2018 (6) TMI 233 - AT - Central Excise

Partner in Fraudulent Firm Faces Penalties Despite Firm's Punishment

The Tribunal affirmed the imposition of penalties on the appellant, a partner in the first stage dealer firm involved in issuing bogus invoices, based on ... Penalty on partner - Firm already penalized - appellant is a partner in a first stage dealer firm M/s Isha Enterprises, who is alleged to have issued bogus invoices without supply of the goods - suppression of facts - whether penalty can be imposed on the partner when the main firm has been penalized? - Held that:- The appellant was fully and deeply involved in the fraud of issuing of bogus invoices by M/s Isha Enterprises. The firm had issued these invoices passing on Cenvat credit to the buyers without supply of the goods and resorted diversion of goods without invoices. The appellant and other partners in the appellant’s firm have accepted that they were involved in the aforesaid malpractice and the buyers have accepted the receipt of invoices without supply of goods. The appellant also tried his best to conceal the relevant records and played a pivotal role in evasion of duty with the help of middlemen, second stage dealers and buyers. Penalty upheld - appeal dismissed - decided against appellant. Issues:Imposition of penalty on a partner when the firm is penalized.Culpability of the appellant in issuing bogus invoices.Analysis:1. The appeal was filed against an order passed by the Commissioner (Appeals) regarding the issuance of bogus invoices by a first stage dealer firm, resulting in demand confirmation and penalties. The appellant, a partner in the firm, was penalized with Rs. 25,000. The appellant contended that as he was not an active partner, the penalty should not apply, citing various case laws.2. The Advocate for the appellant argued that a penalty of Rs. 3 lakhs was imposed on the main party, M/s Isha Enterprises, and thus, the penalty on the appellant should be set aside. On the other hand, the Revenue's representative asserted that the appellant was actively involved, as evidenced by statements from other individuals. The Revenue relied on a judgment by the Larger Bench of the Bombay High Court to support the imposition of penalties on partners even when the firm is penalized.3. The Tribunal examined the legal issue of imposing a penalty on a partner when the firm is penalized. It was noted that the judgment of the Larger Bench of the Bombay High Court had settled this matter, allowing penalties on partners even if the firm is penalized. The Tribunal found the appellant deeply involved in the fraud of issuing bogus invoices, passing on Cenvat credit without supplying goods, and diverting goods without proper documentation. Statements from involved parties confirmed the appellant's active role in the fraudulent activities.4. Based on the evidence and the appellant's involvement in the fraudulent practices, the Tribunal upheld the penalty imposed on the appellant, concluding that the first appellate authority correctly upheld the penalty. Consequently, the appeal was dismissed, and the impugned order was deemed valid.Conclusion:The Tribunal affirmed the imposition of penalties on the appellant, a partner in the first stage dealer firm involved in issuing bogus invoices, based on the appellant's active participation in the fraudulent activities. The legal issue of penalizing partners when the firm is penalized was settled in favor of imposing penalties on partners, even when the firm faces penalties. The Tribunal's decision upheld the penalties on the appellant, emphasizing the appellant's deep involvement in the fraudulent practices, leading to the dismissal of the appeal.