TaxTMI 
TaxTMI 
2025 (11) TMI 1095
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....rprises of Daman used such parts and components for wrist watches/clocks manufactured by them and exported such final products under claim of rebate through a merchant exporter, namely. M/s. Shri Krishna Impex of Ahmedabad. During November, 2003 to September, 2004, in all 221 rebate claims were lodged by M/s. Balaji Enterprises, and all rebate claims were sanctioned and paid by Daman Central Excise authorities by passing regular orders. 1.2 It is the Revenue's case that the Udaipur based manufacturer M/s. MSN Enterprises had issued only Central Excise invoices showing sale of duty paid parts and components of wrist watches/clocks, but no goods were actually supplied by them; and therefore Cenvat credit was wrongly taken by M/s. Balaji Enterprises for such paper transactions. Since no inputs were actually received by M/s. Balaji Enterprises, the manufacture and export of wrist watches and clocks shown by M/s. Balaji Enterprises was also on papers, and no goods were actually exported. Therefore, rebate by M/s, Balaji Enterprises was illegally received. The appellant being an employee of M/s. Shri Krishna Impex (i.e, the merchant exporter of Ahmedabad), was liable for penalty u....
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....nation (2021) and not being supplied with a questionnaire in advance. Hence, in the face of overwhelming evidence pointing towards the active role played by Shri Venkat R. Chari in the entire rebate scam, I reject the defence submissions put forth by him and hold that he is liable for penal action under Rule 26 of the Central Excise Rules, 2002. 53.5. Shri Venkat R. Chari has also submitted in his defence that he was working as an employee of Shri Om Prakash Punjabi, Proprietor of M/s. Shree Krishna Impex and therefore, no personal penalty could be imposed on him when he has worked under the employer, only in his official capacity without any personal gain or benefit. He has also cited some case laws in support of his contention. In this regard, I find that the case investigations have brought out that Shri Venkat R. Chari was a key person in the entire rebate scam and he was instrumental in managing the bank & cash transactions of M/s. Balaji. He was a trusted confidant of the mastermind of the scam Shri Om Prakash Punjabi and even spent a couple of months in jail during their earlier fraudulent business venture in M/s. Robinson Impex India Lid. He was the one who convinc....
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.... not having any personal gain or personal benefit in the business of the employer, was not liable for personal penalty for any unlawful business activities of the employer. • Hitesh Kumar Patel V/s. Commissioner, Mumbai - 2009 (245) ELT 858 (Tri.-Ahmd.) (Para 2). • R.K. Ispat Udyog V/s. CCE, Raipur - 2007 (211) ELT 460 (Tri.-Del) (Para 7). (1) Penalty on any person under Rule 26 can be imposed only when the following three conditions were satisfied and findings about such conditions having been satisfied were recorded by the Adjudicating Authority:- (i) that the person should have dealt with any excisable goods in acquiring possession of or in transporting, removing etc. of such excisable goods; (ii) that such goods should be liable to confiscation under the Central Excise Act or Central Excise Rules; (iii) and that the person should have dealt with such goods with knowledge or reason to believe that the goods were liable to confiscation under the Act or the Rules. For imposing personal penalty under this provision, the Revenue must allege and establish that the person concerned had dealt with the goods in what manner (because va....
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....pellant has relied upon documents evidencing actual supply of goods by M/s. MSN Enterprises to M/s. Balaji Enterprises and also documentary evidence evidencing export of the goods manufactured by M/s.Balaji. The appellant also relied upon the factual clarifications made by Shri Hitesh Mehta (Inspector of Central Excise) and Shri L.R. Meena (Superintendent of Central Excise); but the factual position emerging from such submissions and evidence is just bypassed and ignored by the respondent Commissioner. (4) The gist of the appellant's submission and documents etc. relied upon in support of such submissions is as under:- a) Shri Hitesh Mehta has filed a detailed defense reply dated 29.9.2010 which is elaborately referred to in para 2.3 spanning from page 122 to page 125 of the previous OIO. It is clear from this defense reply of the jurisdictional Inspector of Central Excise that duty paid inputs were supplied by M/s. MSN, Udaipur to M/s. Balaji and such duty paid inputs were actually received in their factory, and also that M/s. Balaji has actually used such inputs and components for manufacture of final products and such final products were exported under supe....
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....aman, it is clear that the documents alleged to have been created in fictitious manner were actually scrutinized and verified by the Central Excise Officers in-charge of the units of M/s. Balaji and M/s. MSN. There is no evidence brought on record for establishing that the assessments made by these Excise officers as regards the transactions of MSN Enterprise and M/s. Balaji were incorrect or fabricated; and therefore, the transactions of MSN Eriferprise and M/s Balaji Enterprise could not have been alleged to be fictitious straightaway by the Revenue. In this view, personal penalty on the appellant for these transaction is impermissible and unauthorised. e) Both M/s. MSN Enterprise and M/s. Balaji were manufacturers registered with Central Excise authorities, and therefore, the transactions of MSN Enterprise and Balaji as regards receiving inputs and components, manufacturing goods therefrom and clearance of such goods on payment of duties were verified, scrutinized and assessed by the jurisdictional Central Excise Officers. There is nothing on record to show that any investigation was undertaken with Udaipur or Daman Central Excise authorities for genuineness or otherwis....
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....m. It clearly emerged on record from examination of the relevant witnesses that the appellant was not involved in the business affairs of M/s. Shree Krishna Impex or M/s. Balaji. On the basis of the truthful clarifications made by the witnesses in this adjudication proceedings, it becomes clear that the appellant was not assisting Shri Om Prakash and that the business affairs of M/s. Balaji and M/s. Shree Krishna Impex were managed by Shri Punjabi and his family members. Relevant clarifications by the witnesses are as under:- a) Shri Jignesh R. Shah was examined on 22.10.2021. - In reply to question-3, Shri Jignesh Shah has clarified that M/s. Fenny Impex was exclusively managed by its sole proprietor Mr. Vijay Punjabi, and he was the sole signatory in the bank accounts. - In reply to question-4, Shri Shah has explained the business activities of M/s. Shree Krishna Impex; and in answer to question-5, he has explained the business activities of M/s. MSN. (The appellants involvement is not shown in any of these two firms by Shri Jignesh Shah, because the appellant was actually not involved in the business affairs of M/s. Shree Krishna Impex nor in other fir....
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....r to question-13, Shri Shah has again explained that business affairs of M/s.Fenny Impex were looked after and conducted by Shri Punjabi, and not by the appellant. He has again explained that only two meetings were attended by the appellant when other responsible persons of Fenny Impex and other firms were also present, and that he had not come across any instructions etc. from the appellant nor about the appellants involvement in the activities which were actually conducted by Shri Vijay Punjabi. Shri Shah has confirmed that finances and materials as well as manufacturing were tightly controlled by Shri Vijay Punjabi. b) Shri Ved Prakash Wadhwani of M/s. MSN, Udaipur, was examined on 22.10.2021 when he explained business activities of M/s. MSN in answer to question-3, and he has also explained and confirmed about business activities of M/s. Shree Krishna Impex being a proprietary firm of Shri Om Prakash Punjabi, and also his younger brother Mr. Vijay Punjabi. • In answer to questions 9 and 11, Shri Wadhwani has clarified that business transactions were done under the plan of Shri Om Prakash Punjabi, and the appellants name (i.e. name of Venkat R. Chari) was i....
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....1 when he has deposed that he did not know or met any Mr. Venkat Chari. i) On 15.11.2021, one Shri Mavjibhai K. Patel was examined, when he clarified that he was an employee in M/s. Jay Star Watch. Rajkot. He has confirmed that his firm sold their goods to Shri Vijay Punjabi of M/s. Fenny Impex, and that he had never met Mr. Venkat Chari nor done any business with him. j) One Shri Ghanshyam B. Thoriya was examined on 15.11.2021 when he has confirmed that he had never met Mr. Venkat Chari nor done any business with him. k) On 15.11.2021. Shri Shailesh B. Patel was also examined when he confirmed that he had not supplied any goods or parts to Mr. Punjabi or Mr. Venkat Chari, and that he did not know any persons named Mr. Venkat Chari or Mr. Jignesh Shah; nor had he met any of them. The above referred depositions show that the appellant was not involved in business transactions nor in commercial affairs of M/s. Fenny Impex or M/s. Balaji or even M/s. MSN Enterprises. The allegations levelled in the show cause notice that the appellant had planned everything and Shri Om Prakash Punjabi had obtained rebate under the appellant's planning was thus w....
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....rified such exports and reported their genuineness based on which regular orders sanctioning rebate were made by the jurisdictional Assistant Commissioner; (ix) that the appellant has not dealt with any excisable goods with knowledge or reason to believe that such goods were liable to confiscation, and (x) that the appellant has acted only as an employee for the appellants employer Shri Punjabi and the appellant never had any personal interest or gain in the business affairs of the appellants employer, except the remuneration paid to the appellant as salary. The adjudicating authority has however just discarded these valuable points and the factual position which emerged during the denovo adjudication; and therefore penalty imposed on the appellant is wholly erroneous and unauthorised. 7) The above factual errors would call for the penalty imposed on the appellant being quashed and set aside because it is clear from the above position that the appellant has not dealt with any goods which were liable for confiscation; no goods were involved in the present case which were liable for confiscation under the CE Act or CE Rules; it is not shown by the Commissioner how (i.e. in w....
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....s defense citing lack of knowledge about goods liable for confiscation and immunity as an employee was legally considered but factually refuted. The penalty under Rule 26 is sustainable given his managerial control and complicity. Cross-examinations favoring him were discounted due to procedural issues and overwhelming documentary evidence. Overall, the penalty and findings are justified and should be upheld as they reflect his substantial participation in defrauding government revenue. 4. This court has gone through relevant contentions raised by either side and would like to deal with the legal issue as to whether Rule 26 which is reproduced below, allowed the penalty to be liable on a person under Rule 26 with no Show Cause Notice was proposed for confiscation of goods nor any confiscation was done nor penalty imposed. "RULE 26. Penalty for certain offences. 1(1)] Any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall b....
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....ing of CENVAT credit under the CENVAT Credit Rules, 2004 or refund, shall be liable to a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater.]" 5.4 During arguments, the learned Advocate pleaded that the department has not proposed confiscation of the impugned goods and therefore, the appellants cannot be penalised under Rule 26(1) of the Central Excise Rules, 2002. Also, Rule 26(2) of the Central Excise Rules is not applicable as the said rule covers individuals and not the director of the company. We agree with the argument of the learned Advocate that the show cause notice does not propose confiscation of the impugned goods and therefore, Rule 26(1) is not attracted in this case for imposing penalty on the appellants. For imposing penalty under Rule 26(2), essential ingredients are that the person should have issued excise duty invoice without delivery of goods specified therein or abets in making such invoice; or any other documents or abets in making such document on the basis of which the user of said invoice or document is likely to take or has taken any ineligible benefit under the Act or the rules made thereunder like Cen....