2023 (1) TMI 1183 - AT - Central Excise

Tribunal upholds penalties for fraudulent rebate claims, rejects retrospective application

Riyaz Rafiq Padela and Mangaldas K. Patel Versus Commissioner of Central Excise & ST, Raigad

The tribunal upheld penalties imposed on the appellants for involvement in a conspiracy to defraud the government through fraudulent rebate claims based ... Levy of penalty - abating the fraud - ex-superintendent of Central Excise with other person - Rebate claim - habitual offender - it is alleged that the goods were neither manufactured nor were exported and rebate claims were filed on the basis of fake documents - demand and recovery of erroneously sanctioned amount and paid as rebate of Central Excise Duty, alongwith interest and penalty - HELD THAT:- From the facts as stated in the impugned order, it is very clear mind that the appellants had conspired and perpetuated the alleged fraud by filing these rebate claims to defraud the exchequer of the amount claimed by them as rebate without payment of any central excise duty and without exporting any goods. It is settled principle in law and The legal maxim 'fraud vitiates everything' is very relevant to the facts herein. The economic offenders/ white collared criminals need to be dealt in the strictest manner so as maintain uniformity and well being in the society and not endanger the economy of the country - It has been settled by various authorities that the word “possession” or similar phrases used in the statute do not imply physical possession of the goods but would imply possession in law. Reliance placed in the case of MOHAN LAL VERSUS STATE OF RAJASTHAN [2015 (4) TMI 688 - SUPREME COURT], where interpreting the provisions of the Section 9 of Opium Act, 1978, and Section 18 of NDPS Act, 1985 Hon’ble Supreme Court has held that A functional and flexible approach in defining and understanding the possession as a concept is acceptable and thereby emphasis has been laid on different possessory rights according to the commands and justice of the social policy. Thus, the word 'possession' in the context of any enactment would depend upon the object and purpose of the enactment and an appropriate meaning has to be assigned to the word to effectuate the said object. Thus, it is established the phrases like “Any person who acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any good.” used in the statute, need not be restricted to their literary meanings or imply actual physical possession or handling of the contraband goods, but these phrases refer to possession and handling of the contraband goods in law. This view has been expressed by the Hon’ble Apex Court in the case of Mohan Lal, any contrary view cannot be upheld. In view of the fact that appellants were not only responsible for creating the fabricated documents but also responsible for producing the fabricated documents in respect of verification of the payment of duty and export of the goods from the port, cannot claim that they had not handled the goods in law in the manner as stated in Rule 26 of the Central Excise Rules, 2002 - thus, it is quite evident that Rule 25, 26 and 27 of the Central Excise Rules, 2002 have been framed in terms of the Rule to provide for the penalties that may be imposed for the offences as have been provided in terms of the Central Excise Act, 1944. Rule 26 either before the amendment nor after the amendment has created any offence which was not an offence as per the provisions of Section 9 of the Act. Thus, it transpires that Appellant 1 is habitual offender and has been making use of his official position to perpetuate such rebate frauds. He deserves no leniency - It is not the case that Appellant had perpetuated the fraud of Rs 1,59,07,687/- but they had filed 85 rebate claims, claiming rebate of Rs 8,32,00,658/- the fraud committed cannot be restricted to the amount claimed as rebates, as the fake documents which were prepared would be in respect of the value of goods which would be many times the amount claimed as rebate, might be in neighborhood of Rs 100 crores. The person preparing fake documents showing the export worth Rs 100 crores, without exporting any goods do not deserve any leniency. The misuse of the fake documents prepared cannot be limited to just claiming of the rebate, but these documents can be used for transporting the illegal or criminal wealth amassed by the fraudster elsewhere in the world to India through normal channels which can be used for laundering the money in India or perpetuating more criminal activities including the financing of the terror activities. Appeal dismissed. Issues Involved:1. Adjustment of amounts paid by appellants against demands confirmed.2. Imposition of penalties under Rule 26 of Central Excise Rules, 2002.3. Allegations of fraudulent rebate claims based on fake documents.4. Arguments against the penalties imposed.5. Examination of relevant legal principles and case laws.Issue-wise Detailed Analysis:1. Adjustment of Amounts Paid by Appellants Against Demands Confirmed:The Commissioner of Customs, C.Ex. & S.T., Raigad, ordered the amounts paid by the appellants to be adjusted against the demands confirmed against certain entities. Specifically, Rs. 1,01,35,000/- paid by Appellant 1 and Rs. 6,00,000/- paid by Appellant 2 were adjusted against the demands confirmed against M/s Xian Organics, M/s Swift Trading (India), and M/s New Life Organics.2. Imposition of Penalties Under Rule 26 of Central Excise Rules, 2002:Penalties were imposed on both appellants under Rule 26 of Central Excise Rules, 2002. Appellant 1 was penalized Rs. 90,00,000/- and Appellant 2 was penalized Rs. 50,00,000/- for their involvement in the fraudulent rebate claims.3. Allegations of Fraudulent Rebate Claims Based on Fake Documents:Investigations revealed that five entities filed 85 rebate claims using fake documents, resulting in sanctioned rebate claims amounting to Rs. 1,59,07,687/-. The goods were neither manufactured nor exported, and the rebate claims were based on fabricated documents. It was found that the three merchant exporters did not exist and were created to defraud the government.4. Arguments Against the Penalties Imposed:Appellant 1 argued that he deposited Rs. 1,01,35,000/- under protest and was unaware of the forged documents. He claimed his role was limited to introductions and denied any involvement in forging documents. Appellant 2 contended that handling documents without physically dealing with goods should not attract penalties under Rule 26. Both appellants argued that Rule 26, as amended in 2007, should not apply retrospectively to their case.5. Examination of Relevant Legal Principles and Case Laws:The tribunal examined various case laws and legal principles to address the appellants' arguments. It was established that 'possession' under Rule 26 does not imply physical possession but can include legal possession. The tribunal referred to several judgments, including those by the Supreme Court, to conclude that penalties under Rule 26 were applicable even if the appellants did not physically handle the goods. The tribunal also emphasized that fraud vitiates all transactions and that economic offences should be dealt with strictly to maintain the integrity of the economy.Conclusion:The tribunal dismissed the appeals, upholding the penalties imposed on the appellants. It concluded that the appellants were involved in a conspiracy to defraud the government by filing fraudulent rebate claims and that their actions warranted strict penalties under Rule 26 of the Central Excise Rules, 2002. The tribunal also clarified that the amendments to Rule 26 made in 2007 were clarificatory and did not create new offences, thus applicable to the appellants' actions.