxes and that NCNPL is a floated unit of GSPL and services of Shri L.G. Joshi and Shri A.R. Bedekar, both Directors of NCNPL, were used to create the mirage of its independent character. He, therefore, contended that in such a situation two penalties cannot be imposed on one and the same unit; that the penalty imposed on NCNPL has acquired finality as the appeal filed by them has been dismissed by the Appellate Tribunal for non-compliance with the stay order; that accordingly no penalty is sustainable on M/s. GSPL. He relied upon the decision in the case of Pharma Art Pack v. T.R. Corporation - 1998 (26) RLT 479 wherein it was held that "Once the Department had come to the conclusion that there was, in reality, only one organisation in existence and the legal cover did not matter, it will be inappropriate to say that the above penalty was imposable on each of the two firms."
5. Regarding penalty imposed on other appellants, the learned Advocate submitted that the Department had invoked Rule 9(2) of the Central Excise Rules for imposing penalty on the Directors of NCNPL; that Rule 9(2) cannot be invoked against them as under the said rule, penalty can be imposed only on the producer, or manufacturer; that similarly penalty cannot be imposed on the Directors under Rule 52A. He, further, contended that penalty can also not be imposed on the Directors under Rule 173 of the Central Excise Rules as the said rule provides for action only against manufacturer, producer or warehouse owner. Reliance was placed on the decision in the case of B. Subba Rao v. UOI and Ors., 1987 (32) E.L.T. 648 (A.P.) and Bihar Extrusion Co. (P) Ltd. v. C.C.E., 1991 (56) E.L.T. 139 (T). He, further, submitted that in the impugned order, the Collector has not given any findings as to the role played by any one of the Directors on whom the penalty has been imposed; that the Appellants were not even in the know of what was going on a day to day basis in NCNPL; that the Department ought to show that these appellants were responsible for carrying on business and were during the relevant time in charge of the business.
6. Countering the arguments, Shri H.K. Jain, learned SDR, submitted that the Collector, in the impugned order, did not hold that NCNPLs was a dummy unit; that he had only given his findings that NCNPL was foated by G.S.P.L.; and that the dealings between these two units were clearly marked with a mutuality of interest and as such separate penalty is imposable on M/s. GSPL. Regarding the penalties imposed on other appellants, being Directors, he submitted that as per provisions of Section 9AA of the Central Excise Act, where an offence under the Act has been committed by a company, every person, who at the time of offence was committed was in charge of, and was responsible to, the company for the conduct of the business as well as the company, shall be deemed to be proceeded against and punished accordingly; that accordingly proceedings for imposition of penalty can be taken against the appellants separately; that they were participating in the meeting of Board of D rectors in which various resolutions were passed as mentioned in the show cause notice (internal pages 17-18 of the S.C.N.); that further out of 6 appellants, three were common directors in both the units and Shri P.J. Saldhanha was common financial adviser; that Collector had clearly mentioned in the findings that the appellants were actively and mainly concerned in the illegal activities and as such penalty was imposable on them. In reply the learned Advocate submitted that the Collector had not given any reasons to show as to how these appellants were actively and mainly concerned in these activities and in any case, the Collector had not mentioned the name of Shri P.J. Saldhana at all while recording the said finding in the impugned order.
7. We have gone through the submissions of both the sides. The learned Advocate, appearing on behalf of appellant No. 1, M/s. G.S.P.L., has not challanged any findings of the Collector in the impugned order except pleading that the penalty cannot be imposed on GSPL as NCNPL and GSPL have been treated as one in the impugned order. The learned Advocate, however, could not substantiate his plea that both M/s. GSPL & NCNPL have been treated as one unit in the impugned order. The Collector, in the impugned order has clearly come to the conclusion that NCNPL was floated by GSPL; that there existed a financial nexus, beyond the scope of a relationship on principal to principal basis which constitutes a mutuality of interest between them. The Collector had discussed a number of reasons on the basis of which he came to the conclusion that both the units had mutuality of interest in the business of each other. He also gave his findings after weighing the evidence that GSPL had controlled the prices at which NCNPL had been made to sell the goods to them and hence, this was neither at arm's length nor on principal to principal basis. Thus the submissions of the learned Advocate remains unsubstantiated. We also observe from the impugned order that the other findings of the Collector, in the impugned order was that their contention that they had declared correct information with regard to investment in plant and machinery was not correct; that they had not taken into account some of the machineries installed while furnishing the information to D.I.C. Satara, with a view to keep the investment in plant and machinery for the purpose of getting SSI registration. The Collector had also mentioned, in the impugned order, that "their mere assertion that the two units deal on principal to principal basis is not acceptable in the face of above analysis of available and uncontroverted evidence to the contrary, particularly as no evidence has been led to support their said assertion." In view of these facts and circumstances, the penalty imposed on M/s. GSPL, appellants No.l is upheld.
8. There is, however, substantial force in learned advocate's submission that penalty cannot be imposed on directors under Rule 9(2) and 52A read with Rule 173Q(1) as under Rule 173Q, the penalty can be imposed only on producer, manufacturer and registered person of a warehouse or a registered dealer. Further even for the purpose of imposition of liability on director, the department has to show as to how and to what extent a particular director is liable. The Tribunal in the case of Bihar Extrusion Co. (P) Ltd. v. C.C.E., 1991 (56) E.L.T. 139 (T), held that in order to fasten liability of penalty on director, there must be some finding to show that he was the person liable for acts of the appellants' company and unless such specific finding is arrived against him personally, the imposition of penalty on the Director is not in accordance with law. We observe that the Collector had only mentioned in findings, in the impugned order, that 6 individuals (this did not include the name of Shri P.J. Saldhana, one of the appellants) were actively and mainly concerned in illegal activities. He had not given any specific reasons to arrive at this finding. There is no discussion in the impugned order about the role played by them individually. For want of any discussion, we hold that the penalty cannot be imposed on the appellants Nos. 2 to 7.
9. We accordingly reject the Appeal No. E/1120/91-C filed by M/s. Garware Synthetics (P) Ltd. and allow the remaining six Appeals Nos. E/1216-1221/98-C. S.K. Bhatnagar, Vice President
10. With due respects to Hon'ble Members, I would like to mention, while agreeing with the findings regarding the appellant company, that insofar as the Directors are concerned Section 9AA comes into picture. This section provides, interalia that:
Section 9AA. Offences by companies. (1) Where an offence under this Act has been committed by a company, every person who, at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
Provided that nothing contained in this Sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he had exercised all due to diligence to prevent the commission of such offence.
Therefore, once the offence by the company is established, the responsibility of every other person who was incharge of and was responsible to the company for the conduct of the business was required to be determined. Furthermore, language of the proviso of this deeming provision is such that it is required to be examined where the burden of proof lies and when the onus shifts. In view of these provisions it was necessary for the adjudicating authority to examine the facts w.r.t. these provisions in greater details but his order regarding the liability of penalty on the Directors is virtually a non-speaking order. It is therefore required to be set aside but the matter is required to be remanded for passing an appropriate order after giving opportunity to the appellants to be heard in the matter.
11. Therefore, while I agree with my ld. Colleague that the appeal of M/s. Garware Synthetics is required to be rejected, I hold that the remaining six matters are required to be remanded for de novo consideration in accordance with law.