2014 (8) TMI 538 - AT - Central Excise

Directors' Penalties Upheld for Involvement in Illegal Activities

The court upheld penalties imposed on directors of a company for involvement in clandestine activities related to illegal clearance of products without ... Imposition of personal penalty - Shortage in stock - Clandestine removal of goods - Held that:- There is no debar for imposition of separate penalties on the Directors, subject to the prejudice finding of their role in the clandestine activities of the company. In the present case when incriminating documents were recovered and seized under the cover of panchnama Shri Gajjadhar Jhanwar in his statement agreed with the same and also appended his signature in the panchnama. When the said facts were put to the other Director, Shri Narayan Prasad Jhanwar, he also agreed with the contents of the panchnama and clarified that the quantity stand cleared without issuing the invoices. These facts sufficiently clarify that present two appellants were aware of the clandestine activities of the company in which case penalties imposed upon them is called for. As such, I find no justification for setting aside the penalties upon the present appellants - Decided against the appellants. Issues:Imposition of penalty under Rule 26 of Central Excise Rules on directors of a company for involvement in clandestine activities.Analysis:The judgment pertains to the imposition of penalties on the directors of a company, M/s. Banke Bihari Processors (P) Ltd., for their involvement in clandestine activities related to the illegal clearance of products without payment of duty. The Central Excise officers conducted checks at the factory premises, leading to the discovery of shortages in the stock of final products and incriminating documents. Subsequently, penalties of Rs. One lakh each were imposed on the directors in addition to the demand confirmed on the company. The Commissioner (Appeals) upheld the penalties on the directors based on their agreement with the contents of the incriminating documents and their admission of involvement in the clandestine activities.The appellant's advocate argued that since the company had already been penalized, imposing additional penalties on the directors was unjustified. He contended that there was no concrete evidence implicating one of the directors in the clandestine activities. However, the learned DR countered these arguments by highlighting the dismissal of the company's appeal due to non-compliance, thereby upholding the findings of clandestine activities against them. The DR also referenced a High Court decision allowing separate penalties on directors aware of company developments.The presiding judge, Ms. Archana Wadhwa, after considering both sides' submissions, agreed that separate penalties could be imposed on directors if they were found to be involved in the company's clandestine activities. She noted that both directors had acknowledged the contents of the incriminating documents and their involvement in the illegal clearance of products without issuing invoices. Therefore, the judge found no grounds to set aside the penalties imposed on the directors, ultimately rejecting their appeals.In conclusion, the judgment affirms the imposition of penalties on the directors of M/s. Banke Bihari Processors (P) Ltd. for their active participation in the company's clandestine activities, as evidenced by their agreement with the seized documents and admission of wrongdoing during the proceedings.