2023 (8) TMI 313 - AT - Central Excise

Tribunal overturns penalty for duty underpayment by corporate body under Central Excise Rules

M/s. Megatherm Electronics Private Limited Versus Commissioner of Central Excise, Bolpur

The Tribunal set aside the penalty imposed on the Appellant under Rule 209A of the Central Excise Rules, 1944, for supplying an Induction Furnace of 4 M.T ... Levy of penalty under Rule 209A of the Central Excise Rules, 1944 - wrongfully paid less duty - on detection of mistake the duty was paid and intimation to Range superintendent also made, before issuance of SCN - HELD THAT:- In the present case penalty has been imposed on the Appellants under the provisions of Rule, 209A of the Central Excise Rules, 1944. The provisions of Rule 209A ibid specifically postulates that any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these Rules, shall be liable to a penalty not exceeding three times of the value of such goods or Rs.5,000/-, whichever is greater. There is merit in the contention of the Appellant. Penalty under Rule 209A, which is akin to Rule 26 of the Central Excise Rules, 2002 is imposable only on an individual and not on a Firm, as held by the Tribunal, Kolkata in the case of WOODMEN INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE, PATNA [2003 (9) TMI 228 - CESTAT, KOLKATA] - In the case of ADITYA STEEL INDUSTRIES VERSUS COMMR. OF CENTRAL EXCISE, HYDERABAD [1996 (2) TMI 232 - CEGAT, MADRAS], also it has been held that Penalty under Rule 209A not imposable on a partnership concern and only person concerned can be penalized under this section. The Appellant has short paid the duty inadvertently, which has been rectified by them by paying the differential duty along with interest before issue of the Notice. Also, the impugned order has not brought any evidence on record to substantiate the allegation of abetment of the offence by the Appellant. By relying on the decisions cited above, the penalty under Rule 209A of the Central Excise Rules, 1994 imposed on the Appellant is not sustainable. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under Rule 209A of the Central Excise Rules, 1944 is imposable on a corporate body/firm or is confined to a 'person' in the individual sense. 2. Whether Rule 209A requires proof of knowledge or reason to believe that goods are liable to confiscation, and if such mental element and active involvement (abetment) were proved against the appellant. 3. Whether voluntary detection and regularization by payment of differential duty with interest before issuance of show-cause notice negates liability to penalty under Rule 209A. 4. Whether mis-declaration of capacity (and related factual disputes about actual capacity) without supporting evidence suffices to sustain penalty under Rule 209A. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of Rule 209A to corporate bodies/firms Legal framework: Rule 209A (erstwhile Rule 26 of the Central Excise Rules, 2002) prescribes penalty for any person who acquires possession of, or deals with, excisable goods which he knows or has reason to believe are liable to confiscation; penalty can be up to three times the value of goods or Rs.5,000/- whichever is greater. Precedent Treatment: The Tribunal has earlier held that the rule contemplates imposition of penalty on an individual 'person' and is not ordinarily imposable on a firm or corporate entity; prior decisions treated the provision as inapplicable to firms/corporates in similar factual matrices. Interpretation and reasoning: The Court accepts the line of authority that Rule 209A is directed at a person in the individual sense and not meant to penalize a corporate body or firm simply as an entity. The provision's language and prior tribunal interpretations were relied upon to conclude that the statutory machinery contemplates personal culpability (individual mens rea or personal conduct) rather than vicarious liability of corporate/firm as such. Ratio vs. Obiter: Ratio - Rule 209A is not imposable on a firm/corporate body when the statutory text and tribunal precedent delineate personal liability; application of that principle to set aside penalty in this appeal is dispositive. Conclusion: Penalty under Rule 209A, in the facts before the Tribunal, is not sustainable against the appellant as a corporate entity; the provision cannot be the basis for penalizing the appellant. Issue 2: Requirement of knowledge/reason to believe and proof of abetment Legal framework: Rule 209A penalizes persons who 'know or have reason to believe' that the goods are liable to confiscation - importing a mental element (knowledge/reason to believe) and active dealing/abetment in the prohibited acts enumerated in the rule. Precedent Treatment: Tribunal decisions require evidence to establish that the accused had the requisite knowledge/reason to believe or actively participated in conduct leading to evasion/confiscation; mere mis-declaration without proof of mens rea or abetment will not sustain penalty under Rule 209A. Interpretation and reasoning: The adjudicating authority failed to bring evidence proving that the appellant knew or had reason to believe the furnaces were liable to confiscation or that the appellant abetted the buyer's alleged evasion. The Tribunal examined the record and found the department did not substantiate allegations of active facilitation or abetment. Absent proof of knowledge or participation, the statutory threshold for Rule 209A is unmet. Ratio vs. Obiter: Ratio - Proof of knowledge/reason to believe and active involvement is essential to sustain penalty under Rule 209A; lacking such proof, penalty cannot be imposed. Conclusion: In absence of evidence establishing knowledge/reason to believe or abetment by the appellant, penalty under Rule 209A could not be sustained. Issue 3: Effect of voluntary detection and payment of differential duty with interest before issuance of SCN Legal framework: Principles relevant to mitigation and imposition of penalty include voluntary disclosure/rectification and payment of dues prior to departmental action; while not automatically exculpatory, such conduct bears on culpability and appropriateness of penal action. Precedent Treatment: Tribunal practice recognizes that inadvertent short payment rectified voluntarily before initiation of proceedings is a significant factor against imposing punitive sanctions under provisions requiring culpability. Interpretation and reasoning: The appellant detected the mistake, paid the differential duty with interest, and intimated the Range Superintendent before issuance of the show-cause notice. The Tribunal treated this as evidence of inadvertence and corrective intent, weakening any inference of deliberate abetment or concealment. Given absence of contrary evidence of mens rea, voluntary regularization militates against imposition of Rule 209A penalty. Ratio vs. Obiter: Ratio - Voluntary detection and payment before SCN is material to negate the culpable mental state required for Rule 209A and to rebut allegations of abetment; it supports waiver of penalty in the absence of evidence to the contrary. Conclusion: The appellant's voluntary regularization prior to SCN undercuts the basis for penalty under Rule 209A and supports setting aside the penalty. Issue 4: Sufficiency of mis-declaration and factual dispute over furnace capacity Legal framework: Liability under Rule 209A requires not only prohibited dealing but also knowledge/reason to believe of confiscability; factual disputes about nature/capacity of goods bear on whether mis-declaration was deliberate or inadvertent and whether goods were liable to confiscation. Precedent Treatment: Tribunal decisions require factual corroboration (measurement methodology, evidence of capacity determination, or other documentary/forensic proof) before concluding deliberate mis-declaration and culpability. Interpretation and reasoning: The adjudicating authority alleged mis-declaration of furnace capacity (indicating higher capacity than invoiced), but did not explain how capacity was determined or produce evidence to substantiate the claim (e.g., technical measurement, expert report). The appellant explained practical reasons for apparent extra space and characterized the incident as inadvertence. In absence of evidentiary foundation on actual capacity and deliberate mis-declaration, the allegation was held to be unproven. Ratio vs. Obiter: Ratio - Unsupported factual assertions about capacity and mis-declaration cannot sustain penalty under Rule 209A; evidentiary proof of capacity and deliberate misstatement is necessary to establish the offense. Conclusion: The department failed to establish the factual premise (actual higher capacity and intentional mis-declaration); without such proof, the imposition of penalty under Rule 209A was unsustainable. Cross-References and Overall Conclusion Collectively addressing Issues 1-4: The Tribunal relied on the combined effect of precedent limiting Rule 209A to individuals, the absence of evidence of knowledge/abetment, the appellant's voluntary rectification before issuance of SCN, and lack of proof on factual parameters (furnace capacity). These factors led to the conclusion that the penalty under Rule 209A was not sustainable and was set aside.