2025 (9) TMI 1604 - AT - Central Excise

Sabka Vishwas Scheme 2019 waiver bars co-appellants from contesting corollary penalty appeals after main appellant withdraws

CESTAT Kolkata (AT) dismissed the main appeal as withdrawn because the principal appellant availed the Sabka Vishwas (Legacy Dispute Resolution) Scheme, ... Dismissal of appeal as withdrawn - levy of penalty u/r 26 of the Central Excise Rules, 2002 - alleged violation of the Cenvat Credit Rules, 2002/2004 pertaining to the period from 2002-03 to 2006-07 - HELD THAT:- It is found that the main Appellant M/s. Oriplast Ltd. has gone for Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 and accordingly their Appeal was dismissed as withdrawn vide Final Order No.75424/2020 dated 05.10.2020 [2020 (10) TMI 1402 - CESTAT KOLKATA] This matter came up before the Ahmedabad Bench of the Tribunal in the case of Prakash Steelage Ltd. & Others v. CCE & ST, Bharuch [2024 (11) TMI 468 - CESTAT AHMEDABAD], which has held that 'we find that as of now it is settled that once the duty demand case is settled under SVLDRS-2019, as per Scheme itself, there is a waiver of penalties on the main assessee against whom the demand was confirmed as well as on other co-noticees.' It is found that the present Appeals are emanating from the proceedings initiated against the company M/s.Ori-Plast Ltd. Since they have opted for Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, their Appeal has been dismissed. Therefore, when the case has not been argued on merits by the main party, the present Appellants may not be in a position to defend their case, which basically is on account of corollary penalties. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether settlement of the principal duty-demand under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS-2019) by the main assessee operates to erase or invalidate personal/penal liabilities imposed on co-noticees under Rule 26 of the Central Excise Rules, 2002. 2. Whether co-noticees who did not themselves file a declaration under SVLDRS-2019 remain liable to the personal penalties once the principal noticee's dues are settled under SVLDRS-2019. 3. Whether any distinction arises from the recovery basis (duty recovery under Section 11A of the Central Excise Act, 1944 or otherwise) that would prevent co-noticees from obtaining relief consequent to the main assessee's settlement under SVLDRS-2019. 4. Precedential question: the binding effect of Division Bench decisions on Single Member Bench decisions on the issue of relief under SVLDRS-2019 as applied to penalties on co-noticees. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Effect of SVLDRS-2019 settlement by principal on penalties imposed on co-noticees Legal framework: Chapter V of the Finance Act, 2019 (SVLDRS-2019) defines 'tax dues' and prescribes settlement alternatives, expressly providing for relaxation/forgoing of interest, penalty and other consequences upon prescribed deposit/settlement; Rule 26 of the Central Excise Rules, 2002 permits imposition of personal penalty on persons responsible for contraventions. Precedent treatment: The Tribunal relied on contemporaneous Division Bench decisions holding that SVLDRS-2019's grant of relief to the principal-noticee includes waiver/erasure of penalties not only against the main assessee but also against co-noticees. Those Division Bench authorities were followed rather than distinguished. Interpretation and reasoning: The Court reasoned that the Scheme is directed at erasing the 'detriment of penalty' in connection with settled 'tax dues' and that the Scheme's object is collection of duty (or a percentage thereof) and forgoing interest and penalties. Where the principal noticee's liability is settled under SVLDRS-2019, continuing personal penalties against co-noticees would be inconsistent with the Scheme's purpose and relief provisions, even if the co-noticees did not themselves obtain declarant status under the Scheme. Ratio vs. Obiter: Ratio - SVLDRS-2019 settlement of the main demand entails erasure of penalties flowing from that demand in respect of co-noticees; it is not merely an obiter observation. The decision to set aside penalties in the present appeals is founded on that legal conclusion. Conclusion: Penalties imposed on co-noticees in respect of a demand that has been settled under SVLDRS-2019 are not sustainable and must be set aside; the Tribunal applied this principle to allow the appeals and erase consequential penal liabilities. Issue 2 - Relief for co-noticees who did not file declarations under SVLDRS-2019 Legal framework: SVLDRS-2019 contemplates a declarant mechanism and prescribes consequences of deposit/settlement; it does not expressly enumerate co-noticees' separate filing requirements for eradication of penalties where the principal's dues are settled. Precedent treatment: Division Bench authorities cited by the Tribunal held that co-noticees' penalties do not survive when the principal case is settled under SVLDRS-2019, even if the co-noticees themselves did not file declarations. The Tribunal relied on those Division Bench rulings rather than contrary Single Member Bench authority. Interpretation and reasoning: The Tribunal treated the Scheme's purpose (removal of liability consequences attendant to settled tax dues) as extending relief to co-noticees; the ability of the Scheme to accomplish its aim would be frustrated if penalties on co-noticees could survive solely because they did not separately file a declaration. The logic is that the Scheme erases the penal consequence flowing from the tax dispute once the core tax dues are addressed. Ratio vs. Obiter: Ratio - Co-noticees need not have independently filed under SVLDRS-2019 to obtain erasure of penalties where the principal's demand has been settled under the Scheme; this finding is treated as dispositive for the appeals. Conclusion: Co-noticees' personal penalties are unsustainable and will be set aside notwithstanding absence of their own SVLDRS-2019 declarations, provided the principal's demand has been settled under the Scheme. Issue 3 - Impact of recovery basis (e.g., Section 11A demand) on co-noticee relief Legal framework: Section 11A (and analogous recovery provisions) govern duties and their recovery; SVLDRS-2019 addresses 'tax dues' and specifies relief percentages and waiver of consequences for settled disputes. Precedent treatment: The Tribunal noted that where the impugned order upheld recovery of duties (including under Section 11A), individual co-appellants may not have been eligible to be declarants at the time; however, Division Bench authority interpreted the Scheme's relief to operate irrespective of such eligibility concerns in respect of penalties. Interpretation and reasoning: The Tribunal acknowledged that the Scheme's relief is aimed at tax dues and that certain technical eligibility limitations for declarant status do not defeat the Scheme's intent to erase penalties linked to settled demands. Therefore, the presence of a duty recovery under Section 11A does not preclude erasure of penalties on co-noticees once the principal's liability has been settled under SVLDRS-2019. Ratio vs. Obiter: Ratio - The fact that recovery was upheld under Section 11A does not prevent application of SVLDRS-2019 relief to eliminate penalties on co-noticees when the main noticee's case has been settled; this is a central holding applied to the facts. Conclusion: The recovery basis (including Section 11A) does not, by itself, sustain co-noticee penalties where the principal's tax dues are settled under SVLDRS-2019; penalties are to be set aside. Issue 4 - Precedential hierarchy: Division Bench rulings vs Single Member Bench rulings Legal framework: In tribunal practice, Division Bench decisions bind Single Member Bench decisions on questions of law within the same tribunal hierarchy unless distinguished. Precedent treatment: The Tribunal expressly relied upon multiple Division Bench decisions applying SVLDRS-2019 to set aside co-noticee penalties and held that such Division Bench authority prevails over a contrary Single Member Bench decision. Interpretation and reasoning: Where a Division Bench has consistently interpreted the Scheme to erase penalties on co-noticees, those decisions constitute binding precedent for Single Member Bench rulings; the Tribunal applied this hierarchy to reconcile conflicting authorities and relied on Division Bench ratio to decide the appeals. Ratio vs. Obiter: Ratio - Division Bench jurisprudence favorable to co-noticees is binding and governs the outcome where a Single Member Bench took a different view. Conclusion: The Tribunal followed Division Bench precedent and held that it controls over Single Member Bench decisions, resulting in the setting aside of penalties on co-noticees in the present appeals. Overall Conclusion Applied to the Present Appeals Given that the principal noticee's case was settled under SVLDRS-2019 and Division Bench authority establishes that such settlement erases penalties on co-noticees (even absent their own declarations), the penalties imposed on the co-noticees were held not sustainable and were set aside, with consequential relief granted as per law.