Director resignation before alleged evasion period bars penalty, while continuing directors may face reduced penal liability.

Penalty under Rule 209A of the Central Excise Rules cannot be sustained against a person who had ceased to be a director before the relevant period of alleged evasion, because he was not shown to hold office when the impugned invoices were issued. Directors who continued during the period of wrongful invoicing and clearance irregularities may remain liable where they were responsible for the firm's affairs, although the penalty can be reduced on the facts. The discussion therefore distinguishes between resignation before the operative period and continuing participation in the relevant conduct.

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Issues: (i) Whether a director who had resigned before the period of alleged duty evasion could be saddled with penalty under Rule 209A of the Central Excise Rules. (ii) Whether the other directors, who continued during the relevant period, were liable for penalty and whether the penalty imposed required interference.

Issue (i): Whether a director who had resigned before the period of alleged duty evasion could be saddled with penalty under Rule 209A of the Central Excise Rules.

Analysis: The resignation was stated to have been accepted before the period in dispute and was forwarded in the prescribed form under the Companies Act, 1956. Since the demand period commenced after the resignation, the appellant was not shown to be a director during the relevant period when the impugned invoices were issued.

Conclusion: The appellant who had resigned before the relevant period was not liable for penalty and his appeal was allowed.

Issue (ii): Whether the other directors, who continued during the relevant period, were liable for penalty and whether the penalty imposed required interference.

Analysis: The other appellants were directors during the period when the invoices were issued without clearance of goods, enabling wrongful availment of credit. Their plea that they were directors only on paper was not accepted, as they were found responsible for the affairs of the firm during the relevant period. However, considering the facts and circumstances, the quantum of penalty was reduced.

Conclusion: The other appellants remained liable for penalty, but the penalty was reduced to Rs. 50,000 each.

Final Conclusion: The appeal succeeded only to the extent that one appellant was exonerated, while the remaining appellants' liability was maintained with reduced penalties.

Ratio Decidendi: Penalty under Rule 209A cannot be sustained against a person who had ceased to be a director before the relevant period of alleged evasion, whereas directors continuing in office during the period of wrongful invoicing may be held liable for penal action.

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