Illicit Goods Removal Case: Co-Noticee Penalty Overturned Following Main Party Settlement Under SVLDRS 2019

The SC examined a case involving penalty for illicit removal of excisable goods under Central Excise Rules. The HC found the appellant knowingly involved in duty evasion, initially sustaining a penalty. However, following the main party's settlement under SVLDRS 2019, the court set aside the penalty on the co-noticee, citing a binding Division Bench precedent that penalties cannot survive post main case settlement.

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1. ISSUES PRESENTED and CONSIDERED

- Whether the penalty imposed on the appellant under Rule 26(1) of the Central Excise Rules, 2002, for being knowingly concerned in the illicit removal and purchase of excisable goods without payment of duty, is sustainable.

- Whether the appellant was given adequate opportunity of hearing before the adjudicating authority and the penalty imposition was not ex-parte.

- The legal effect of the main party's settlement of the duty evasion case under the Sabka Vishvas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS 2019), on the penalty imposed on the co-noticee/appellant.

- The applicability and binding nature of precedents, including a Division Bench judgment versus a Single Member Bench judgment, on the issue of penalty survival post SVLDRS settlement.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Sustainability of Penalty under Rule 26(1) of Central Excise Rules, 2002

The relevant legal framework is Rule 26(1) of the Central Excise Rules, 2002, which empowers imposition of personal penalty on persons knowingly concerned in illicit removal or purchase of excisable goods liable for confiscation. The adjudicating authority confirmed a penalty of Rs. 10,00,000/- on the appellant, holding that the appellant was fully aware and responsible for purchasing goods clandestinely cleared by M/s Narendra Plastic Pvt. Limited without payment or reversal of Central Excise duty equal to the CENVAT credit availed.

The Court noted that the appellant was knowingly involved in transporting, removing, depositing, keeping, concealing, selling, and purchasing excisable goods which were liable to confiscation. The evidence included seizure of records and intelligence gathered by DGCEI, revealing illicit clearance of 1309 MT of plastic granules involving duty evasion exceeding Rs. 1 crore. The appellant's failure to produce material evidence to rebut the charge or establish innocence was considered.

On appeal, the Commissioner (Audit/Appeals) confirmed the penalty but reduced it to Rs. 5.35 lacs, finding that adjudication procedures were followed and ample opportunity was provided to the appellant, who failed to avail personal hearings scheduled multiple times. The plea of ex-parte order was rejected.

Thus, the penalty imposition was legally sustainable based on the appellant's knowledge and involvement, corroborated by seized evidence and procedural fairness.

Issue 2: Adequacy of Opportunity of Hearing

The appellant contended that the penalty was imposed ex-parte without adequate hearing. The Commissioner (Audit/Appeals) examined the procedural record and found that the appellant was given multiple opportunities to present their defense, including several personal hearings fixed on different dates, all of which the appellant failed to attend. No material evidence was produced to demonstrate denial of opportunity.

The Court concurred with this finding, holding the plea of ex-parte penalty imposition untenable. The procedural safeguards under the Central Excise Rules and principles of natural justice were complied with, and the appellant's non-participation did not vitiate the order.

Issue 3: Effect of SVLDRS 2019 Settlement of Main Party on Penalty on Co-noticee/Appellant

The appellant's counsel relied on the fact that the main party, M/s Narendra Plastics Pvt. Limited, had settled the duty evasion case under the Sabka Vishvas (Legacy Dispute Resolution) Scheme, 2019, which provides for withdrawal of appeals under Section 127(6) of the Finance (No.2) Act, 2019. This Tribunal's Division Bench had earlier allowed withdrawal of the main party's appeal on this ground.

The appellant further relied on a Division Bench judgment in the case of Vipinbhai Kantilal Patel vs. CCE, Ahmedabad, where it was held that when the main case of duty evasion is settled under SVLDRS 2019, the penalty imposed on the co-noticee/appellant does not survive and must be set aside. The rationale is that penalty is consequential to the main demand and cannot subsist independently once the main demand is resolved under SVLDRS.

The Department opposed this plea, citing a Single Member Bench decision in M/s Four R Associates & Ors vs. Commissioner of GST & CE, Chennai, where penalty on co-noticees was only reduced and not set aside post settlement of the main case.

The Court distinguished the conflicting precedents on the basis of the bench strength, giving precedence to the Division Bench ruling over the Single Member Bench decision. It held that the Division Bench judgment in Vipinbhai Kantilal Patel's case is binding and applicable.

Therefore, the Court concluded that since the main party's case was settled under SVLDRS 2019, the penalty imposed on the co-noticee/appellant cannot survive and must be set aside.

3. SIGNIFICANT HOLDINGS

"When the case of duty evasion of the main party has been settled under SVLDRS 2019, the penalty on the co-noticee/appellant cannot survive."

"The adjudicating authority has followed the adjudication procedures and gave sufficient opportunity for this cause. The plea regarding ex-parte order without giving ample opportunity for being heard personally is not tenable."

"The appellant was knowingly concerned in transporting, removing, depositing, keeping, concealing, selling and purchasing the excisable goods which they knew or had reason to believe were liable to confiscation under Central Excise Act, 1944 or the Rules made thereunder."

Core principles established include:

• Personal penalty under Rule 26(1) can be imposed on persons knowingly concerned in illicit removal or purchase of excisable goods without payment of duty.
• Procedural fairness requires that the appellant be given adequate opportunity of hearing, and failure to avail such opportunity justifies confirmation of penalty.
• Settlement of the main duty evasion case under SVLDRS 2019 leads to withdrawal of appeals and extinguishes penalties imposed on co-noticees/appellants related thereto.
• Division Bench decisions of the Tribunal take precedence over Single Member Bench decisions in case of conflicting views.

Final determinations:

• The penalty of Rs. 10,00,000/- imposed on the appellant was initially sustainable based on evidence and procedural compliance.
• The plea of ex-parte penalty imposition was rejected due to adequate opportunity provided to the appellant.
• However, in light of the main party's settlement under SVLDRS 2019 and binding Division Bench precedent, the penalty on the appellant is set aside and the appeal is allowed.

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