2025 (7) TMI 1135 - AT - Central Excise

Proprietorship firm liable for excise duty after crossing Rs 1.5 crore threshold but penalties set aside

CESTAT KOLKATA held that the appellant proprietorship firm, which manufactured pesticides and related products under Chapter 38.08, was liable to pay ... Recovery of evaded Central excise Duty by invocation of extended period of limitation - appellant no. 1 had not obtained central excise registration and evaded payment of central excise duty by wilful suppression of facts from the Department - levy of penalties on proprietorship firm and proprietor both - HELD THAT:- It is found that a joint physical stock verification were conducted in respect of the raw materials and finished goods lying in the factory premises of the appellant no. 1. The goods were detained for the purpose of further verification with their private records. On verification, it was found that the stock of finished goods tallied with the stocks recorded in their private stock register. Thus, the appellant no. 1 has maintained proper records of their manufacturing and clearance activities and there was complete transparency in the business operations of the appellants. The appellants have not suppressed any information before the Departmental authorities and there was a complete transparency in the business documents of the appellants. Further, the appellants have also properly maintained the books of accounts, followed proper VAT compliance and commercial invoicing in respect of their clearances. These facts have been admitted by the investigation in the show cause notice itself. Thus, the suppression of facts with an intention to evade the tax has not been established in this case. Non-payment of central excise duty after crossing the threshold exemption limit of Rs. 1.5 crores - HELD THAT:- The appellant no. 1 have submitted that they were under the bona fide belief that their value of clearances, in all the financial years, were less than Rs.1.5 crores and accordingly, did not pay central excise duty on the goods manufactured and cleared by them, as they have calculated the value of clearances by taking into account the sale value declared in the invoices and not on the basis of MRP less abatement. However, the appellant no.1 accepted the fact that all the goods, namely, Pesticides, Insecticides, Micronutrients, Herbicides, etc., manufactured by the appellant no. 1 fall falling under Chapter 38.08 of the Central Excise Tariff Act, 1985 and are liable for MRP based assessment and the value of clearances are to be computed after allowing abatement at the rate of 30% from the MRP price. After allowing such abatement from the MRP based value, the value of clearances in the respective financial years is found to be beyond the threshold limit of Rs.1.5 crores - appellant is liable to pay central excise duty for the goods manufactured and cleared by them after crossing the threshold exemption limit of 1.5 crores. However, as there is no suppression of facts with intent to evade duty on the part of the appellants established in the instant case for invocation of the extended period of limitation, the extended period of limitation cannot be invoked in the facts and circumstances of the case. Even with regard to the allegation of clandestine clearance of goods against the appellant no. 1, it is found that there is no corroborative evidence brought on record in the impugned order to substantiate this allegation. Hence, the allegation of clandestine clearance also appears to be unsustainable. The demand confirmed in this case by invocation of the extended period of limitation is not sustainable. However, it is a fact that the appellant has not disputed the duty liability for the extended period of limitation before the Commissioner (Appeals) and disputed only the penalty imposed on both the appellants. Thus, even though the extended period of limitation is not invokable in this case to confirm the demand of duty, it is not required to go into the merits of liability of duty confirmed for the extended period of limitation, as the said issue was not part of the impugned order passed by the Commissioner (Appeals). Accordingly, the finding is restricted only with respect to penalty imposed on the appellants. Penalties imposed on the appellant no. 1 herein - HELD THAT:- There is no suppression of facts with the intent to evade payment of duty attributable to the appellants in the present case. Further, the appellants’ records and transactions have been found to be properly maintained / recorded, VAT was duly paid, and commercial invoices were issued for all clearances. The non-payment of central excise duty was only due to the bona fide belief that central excise duty was not liable to be paid. In these circumstances, the imposition of penalty on the appellant no. 1 is not sustainable. Penalty imposed on the proprietor / appellant no. 2 under Rule 25 of the Central Excise Rules, 2002 - HELD THAT:- A proprietorship firm has no separate legal existence apart from its proprietor. The proprietor and the proprietorship are one and the same entity. Therefore, I am of the view that imposing penalty both on the firm and its proprietor amounts to double jeopardy. Accordingly, no separate penalty is imposable on the proprietor / appellant no. 2 and hence, the same is liable to be set aside. The penalties imposed on both the appellants are set aside - appeal disposed off. ISSUES: Whether the demand of Central Excise duty confirmed by invoking the extended period of limitation is sustainable in the absence of suppression of facts with intent to evade duty.Whether the allegation of clandestine clearance of excisable goods is substantiated by evidence.Whether the appellants maintained proper records and complied with VAT and commercial invoicing requirements.Whether the bona fide belief regarding non-liability to pay Central Excise duty exempts the appellants from penalty and extended period invocation.Whether penalties under Section 11AC of the Central Excise Act, 1944 and Rule 25 of the Central Excise Rules, 2002 are sustainable against the firm and its proprietor, respectively.Whether imposition of penalty both on a proprietorship firm and its proprietor amounts to double jeopardy. RULINGS / HOLDINGS: The demand of Central Excise duty confirmed by invoking the extended period of limitation is not sustainable as 'suppression of facts with an intention to evade duty has not been established' and the appellants maintained 'complete transparency in the business documents.'The allegation of clandestine clearance is unsustainable due to lack of corroborative evidence and the fact that commercial invoices were issued and VAT was paid, consistent with the principle that such clearances cannot be considered clandestine.The appellants maintained proper records of manufacturing and clearance activities, including private stock registers and statutory Daily Stock Account registers, and complied with VAT and commercial invoicing requirements, as admitted in the Show Cause Notice.The bona fide belief of the appellants that Central Excise duty was not leviable due to turnover calculations based on invoice value rather than MRP less abatement negates the element of suppression, making invocation of the extended period improper.The imposition of penalty on the appellants under Section 11AC and Rule 25 is not sustainable in the absence of suppression or intent to evade duty, given proper maintenance of records and compliance.Imposing penalty both on the proprietorship firm and its proprietor constitutes double jeopardy since 'a proprietorship firm has no separate legal existence apart from its proprietor.' Therefore, penalty on the proprietor is liable to be set aside. RATIONALE: The Court applied the Central Excise Act, 1944, and Central Excise Rules, 2002, particularly Sections 11A(4), 11AA, 11AC, and Rule 25, alongside principles governing extended period of limitation and penalty imposition.The Court relied on the principle that invocation of the extended period requires proof of suppression with intent to evade duty, which was not established due to full transparency, proper record-keeping, and VAT compliance.The Court referenced precedent holding that issuance of commercial invoices and VAT payment preclude findings of clandestine clearance, notably the Tribunal decision in Neptune Equipment Pvt Ltd, which was followed here.The Court recognized the legal doctrine that a proprietorship and its proprietor are one and the same entity, precluding double penalties for the same act under separate identities.The Court distinguished between duty liability and penalty imposition, noting that the appellants did not dispute duty liability before the Commissioner (Appeals) but challenged penalties, thus restricting its findings to penalty issues.