2018 (6) TMI 996 - HC - Central Excise

Partnership firm faces penalties, partners spared, importance of acknowledging liability emphasized

The Court upheld the imposition of penalties on a partnership firm despite duty payment before the show cause notice, emphasizing the importance of ... Penalty under Rule 173Q of the Central Excise Rules, 1944 - waiver of penalty where duty is paid before issuance of show cause notice - confiscation of seized goods and redemption fine - liability of partnership firm vis-a -vis personal liability of partners for penalty - payment before show cause notice as indication of acceptance of liabilityPenalty under Rule 173Q of the Central Excise Rules, 1944 - waiver of penalty where duty is paid before issuance of show cause notice - payment before show cause notice as indication of acceptance of liability - Whether penalty under Rule 173Q is precluded merely because duty was deposited before issuance of show cause notice - HELD THAT: - Rule 173Q prescribes confiscation and penalty for removal or non-accountal of excisable goods and does not itself provide for automatic waiver of penalty where duty is deposited prior to issuance of show cause notice. Although some courts have extended the principle of waiver (as in Section 11AC contexts) to Rule 173Q where facts plainly indicate absence of fraud, misrepresentation or suppression, the determinative consideration is whether the payment before notice amounts to acceptance of liability and surrender of the disputed claim so as to remove the element of willful concealment. Mere deposit urged as payment does not necessarily demonstrate acceptance of liability; acceptance requires conduct showing abandonment of contest and avoiding litigation. On the facts of this case the assessee consistently contested the proceedings up to the Tribunal and did not accept liability; therefore the payment relied upon does not warrant waiver of penalty under Rule 173Q. [Paras 12, 13, 14, 15]Penalty under Rule 173Q could not be held automatically precluded by the fact of deposit; on these facts-where the assessee contested liability-waiver was not available and the penalty on the firm stands.Liability of partnership firm vis-a -vis personal liability of partners for penalty - penalty under Rule 173Q of the Central Excise Rules, 1944 - Whether personal penalties on partners can be sustained once a penalty is imposed on the partnership firm - HELD THAT: - The Court applied the principle, as earlier followed by this Court, that imposition of a penalty on the partnership firm precludes imposition of separate personal penalties on partners for the same contravention. Having regard to the parity of the liability assessed and the consistent authority of this Court, the personal penalties imposed on the partners and authorized signatory were not sustainable and were set aside, while leaving the penalty on the firm intact. [Paras 16, 17]Personal penalties on the partners (and authorised signatory) are deleted; the penalty on the firm is maintained.Final Conclusion: Partly allowed: the appeal is allowed to the extent that personal penalties on the partners and authorised signatory are deleted; the confirmed confiscation, duty demand and the penalty on the firm under Rule 173Q remain undisturbed, the claim of waiver by reason of payment before show cause notice being rejected on the facts. Issues:Challenge to judgment of CESTAT on penalty imposition when duty was paid before show cause notice.Analysis:The appeal challenged the CESTAT judgment regarding the imposition of penalties when duty was paid before the show cause notice. The case involved a partnership firm engaged in manufacturing activities, where goods were seized due to past clandestine removal without duty payment. The Adjudicating Authority ordered confiscation of seized goods, confirmed excise duty, and imposed penalties on the firm and its partners. The Commissioner of Appeals upheld the order, noting admissions by the partners regarding the irregularities. The Tribunal affirmed the decision, leading to the appeal.The appellants contended that penalties should not apply as duty was paid before the show cause notice, citing relevant case laws. They also argued against separate penalties on partners when the firm was penalized. The Court considered the absence of specific conditions for waiving penalties under Rule 173Q and emphasized the importance of accepting liability to avoid litigation. It clarified that mere depositing of duty does not equate to payment unless liability is acknowledged.While the appellants opposed the show cause notice proceedings at all levels, the Court noted that the appeal covered various aspects, not just penalties. Therefore, the waiver of penalty due to pre-notice duty payment did not apply. However, following precedents, the Court ruled that once a penalty is imposed on a partnership firm, individual partners should not face separate penalties. This principle was upheld based on previous judgments, leading to the deletion of penalties on the partners while upholding the rest of the order. The appeal was partially allowed, and the tax appeal was disposed of accordingly.