2025 (2) TMI 623 - HC - Central Excise

Court Quashes Penalty Order for Firm Partner Due to Natural Justice Breach and Time-Bar; CESTAT Decision Upheld.

The Court allowed the Writ Petition, quashing the impugned Order-in-Original that imposed a penalty on the petitioner, a partner in a firm. The Court ... Imposition of penalty on the Petitioner in his capacity as a partner, under Rule 26 of the Central Excise Rules, 2002 read with Sections 142 and 174 of the Central Goods and Services Tax Act, 2017 - non-service of SCN - SCN was never addressed to the Petitioner and was never served - violation of principles of natural justice - HELD THAT:- It is found that indeed the Show Cause Notice has only been addressed to the said Firm and not to the Petitioner. If the Show Cause Notice proposed to impose any penalty on the Petitioner, it was incumbent upon the authorities to address the Show Cause Notice to the Petitioner and also serve it upon him. A notice of the personal hearing also ought to have been given to the Petitioner in his personal capacity. This has undisputedly not been done in the present case. This itself, without anything more, would make Order dated 2nd December, 2022 vulnerable and suspectable to challenge. The Department challenging the Order of the CESTAT before the Hon’ble Supreme Court would make no difference to the outcome of the present Petition. As things stands today, the Show Cause Notice has been held to be time barred by the CESTAT. There is no stay of the said order. This is apart from the fact that as far as the present Petitioner is concerned, as noted above, there has been a complete breach of the principles of natural justice before passing the impugned order qua the Petitioner. Once this is the case, even assuming for the sake of argument that the Revenue were to succeed before the Hon’ble Supreme Court, the Order passed against the Petitioner herein still cannot be allowed to stand and would have to be set aside. Conclusion - The imposition of a penalty on the petitioner without serving him the Show Cause Notice and breaching principles of natural justice was not valid. Petition allowed. The issues presented and considered in the judgment are as follows:1. Whether the imposition of a penalty on the petitioner, a partner in a firm, without serving the Show Cause Notice upon him and breaching principles of natural justice, is validRs. 2. Whether the Order-in-Original passed by Respondent No. 3 imposing a penalty on the petitioner can be upheld in light of the decision of the Central Excise and Service Tax Appellate Tribunal (CESTAT) setting aside the said order on the grounds of being time-barredRs.Issue-Wise Detailed Analysis:Issue 1:Relevant Legal Framework and Precedents:- The case involves the imposition of a penalty on the petitioner, a partner in a firm, without serving the Show Cause Notice upon him, which raises concerns regarding the principles of natural justice.Court's Interpretation and Reasoning:- The Court noted that the Show Cause Notice was not addressed to the petitioner individually and was not served upon him as required by law.- The Court emphasized that the failure to serve the petitioner personally with the notice and provide him with an opportunity to be heard constitutes a breach of natural justice.Key Evidence and Findings:- The Show Cause Notice was only addressed to the firm and not to the petitioner individually.- The record confirmed that the petitioner was not served with the notice or informed of the personal hearing.Application of Law to Facts:- The Court applied the principles of natural justice and due process to determine the validity of imposing a penalty on the petitioner without proper notice.Treatment of Competing Arguments:- The petitioner argued that the penalty imposed on him was invalid due to the lack of proper service of the Show Cause Notice.- The respondents may have argued for the validity of the penalty despite the procedural irregularities.Conclusions:- The Court concluded that the imposition of a penalty on the petitioner without serving him the Show Cause Notice and breaching principles of natural justice was not valid.Issue 2:Relevant Legal Framework and Precedents:- The CESTAT set aside the Order-in-Original dated 2nd December, 2022, on the grounds that the Show Cause Notice was time-barred.Court's Interpretation and Reasoning:- The Court considered the decision of the CESTAT in setting aside the order due to the time-barred nature of the Show Cause Notice.- The Court noted that the CESTAT's decision rendered the imposition of penalties on the firm and its partner invalid.Key Evidence and Findings:- The CESTAT's order dated 15th October, 2024, set aside the Order-in-Original and held that no duty, interest, or penalties could be levied on the firm or its partner.Application of Law to Facts:- The Court applied the CESTAT's decision and its implications on the validity of the penalties imposed.Treatment of Competing Arguments:- The Department may have challenged the CESTAT's decision before the Supreme Court, seeking to overturn it.Conclusions:- The Court concluded that the CESTAT's decision rendered the penalties imposed on the firm and its partner invalid, regardless of the Department's challenge before the Supreme Court.Significant Holdings:- The Court held that the imposition of a penalty on the petitioner without serving him the Show Cause Notice and breaching principles of natural justice was not valid.- The Court upheld the decision of the CESTAT in setting aside the Order-in-Original due to it being time-barred, thereby invalidating the penalties imposed.Overall, the Court allowed the Writ Petition and quashed the impugned Order-in-Original to the extent it imposed a penalty on the petitioner, citing violations of natural justice and the CESTAT's decision on the time-barred nature of the Show Cause Notice.