Personal penalty on purchasers fails where departmental certificates were relied on and no suppression or duty-evasion intent is proved.

Personal penalty on purchasers was held unsustainable where the goods were bought under departmental CT-2/Annexure I certificates, the supplier's 100% EOU status was disclosed in the invoices, and no duty-evasion intent or suppression of material facts was shown. Acting on Revenue-issued certificates meant the purchasers had no legal duty to independently verify the supplier's entitlement to DTA clearances. The transaction was also treated as revenue neutral because the raw materials were used to manufacture exported final products, so any duty paid would have been available as refund or credit. The penalty demand was therefore set aside.

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Issues: Whether penalties imposed on the purchasers of cotton yarn under Rule 209A of the Central Excise Rules, 1944 and Rule 26 of the Central Excise Rules, 2002 were sustainable when the goods were procured under CT-2/Annexure I certificates issued by the Department, the supplier's 100% EOU status was reflected in the invoices, and the transactions were claimed to be revenue neutral.

Analysis: The purchases were made on the basis of certificates issued by the Revenue authorities, and there was no legal obligation on the purchasers to separately disclose that the supplier was a 100% EOU. The invoices prominently showed the 100% EOU status, so suppression of that fact with intent to evade duty was not established. The purchasers could not be expected to determine whether the supplier was entitled to make the clearances in DTA, when they acted on departmental certificates. The transaction was also revenue neutral because the raw materials were used in manufacture of exported final products and any duty paid would have been available as refund or credit. In these circumstances, the basis for personal penalty was absent.

Conclusion: The penalties on the purchasers were not sustainable and were set aside.

Final Conclusion: The appeals of the purchasers succeeded and the penalty demand against them was annulled, while the connected appeal of M/s. I.C. Textiles was not pursued and stood dismissed for non-prosecution.

Ratio Decidendi: Personal penalty cannot be imposed on purchasers acting under departmental certificates when suppression of material facts and intention to evade duty are not established and the transaction is revenue neutral.

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