2017 (2) TMI 883 - AT - Central Excise

Tribunal Upholds Penalties for Medicament Under-Valuation

The Tribunal upheld penalties under Rule 173Q(1) and Rule 25 on registered dealers, M/s Pharmaica and M/s Vipul Drugs, for involvement in under-valuation ... Imposition of penalty u/r 25 - clandestine removal - appellant's claim that M/s Pharmaica is registered dealer for the purpose of Chapter 28.29 and they are not registered dealer for the product of chapter 33. Also M/s Pharmaica, M/s Vipul Drugs and M/s Money Pharma are not purchaser, manufacturer, registered person of HUF or the importer - whether penalty u/r 25 justified? - Held that: - M/s Pharmaica and M/s Vipul Drugs are registered dealer. Rule 25 is very clear that penalty on a person, who is not under the category specified in the said Rule cannot be imposed. Since M/s Money Pharma does not fall in any category specified under Rule 25, no penalty under Rule 25 can be imposed on M/s Money Pharma. Whether penalty can be imposed on M/s Vipul Drugs and Pharmaica when they are registered dealer though they have not availed credit of these goods or transferred the credit on these goods? - Held that: - Rule 25 says says that if any excisable goods are removed in contravention of any provisions of rule or notification issued under these rules, penalty can be imposed. If any goods are clandestinely removed without issue of invoice and handled by a registered dealer then obviously the registered dealer cannot take credit and cannot pass on credit as there is no excise invoice - Rule 25 identifies purchaser or manufacturer or registered person of a warehouse or an importer or a registered dealer as a person liable to penalty because of the fact that they are registered with the Revenue and are reasonably conversant with law. It is not necessary that they could do actually official deal with such goods in their capacity as manufacturer or purchaser or registered dealer etc. Thus, penalty can be imposed on all such persons irrespective of the fact that they have dealt with these goods on record or off record - M/s Pharmaica and M/s Vipul Drugs are held liable to penalty u/r 173Q(1) of CER, 1944 and Rule 25 of CER, 2002 being a registered dealer - the penalty in case of Vipul Durgs is reduced from ₹ 8 lakhs to ₹ 4 lakhs and in case of M/s Pharmaica, the same is reduced from ₹ 2 lakhs to ₹ 1 lakh. Appeal disposed off - decided partly in favor of assessee. Issues:1. Penalty imposition under Rule 25 on traders, dealers, and consignment agents for under-valuation and clandestine clearance of medicaments.2. Argument regarding awareness and liability of penalty by the appellants.3. Interpretation of Rule 25 and liability of registered dealers for penalty.Analysis:1. The appeals before the Tribunal involved traders, dealers, and consignment agents penalized for under-valuation and clandestine clearance of medicaments supplied to hospitals. Penalties were imposed under Rule 173Q(1) of Central Excise Rules, 1944 and Rule 25 of the Central Excise Rules, 2002. The appellants contested the penalties, claiming lack of awareness and involvement in the illegal activities.2. The arguments presented by the appellants focused on their lack of knowledge regarding the violations committed by the principal company, M/s Sarvodaya Laboratory. They emphasized being mere intermediaries for recovering dues and not actively participating in the illegal activities. However, the Tribunal scrutinized the agreements and transactions to establish the appellants' awareness and found them liable for penalties under the specified rules.3. The Tribunal delved into the interpretation of Rule 25, emphasizing that penalties could be imposed on registered dealers, manufacturers, or importers involved in contraventions, irrespective of actual credit availing or passing on. The judgment differentiated between the liability of registered dealers like M/s Pharmaica and M/s Vipul Drugs, and non-registered entities like M/s Money Pharma. Penalties were upheld for registered dealers due to their registration status and knowledge of the transactions.4. Ultimately, the Tribunal set aside the penalty on M/s Money Pharma for not being a registered dealer. However, penalties under Rule 173Q(1) and Rule 25 were maintained for M/s Pharmaica and M/s Vipul Drugs. The penalties were reduced based on the circumstances of the case. Additionally, penalties under Rule 27 were imposed on individuals involved in the agreements for recovery of money, affirming their knowledge and involvement in the transactions.This detailed analysis of the judgment highlights the issues, arguments, legal interpretations, and the Tribunal's decision regarding penalties imposed on the appellants for their roles in under-valuation and clandestine clearance activities.