2025 (12) TMI 450 - AT - Central Excise

Penalties on co-noticees under Rule 26 dropped after main duty demand and penalty annulled, appeals allowed

Mr. Vinod Kumar Mishra, Mr. Dharmendra Kumar Gupta Versus Commissioner of Central Excise & CGST, Noida

The CESTAT set aside penalties imposed on the co-noticee appellants under Rule 26 of the Central Excise Rules, 2002, consequent upon the earlier annulment ... Levy of penalties u/r 26 on co-noticees under Rule 26 of the Central Excise Rules, 2002, when demand on main noticess was set aside - HELD THAT:- As the impugned Order-in-Original confirming the duty and penalty on M/s Ambit Concrete (Main Noticee) has been set aside, there are no reason to uphold the penalties on the co-noticees i.e. the appellants. It is settled principle in law that where demand of duties are set aside, penalties on the conoticees also needs to be set aside. The impugned order in respect of present two appellants do not hold merit - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether penalties imposed on co-noticees under Rule 26 of the Central Excise Rules, 2002 can be sustained when the demand of duty and penalties against the main noticee, arising from the same show cause notice and Order-in-Original, have already been set aside by the Tribunal. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainability of penalties on co-noticees after setting aside duty demand and penalties against main noticee Legal framework (as discussed) 2.1 The penalties in question were imposed on co-noticees under Rule 26 of the Central Excise Rules, 2002 read with Section 174 of the Central Goods and Services Tax Act, 2017, pursuant to a common show cause notice and common Order-in-Original by which duty demand and penalties had been confirmed against the main noticee. Interpretation and reasoning 2.2 The Tribunal notes that by the same Order-in-Original, central excise duty demand and associated penalties had been confirmed against the main noticee and another individual, and that those appeals had already been decided by the Tribunal vide a prior Final Order. 2.3 In the earlier Final Order, the Tribunal held that the Revenue had failed to establish on facts the manufacture of 'Ready Mix Concrete (RMC)' by the main noticee, noting in particular: absence of inspection at the site; the assessee's registration under service tax and payment of service tax on job charges; the nature of invoices issued separately for material supply and job work; and the conclusion that what was produced and supplied was 'concrete mix' which is not dutiable. It also held that, in view of the assessee's disclosures and service tax registration, the extended period of limitation under Section 11A(4) of the Central Excise Act, 1944 was not invocable. 2.4 On that basis, in the earlier Final Order the Tribunal set aside the entire duty demand and penalties against the main noticee and the other individual noticee. 2.5 Referring to this earlier adjudication, the Tribunal holds that once the foundational demand of duty and penalties against the main noticee arising from the same facts and show cause notice has been set aside, there remains no basis to sustain derivative or consequential penalties upon co-noticees. 2.6 The Tribunal applies the settled principle that where the demand of duty is set aside, penalties on co-noticees, which are premised upon that very demand and alleged contravention, cannot be sustained. Conclusions 2.7 As the Order-in-Original confirming duty and penalties on the main noticee has been set aside by the Tribunal in the connected appeals, the penalties imposed on the present appellants as co-noticees under Rule 26 of the Central Excise Rules, 2002 cannot be upheld. 2.8 The impugned order is held to be unsustainable insofar as it relates to the present appellants, and the appeals are allowed, setting aside the penalties imposed on them.