Directors' penalties upheld for duty evasion through clandestine practices.

The penalties imposed on the Managing Director/Directors of a company for abatement in the evasion of duty under Rule 26 were upheld by the court. The court found that the company engaged in clandestine removal of goods through parallel invoices and improper accounting, involving the entire board of directors. Despite arguments of lack of direct involvement and proper investigation, the court emphasized the directors' knowledge and role in the evasion of duty. The court distinguished previous judgments and dismissed the appeals, affirming the penalties.

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Issues:
Clandestine clearance of excisable goods, imposition of penalty under Rule 26 for abatement in evasion of duty by company directors.

Analysis:
The case involved the company M/s Shree Sardar Co-operative Sugar Industries Limited clearing sugar in excess of the allowed quota, issuing parallel invoices without paying duty on them, and recording these excess clearances as deposits in the books of accounts. The company did not declare these clearances in the ER-1 Returns. The demand was confirmed against the company, and although an appeal was filed, it was deemed withdrawn as the company settled under the SVLDRS-2019 Scheme. The present appellants, who are Managing Director/Directors of the company, were imposed penalties under Rule 26 for abatement in evasion of duty.

The counsel for the appellants argued that one of the appellants was not directly involved in the day-to-day affairs and should not be penalized. For the other two appellants, it was contended that no proper investigation was conducted against them as no statements were recorded. The counsel relied on various judgments to support their arguments.

The Authorized Representative for the Revenue reiterated the findings of the impugned order, emphasizing the clandestine removal done by the company and the intentional misrepresentation in the books of accounts.

Upon considering the submissions and records, the Member (Judicial) found that the company's clandestine removal of goods was undisputed, with parallel invoices issued without paying duty and payments not properly accounted for. The systematic modus operandi involved the entire board of directors, including the present appellants. The Member noted that the directors' knowledge and involvement were crucial for such acts, and even though statements were not recorded for two appellants, their roles as directors implicated them in the evasion of duty. The Member distinguished the judgments cited by the appellants, stating that penalties under Rule 26 are decided based on the specific facts of each case. Consequently, the penalties imposed on the present appellants were upheld, and the appeals were dismissed.

The judgment was pronounced in open court on 23.01.2023.

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