2021 (4) TMI 1166 - HC - Central Excise

Court quashes ex-parte penalty order due to procedural violations, grants fresh hearing opportunity

Pranatharthiharan Sridharan Versus Union Of India

The court quashed the ex-parte order imposing a personal penalty on the petitioner, citing violations of natural justice principles due to inadequate ... Levy of Personal penalty on petitioner - service of notices of personal hearing not done - violation of principles of natural justice - HELD THAT:- From the reply of the company, it can be deduced unequivocally that the show cause notice and the personal hearing notices have not been served upon the petitioner. It has a reference of the first show cause notice served upon the company and therefore, it assumed that the show cause notice and the personal hearing notices have been served upon the present petitioner also - this stand on the part of the respondent of not having known the changed address of petitioner on his having failed to put to the notice of department is wholly unacceptable. Failure to send the show cause notice and the notices of personal hearing therefore, upon the last known address of the petitioner is also unsustainable as the department of Income Tax already had details. The penalty imposed upon the petitioner in the order in original is to the tune of ₹ 2,28,65,888/-. Any penalty imposed personally on the person cannot be saddled, unless due opportunity is given. Here not only there is a question of availing opportunity of hearing, the very service of the show cause notice is also seriously questioned and we also could notice from the pleadings before us that neither the show cause notice was served upon the petitioner nor was he served notice of personal hearing. Again, there is nothing to indicate as to how this affixing at company premise should be construed as sufficient notice to the petitioner nor is it found on record from any document that he was made aware of the show cause notice which led to the order impugned and therefore, merely because in reply to another show cause notice, he has been made aware also cannot furnish the ground to assume that he was aware of the show cause notice, the order of which is impugned in this matter. Such assumption and presumption are absent in the statute and they cannot furnish the basis to sustain the order of huge amount of personal penalty. The foundation of principle of natural justice is audi alteram partem, the necessity of grant of opportunity of hearing and no party is to be condemned unheard. Here, there appears to be a flagrant violation of the said principle which necessitates indulgence. The show cause notice issued by the respondent no.3 is forming part of the record. The same shall be the notice which is to be construed as the show cause notice - Matter shall be decided by the authority concerned by giving the fullest opportunity without being influenced by any other aspects - appeal allowed by way of remand. Issues Involved:1. Legality and validity of the ex-parte order imposing personal penalty.2. Service of show cause notice and notice of personal hearing.3. Breach of the principles of natural justice.4. Maintainability of the petition due to the availability of alternative statutory remedies.Detailed Analysis:1. Legality and Validity of the Ex-Parte Order Imposing Personal Penalty:The petitioner challenged the ex-parte order dated 11.02.2019, passed by the Principal Commissioner of Central Excise and GST, which imposed a personal penalty of Rs. 2,28,65,888/- under Rule 15(1) of the Cenvat Credit Rules, 2004. The petitioner argued that the order was passed without serving a show cause notice and without providing an opportunity for a personal hearing, thus violating principles of natural justice.2. Service of Show Cause Notice and Notice of Personal Hearing:The petitioner claimed that no show cause notice dated 10.10.2017 was received, and the order was passed ex-parte. The respondent argued that the show cause notice was sent via speed post to the petitioner’s residential address but was returned with the remark 'Left.' Consequently, the notice was affixed on the notice board under Section 37(C) of the Central Excise Act, 1944. The respondent also stated that multiple notices for personal hearings were issued and affixed at the company premises.3. Breach of the Principles of Natural Justice:The petitioner emphasized that the imposition of a personal penalty without serving the show cause notice and without providing an opportunity for a personal hearing was a breach of the principles of natural justice. The court noted that the petitioner had left the company in June 2016, and the show cause notice was issued in 2017. The court found that the respondent failed to serve the show cause notice and personal hearing notices at the petitioner’s last known address, despite having access to the petitioner’s updated address from the Income Tax Department records.4. Maintainability of the Petition Due to the Availability of Alternative Statutory Remedies:The respondent raised a preliminary objection regarding the maintainability of the petition, arguing that the petitioner should have appealed to the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) as provided under Section 35(B) of the Central Excise Act, 1944. The court acknowledged the statutory requirement of pre-depositing 7.5% of the penalty amount before filing an appeal. However, the court decided to entertain the writ petition under Article 226 of the Constitution of India due to the gross violation of principles of natural justice.Conclusion:The court quashed and set aside the ex-parte order to the extent concerning the present petitioner, emphasizing the necessity of serving the show cause notice and providing an opportunity for a personal hearing. The court directed that the show cause notice be served to the petitioner’s official email ID and future correspondence be sent to the petitioner’s address as mentioned in the cause title. The matter was remanded to the concerned authority for a fresh decision, ensuring the fullest opportunity for the petitioner to be heard. The court refrained from commenting on the merits of the case, leaving all contentions open for the parties to agitate before the appropriate forum.