Director Penalty Rule 26

[Adarsh Gupta]

Dear Sir's,

Whether a separate OIO needs to be served on the Director for Rule 26 Penalty apart from the company? Let's say a Director has left the organization, however penalty has been imposed on him vide a common OIO..How will a Director file an appeal against the said order which was served on to the company and he was not aware of the same.

Regards,

Adarsh Gupta

[KASTURI SETHI]

Query-wise reply is as under:

1. No. In the same order penalty is imposed upon the director of the company. A copy of the order-in-original (common) is to be addressed and dispatched separately to the Director. Director's copy bears separate dispatch no. for example ; If there are three noticees and one of them is Director, dispatch no. will be 1 to 3 and 3 stands for Director.

2. If Director has left the Company, even then that Director is responsible for his lapse/offence committed while serving the company.

3. A company cannot and should not receive order-in-original meant for the Director. If the Company has received the copy of OIO meant for Director, then it becomes legal duty of the company to get it served upon the Director.In terms of Section 14 of Central Excise Act, the Central Excise Officer is empowered to seek the assistance of any person and that person is legally bound to assist Central Excise Officer/Department. So now arrange to get the copy of OIO served upon the Director.

4. Director will file his appeal against the said order separately/personally and the Commissioner (Appeal)/CESTAT will tag both appeals (Company's and Director's) jointly/together for hearing and disposal.The Company cannot file appeal for and on behalf of the Director.

[Adarsh Gupta]

Thanks for your inputs.. following 2 associated queries;

Whether a SCN also needs to be issued to the Director separately before imposing Rule 26 personal penalty?

In case no separate copy of OIO was dispatched by the department, i.e. only one OIO was served on to the company. Can the Director take the plea that OIO was never served to him and accordinly no demand stands on him?

Regards.

[KASTURI SETHI]

With reference to your queries dated 8.6.19 above :

1.Yes.

2.No. Director cannot take such plea. The Company has been legally assigned to deliver the copy of OIO to the Director. Action will be taken against the company for non-compliance.

Director should challenge the imposition of personal penalty on merits only and not on the basis of non-receipt of copy of OIO..

2017 (6) G.S.T.L. 496 (Tri. - Ahmd.) = 2017 (4) TMI 221 - CESTAT AHMEDABAD VIMLACHAL PRINT & PACK PVT. LTD. Versus COMMR. OF C. EX., AHMEDABAD-II

[Adarsh Gupta]

Sir,

The problem is the Company got a decision in it's favor from CESTAT. However, department proceeded for recovery against Director. Since the Director was not served the OIO, the Director filed an appeal later on department action basis the copy of OIO taken from the company which has held against him for being time barred...In case of a time barred appeal CESTAT may not hear the matter on merits..

[KASTURI SETHI]

Dear Querist,

You did not post complete facts in the first instance. You are posting facts of the case in piece meal. Director is an employee of the company (depending on the terms conditions of the appointment letter or contract). The Company cannot avoid its responsibility. No doubt the department is very strong in this case. It does not mean efforts should not be made. You must fight the case.Do not surrender. Every case has different facts and circumstances. "How the case is represented ?" It matters a lot. You are to challenge the time-bar ground. An expert advocate can tilt the case in your favour. I think so. Do not be hopeless.

[KASTURI SETHI]

You are to prove that a company and its director both have separate legal entities. That depends upon executed terms and conditions of the contract/agreement between both. If you are able to do so, then time-bar issue will be relegated to the background and, thereafter, you will be able to fight the case on merits. First of all time-bar issue has to contested strongly. Both are ultra-crucial.

AI Summary

Directors Must Receive Separate Orders Under Rule 26 for Penalties; Appeals Can Be Heard Together A query was raised regarding whether a separate Order-in-Original (OIO) should be served on a director for a penalty under Rule 26, apart from the company. It was clarified that while a common OIO can impose penalties on both the company and its director, the director should receive a separate copy. If a director has left the company, they remain responsible for offenses committed during their tenure. The company must ensure the director receives their copy. The director must file their appeal separately, and both appeals can be heard together. Additionally, a Show Cause Notice (SCN) should be issued separately to the director before imposing a personal penalty. If the director was not served the OIO, they cannot claim it was not served; instead, they should challenge the penalty on its merits. The discussion also highlighted the importance of addressing the time-bar issue in appeals and the need for expert legal representation.