2016 (12) TMI 1384 - HC - Central Excise

Penalty upheld in central excise duty evasion case; mens rea emphasized

The husband of a partner in a firm challenged the imposition of a penalty by the Customs, Excise and Service Tax Appellate Tribunal for his involvement in ... Whether the Appellate Tribunal was justified in sustaining the penalty on the husband of the dormant partner, while sustaining the penalty on the Partnership Firm? - Though his wife is the partner, for all practical purposes, he was acting on her behalf as the partner. Held that: - The said issue is no longer res integra, in the light of the Full Bench judgment rendered by Bombay High Court in the case of M/s Amritlakshmi Machines Work, Mr. N.K. Bramchari, Managing Partner, M/s. Amritlakshmi Machine Works Versus Commissioner of Customs (Import) [2016 (2) TMI 57 - BOMBAY HIGH COURT], where it was held that Simultaneous penalties can be imposed on the firm and the partners under the Act and more particularly under Section 112(a) of the Act. However as the Act itself stipulates, the same would be subject to the parties proving that the contravention has taken place without their knowledge or despite exercise of all due diligence to prevent such contravention. The first portion of Section 112(a) of the Act is only to make person of first degree in relation to the act or omission strictly liable. Persons who are not directly involved in the act or omission to act, which has led the goods becoming liable for confiscation cannot be made liable unless some knowledge is attributed to them - penalty can be imposed on dormant partner as well as on the firm. Appeal disposed off - decided in favor of revenue. Issues involved:Imposition of penalty on the husband of a dormant partner while sustaining the penalty on the Partnership Firm.Analysis:The appellant, husband of a partner of a firm, challenged an order by the Customs, Excise and Service Tax Appellate Tribunal regarding the imposition of a penalty. The case involved M/s.Paragon Paper Private Limited selling Duplex Boards at undervalued prices through M/s.Shri Jayamuruga Paper Mart, leading to evasion of central excise duty. The appellant was found to have paid excess amounts to M/s.Paragon Paper Private Limited and was aware of the duty evasion. The Original Authority confirmed the duty amount on M/s.Paragon Paper Private Limited and imposed penalties on various individuals and entities. The Commissioner of Central Excise (Appeals) modified the penalties, reducing the appellant's penalty to Rs. 50,000. The appellant appealed to the CESTAT, arguing against the penalty imposition, citing his role as a partner's husband and lack of personal gain. The Tribunal reduced penalties to Rs. 25,000 for each appellant.The core issue revolved around the penalty imposition on the husband of a partner. The appellant contended that since the firm was penalized, he should not face a separate penalty, especially considering the significant role played by M/s.Paragon Paper Private Limited in the situation. The appellant's argument focused on the lack of personal benefit and the penalty imposed on a director of M/s.Paragon Paper Private Limited. The Tribunal reduced penalties to Rs. 25,000 for each appellant, leading to the current appeal.The CESTAT's order primarily addressed the quantum of penalty, reducing it for all appellants. The judgment referenced a Full Bench decision by the Bombay High Court, emphasizing the provisions of Section 135 of the Act regarding acts or omissions leading to confiscation of goods. The judgment clarified the application of penalties under Section 112(a) of the Act, particularly in cases of abetment with knowledge. The court highlighted the need for mens rea in penalty imposition, especially in cases of abettors. Given the limited scope of the appeal before the CESTAT and the thorough consideration by the Original Authority, the court upheld the penalty imposition, dismissing the appeal in favor of the Revenue. The decision confirmed the order passed by the CESTAT, emphasizing the legal and factual aspects considered in the case.