Personal penalty set aside as company entitled to exemption under Notification 12/2012-CE without procedural conditions

CESTAT Ahmedabad set aside personal penalty imposed on appellant under Rule 26 of Central Excise Rules, 2012 for allegedly aiding duty evasion. The tribunal held that drugs and bulk drugs are identical, making the company entitled to exemption under Notification 12/2012-CE Sr. No. 108 description (A) without procedural conditions. Since duty demand on the company was unsustainable and no suppression of facts occurred, personal penalty on the employee was unjustified. The matter involved pure notification interpretation without mala fide intent. Appeal allowed.

---

---

Issues Involved:

1. Denial of exemption under Notification No. 12/2012-CE for specific drugs.
2. Imposition of penalty under Rule 26 of Central Excise Rules, 2012 on an individual for aiding or abetting duty evasion.

Issue-wise Detailed Analysis:

1. Denial of Exemption under Notification No. 12/2012-CE:

The primary issue was whether the drugs manufactured by the appellant, namely Idarubicin hydrochloric acid, Doxorubicin hydrochloric acid, Daunorubicin hydrochloric acid, Epirubicin hydrochloric acid, and Zoledronic Acid, were eligible for exemption under Notification No. 12/2012-CE. The department contended that these drugs fell under description (B) of Sr. No. 108 of the notification, which required compliance with specific procedural rules for exemption. The appellant argued that the drugs were covered under description (A) of Sr. No. 108, which did not impose such conditions, thus claiming unconditional exemption.

The tribunal examined the merits of the case, referencing several judgments, including Cipla Ltd. and Hetero Drugs Ltd., which supported the interpretation that "bulk drugs" and "drugs" are synonymous under the relevant notifications. The tribunal concluded that the drugs in question were indeed covered under description (A) of Sr. No. 108, granting them unconditional exemption. Consequently, the procedural non-compliance alleged by the department was deemed irrelevant, and the duty demand on the company was not sustainable.

2. Imposition of Penalty under Rule 26:

The second issue concerned the imposition of a penalty on Shri K Baser, Vice President of M/s. Sterlling Biotech Ltd., under Rule 26 of the Central Excise Rules, 2012. The penalty was based on the charge of aiding or abetting duty evasion. The appellant argued that there was no mala fide intent or suppression of facts, as the company had consistently declared the notification and product details in their returns.

The tribunal found that the issue was purely interpretational regarding the exemption notification. Citing the judgment in S K Shah, the tribunal emphasized that penalties under Rule 26 could not be imposed in cases involving interpretational disputes, especially when there was no evidence of intent to evade duty. The tribunal concluded that the penalty on the appellant was unsustainable and set it aside.

Conclusion:

The tribunal allowed the appeal, setting aside the penalty imposed on the appellant. It held that the drugs were eligible for exemption under description (A) of Sr. No. 108 of Notification No. 12/2012-CE, and there was no basis for the penalty under Rule 26, given the interpretational nature of the dispute and lack of mala fide intent.

---