Company officials liable for Rule 26 penalty despite no confiscation order for clandestine removal

Gujarat HC dismissed appeals challenging penalty under Rule 26 of Central Excise Rules, 2002 for clandestine removal. Appellants were company officials including Managing Director, President, and Vice-President. Court held Rule 26 penalty can be imposed on persons concerned with removal of goods liable to confiscation, even without confiscation order. Authority properly invoked Rule 26 based on recorded statement admitting involvement. Appellants' contention about failure to specify applicable sub-rule was baseless. Non-cooperation in investigation by two appellants did not prevent penalty imposition given their knowledge of company affairs. CESTAT order upheld.

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Issues Involved:
1. Imposition of Penalty under Rule 26 of the Central Excise Rules, 2002.
2. Specificity of the Clause Contravened under Rule 26.
3. Imposition of Penalty without Proposal for Confiscation of Goods.
4. Reliance on Partial Statements by the Appellate Tribunal.
5. Mens Rea Requirement for Penalty under Rule 26.

Detailed Analysis:

1. Imposition of Penalty under Rule 26 of the Central Excise Rules, 2002:
The appellants were penalized under Rule 26 of the Central Excise Rules, 2002, for their involvement in the clandestine removal of sugar without paying the required duty. The company, M/s. Shree Sardar Co-operative Sugar Industries Limited, was found to have issued parallel invoices and concealed the excess clearance in their records. The adjudicating authority, in its Order-in-Original, observed that the illicit clearance of sugar was carried out with the active knowledge and connivance of the senior functionaries, including the Managing Director, other Directors, President, and Vice-President. The CESTAT upheld this penalty, emphasizing that the systematic act of clandestine removal could not have been executed without the knowledge of the company's board, which included all the directors.

2. Specificity of the Clause Contravened under Rule 26:
The appellants argued that the Appellate Tribunal erred in upholding the penalty without specifying which particular clause of Rule 26 had been contravened. The adjudicating authority and the Tribunal, however, found that the appellants were clearly involved in the removal of goods, which they knew were liable to confiscation under the Act. The Tribunal held that the appellants were put to notice about the invocation of Rule 26(1), and merely not mentioning the specific sub-rule did not invalidate the penalty imposition.

3. Imposition of Penalty without Proposal for Confiscation of Goods:
The appellants contended that the penalty under Rule 26 could not be imposed without a proposal and order for the confiscation of the goods in question. The adjudicating authority raised a demand for the recovery of the evaded duty but did not order the confiscation of the goods. The Tribunal rejected this argument, stating that the appellants were involved in the removal of goods liable to confiscation, which justified the penalty under Rule 26.

4. Reliance on Partial Statements by the Appellate Tribunal:
The appellants claimed that the Tribunal relied on statements that suited the adjudicating authority's version while ignoring parts favorable to the appellants. The Tribunal, however, found that the statements of Mr. Narendrabhai Solanki, the In-charge Managing Director, and other employees clearly indicated the practice of overselling sugar and maintaining two sets of records. These statements were not retracted and were corroborated by other documentary evidence. The Tribunal concluded that the appellants were aware of and involved in the clandestine removal of goods.

5. Mens Rea Requirement for Penalty under Rule 26:
The appellants argued that no mens rea (guilty mind) was established for the imposition of the penalty under Rule 26. The Tribunal found that the appellants' knowledge and involvement in the clandestine removal of goods were evident from the statements and documentary evidence. The systematic modus operandi of overselling sugar without paying the required duty indicated a deliberate and conscious decision by the company's board, including the appellants. Therefore, the Tribunal upheld the penalty, rejecting the argument that mens rea was not established.

Conclusion:
The High Court dismissed the appeals, affirming the concurrent findings of the adjudicating authority and the Tribunal. The court held that the appellants were clearly involved in the clandestine removal of goods, and the penalty under Rule 26 was justified. The court found no substantial question of law arising from the impugned orders and dismissed the civil applications as well.

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