2025 (12) TMI 92 - AT - Central Excise

Sabka Vishwas discharge wipes out Rule 25 confiscation, redemption fine and penalties linked to same excise demand

M/s. Flora Steels Pvt. Ltd., Mr. Ajit Garg Versus Commissioner of CGST & Central Excise

CESTAT set aside the confiscation of seized goods and the associated redemption fine and penalties imposed under Rule 25 of the Central Excise Rules. The ... Validity of Confiscation of seized goods u/r 25 of the Central Excise Rules with an option to the appellant to get the same redeemed on payment of redemption fine and imposition of penalty, both upon the appellant and the Director - discharge certificate issued to appellant under SVLDRS scheme - HELD THAT:- Rule 9 deals with issue of Discharge Certificate and it provides that the designated committee, on being satisfied that the declarant has paid in full, the amount as determined by it and indicated in Form SVLDRS-3, shall issue electronically in Form SVLDRS-4 a Discharge Certificate as provided for under sub-section (8) of section 127 - It is clear from the provisions of section 129 of the 2019 Scheme that every Discharge Certificate issued under section 126 with respect to the amount payable under the Scheme shall be conclusive as to the matter and time period stated therein and the declarant shall neither be liable to pay any further duty, interest, or penalty with respect to the matter and time period covered in the declaration, nor the declarant shall be liable to be prosecuted under the indirect tax enactment with respect to the matter and time period covered in the declaration. A perusal of sections 12F of the Central Excise Act would show that where the officer has reason to believe that any goods are liable to confiscation, he may seize the goods. Under section 34 of the Central Excise Act, wherever confiscation is adjudicated, the officer shall give the owner of goods an option to pay in lieu of confiscation such fine as the officer thinks fit. This fine is commonly known as redemption fine. In Jay Shree Industries [2021 (8) TMI 446 - ALLAHABAD HIGH COURT], the Allahabad High Court observed that ‘confiscation’ is a penalty in rem and upon any confiscation made, the option to pay redemption fine is required to be provided. Thus, redemption fine must necessarily be considered a ‘penalty’ against the offending goods. The Allahabad High Court also held that in the absence of any provision to exclude redemption fine/penalty in rem from the benefits of the Discharge Certificate issued under section 129 of the 2019 Scheme, it would be included. The Delhi High Court in JV Industries [2025 (9) TMI 1155 - DELHI HIGH COURT] also held that since seizure or redemption fine is nothing but a consequence of non-payment of central excise duty, the same cannot be considered as a separate category of penalty in so far as the applicability of the 2019 Scheme is concerned. The Delhi High Court further held that the Discharge Certificate that is issued by the department upon payment of duty in terms of the 2019 Scheme is for wavier of entire duty, interest or penalty and redemption fine would form part of these three terminologies, as has also been interpreted by the Central Board of Indirect Taxes and Customs. The benefit of the 2019 Scheme would also extend to seizure/confiscation cases as the seizure/confiscation and demand of duty arise out of the same investigation and for the same period. Thus, when penalty and interest was waived by issuance of the Discharge Certificate under the 2019 Scheme, redemption fine also stands waived. The order confiscating the goods with option to pay redemption fine in respect of the first show cause notice, therefore, cannot be sustained once the Discharge Certificate was issued in respect of the demand confirmed and penalties imposed arising out of the same investigation and for the same period covered by the second show cause notice. The order dated 28.03.2024 passed by the Commissioner (Appeals) is, accordingly, set aside and the two appeals are allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether, upon issuance of a Discharge Certificate under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 in respect of duty demand and penalties for a particular investigation and period, confiscation of goods with option to redeem on payment of redemption fine and penalties arising from the same investigation and period can be sustained. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Effect of Discharge Certificate under the 2019 Scheme on confiscation, redemption fine and penalties arising from the same investigation and period Legal framework 2.1 The Court examined Chapter V of the Finance Act, 2019 establishing the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, including sections 124 (relief structure), 125 (eligibility to make declaration), 126-127 (verification, quantification and payment culminating in a Discharge Certificate), 129 (conclusiveness and effect of Discharge Certificate), and 132 (rule-making power), along with the 2019 SVLDRS Rules (rules 3, 6(2) and 9 concerning Forms SVLDRS-1, 3 and 4). 2.2 Section 129(1) was specifically noted as declaring that every Discharge Certificate issued under section 126 is conclusive as to the matter and time period stated therein, and that the declarant shall not be liable to pay any further duty, interest or penalty, shall not be liable to be prosecuted, and that no matter and time period covered by such declaration shall be reopened in any other proceeding under the indirect tax enactment. 2.3 The Court also referred to sections 12F and 34 of the Central Excise Act, 1944, noting that seizure/confiscation of goods is permissible where goods are liable to confiscation, and that on adjudication of confiscation the owner must be given an option to pay a fine in lieu of confiscation (redemption fine). 2.4 The Court relied on the judicial interpretation of the 2019 Scheme and the relationship of redemption fine/confiscation to 'penalty' and 'duty' in decisions of the Allahabad High Court (Jay Shree Industries), Bombay High Court (Esbee Electrotech) and Delhi High Court (JV Industries), all holding that redemption fine/confiscation is covered by and waived under the 2019 Scheme where the underlying duty dispute for the same period is settled. Interpretation and reasoning 2.5 It was undisputed that the second show cause notice proposing demand of central excise duty and penalties for the period 01.04.2013 to 31.12.2016 had been settled under the 2019 Scheme; a Discharge Certificate in Form SVLDRS-4 was issued on 03.02.2020, the quantified amount was paid, and the Tribunal had already set aside the confirmed duty demand and penalties under that notice. That order had attained finality. 2.6 The first show cause notice, which resulted in confiscation of seized goods under rule 25 of the Central Excise Rules, 2002 with option to redeem on payment of redemption fine and imposition of penalties on the assessee and its Director under rules 25 and 26, arose from the same investigation and pertained to the same period as the settled second show cause notice. 2.7 The Court adopted the reasoning of the Allahabad High Court in Jay Shree Industries that 'confiscation' is a penalty in rem, and that redemption fine is a payment in lieu of this penalty under section 34 of the Central Excise Act; redemption fine must therefore be treated as 'penalty' within the plain ambit of the word 'penalty' in section 129 of the 2019 Scheme, in the absence of any statutory exclusion. 2.8 The Court further endorsed the view of the Bombay High Court in Esbee Electrotech that, even if redemption fine were to be treated as 'duty', the expression 'any further duty' in section 129(1)(a) would cover such redemption fine, and that what is required to be paid under section 124 is only the prescribed percentage of 'tax dues' (central excise duty), with immunity thereafter extending to all further duty, interest and penalty, including redemption fine. 2.9 Following the Delhi High Court in JV Industries, the Court accepted that seizure/confiscation and imposition of redemption fine are consequences of non-payment of duty and are not to be treated as a separate category of penalty for the purpose of the 2019 Scheme; once duty is settled under the Scheme and a Discharge Certificate is issued, waiver extends to the entire duty, interest, penalty and redemption fine, and the benefit of the Scheme must also extend to seizure/confiscation cases arising from the same dispute and period. 2.10 In this context, the Court emphasized section 129(1), which renders the Discharge Certificate conclusive as to the matter and time period covered, and prohibits further liability to duty, interest or penalty and reopening of the matter in any other proceeding under the indirect tax enactment. Given that the confiscation, redemption fine and penalties under the first show cause notice formed part of the same dispute (same investigation and period) already resolved under the Scheme, maintaining those liabilities would be contrary to the conclusive and final nature of the Discharge Certificate. Conclusions 2.11 Seizure/confiscation of goods and imposition of redemption fine and penalties arising from the same investigation and for the same period as the duty demand settled under the 2019 Scheme fall within the scope of 'penalty' and 'further duty' in section 129(1) of the Scheme. 2.12 Upon issuance of the Discharge Certificate under the 2019 Scheme and settlement of the duty dispute for the relevant period, the assessee cannot be subjected to confiscation, redemption fine or penalties in respect of that same matter and period. 2.13 The order confiscating the seized goods with an option to redeem on payment of redemption fine and imposing penalties on the assessee and its Director under the first show cause notice is unsustainable and stands vitiated by the conclusive effect of the Discharge Certificate. 2.14 Consequently, the impugned appellate order upholding confiscation, redemption fine and penalties under the first show cause notice is set aside and the appeals are allowed.