2019 (9) TMI 396 - AT - Central Excise

Tribunal Overturns Penalties in Duty Rebate Fraud Case

M/s Mahesh Harlalka Versus C.C.E. And S.T. -Surat-i Shree Sairam International

The Tribunal set aside penalties imposed on individuals for fraudulent activities related to duty rebate under Rule 13(1) of the Cenvat Credit Rules, ... Imposition of penalties - penalties u/r 13 (1) of Cenvat Credit Rules - appellant have acted as mediator in arranging the cenvat credit or fraudulent rebate - HELD THAT:- The penalties on appellant Sh. Mahesh Harlalka and Sh. Deepak Nathmal Kedia were imposed under Rule 13 (1) of Cenvat Credit Rules, 2002 which can be imposed only on the person who availed the cenvat credit whereas in the present case, it is admitted fact that the appellant have only acted as mediator in arranging the cenvat credit or fraudulent rebate, therefore, penalties under Rules 13(1) is not relevant - the penalties imposed under Rule 13 (1) of Cenvat Credit Rules are set aside. Penalties u/r 27 - HELD THAT:- Since the appellant are neither manufacturer nor exporter, no contravention of the provision can be alleged against them, therefore, the penalty under Rule 27 is also set aside. Penalty under Section 117 of the Customs Act - HELD THAT:- Since the appellants were not involved either in the import or export of any goods, he cannot be alleged with the contravention of any provision of Customs Act, 1962, therefore, this penalty is also not maintainable, hence the same is set aside. Recovery of fraudulent availed rebate, interest and consequential penalty against proprietor of Sh. Sairam International - HELD THAT:- No proposal was made against Sh. Sairam International in the show cause notice, therefore, by way of review, the show cause notice cannot be amended or developed. Accordingly, the appeal of Revenue proposing something which is not arising out of the show cause notice cannot be maintained. Appeal allowed - decided in favor of appellant. Issues:Fraudulent availment of duty rebate, penalties under various rules and acts, liability on a proprietor for fraudulent activities.Analysis:1. The case involved penalties imposed on individuals for fraudulent activities related to duty rebate. The penalties were imposed under Rule 13(1) of the Cenvat Credit Rules, 2002, Rule 27 of the Central Excise Rules, 2002, and Section 117 of the Customs Act, 1962. The appellant argued that the penalties were not applicable as he did not directly avail the cenvat credit, was not an assessee involved in manufacturing, and did not engage in import or export activities. The Tribunal found that since the appellants acted as mediators and did not directly avail the credit, the penalties under Rule 13(1) were not relevant. Therefore, the penalties under Rule 13(1) were set aside. Additionally, since the appellants were not manufacturers or exporters, the penalties under Rule 27 were also set aside. The penalty under Section 117 of the Customs Act was deemed not applicable as the appellants were not involved in import or export activities, leading to the setting aside of this penalty as well.2. The Tribunal also addressed an appeal by the Revenue proposing liability on the proprietor of a company for fraudulent activities. It was noted that the show cause notice did not include any proposal against the company, and therefore, the appeal proposing liability against the proprietor could not be maintained. The Tribunal emphasized that proposals not arising from the show cause notice cannot be entertained. Consequently, the Revenue's appeal was dismissed.3. In conclusion, the Tribunal allowed the appeals of the parties involved in the penalties imposed for fraudulent activities while dismissing the Revenue's appeal regarding liability on the proprietor. The judgments were pronounced in an open court on 04.04.2019.