2021 (7) TMI 1307 - AT - Central Excise

Tribunal sets aside penalties citing lack of mens rea, SVLDRS waiver provisions

The Tribunal allowed the appeals, highlighting the lack of establishment of 'mens rea' for imposing penalties under Rule 26 and the applicability of the ... Levy of penalty u/r 26 of Central Excise Rules, 2002 - presence of mens rea or not - penalty imposed upon the appellant for the reason that they were the employees of the Company and were responsible for handling the day to day activities/affairs - HELD THAT:- Commissioner has not established the element of “mens rea”, which is an essential ingredient for imposition of penalty under Rule 26 of the Central Excise Rules, 2002. Since the impugned order fails to establish the ingredient of “mens rea” on the part of the Appellants who were otherwise performing their duties as employee of the company, the penalties cannot be imposed on the appellants in these two appeals - once the issue of the main company against whom the demand for duty was made under Section 11A of Central Excise Act, 1944, has been settled under SVLDRS, case for imposition of penalty under Rule 26 on the employees will fail. This exactly is prescribed by the scheme also. The only requirement is that person on whom penalty is imposed makes application under the scheme. Appeal allowed. Issues:- Imposition of penalty under Rule 26 of the Central Excise Rules, 2002 on the appellants.- Application of the Sabka Vishwas Legal Dispute Resolution Scheme 2019 (SVLDRS) to waive penalties.- Lack of establishment of 'mens rea' for imposition of penalty.- Interpretation of Rule 26 in light of previous court decisions.Imposition of Penalty under Rule 26:The Commissioner had imposed penalties on the appellants, who were former employees of the company, under Rule 26 of the Central Excise Rules, 2002 for their involvement in day-to-day activities and affairs. The Commissioner justified the penalties based on the appellants' knowledge and involvement in the misdeclaration and removal of excisable goods without proper duty payment. However, the Tribunal noted that the Commissioner failed to establish the essential element of 'mens rea,' which is crucial for imposing penalties under Rule 26. Citing precedents from the Hon'ble Karnataka High Court and the Hon'ble Punjab and Haryana High Court, the Tribunal emphasized that the mens rea is a necessary ingredient for the imposition of penalties under Rule 26.Application of SVLDRS to Waive Penalties:The main party involved in the case had settled their duty demand under the Sabka Vishwas Legal Dispute Resolution Scheme 2019 (SVLDRS). The appellants, who were subject to penalties, had not approached the proper authority under the scheme for settlement. The Tribunal highlighted that the benefit of the SVLDRS could have been extended to the appellants if they had made a proper application under the scheme. As the appellants were no longer with the main appellant company and were not traceable, the Tribunal adjourned the matter to allow for the tracing of the appellants to seek instructions from them regarding the penalties imposed.Lack of Establishment of 'Mens Rea' for Imposition of Penalty:The Tribunal emphasized that the penalties imposed on the appellants were based on their roles as employees and their day-to-day activities within the company. However, without establishing the element of 'mens rea,' the Tribunal found it untenable to uphold the penalties imposed on the appellants. Referring to court decisions, the Tribunal reiterated that the intention to evade duty payment or the knowledge of goods being liable for confiscation are essential for imposing penalties under Rule 26.Interpretation of Rule 26 in Light of Court Decisions:The Tribunal cited decisions from the Hon'ble Punjab and Haryana High Court to support its interpretation of Rule 26. The Tribunal highlighted that once the main company's duty demand was settled under SVLDRS, the case for imposing penalties on the employees under Rule 26 would fail. The Tribunal underscored that the scheme requires the person on whom a penalty is imposed to make an application under the scheme for waiver. Consequently, the Tribunal allowed the appeals, setting aside the penalties imposed on the appellants.Conclusion:The Tribunal allowed the appeals, emphasizing the lack of establishment of 'mens rea' for imposing penalties under Rule 26 and the applicability of the SVLDRS for waiving penalties if proper applications are made. The Tribunal's decision was based on the interpretation of court decisions and the requirements of the SVLDRS scheme, ultimately setting aside the penalties imposed on the appellants.