2017 (3) TMI 1968 - AT - Central Excise

Clandestine removal - ingots and sponge iron - levy of penalties imposed on buyers as well as on the transporters - HELD THAT - The Hon ble Supreme Court in the case of Commissioner vs. Woodmen Industries 2004 (7) TMI 637 - SC ORDER observed that in such type of cases no penalty can be imposed on a corporate entity. The penalty can be imposed only on a person and not on a firm. Similar views were expressed by the Tribunal in the case of Steel Tubes of India Limited vs. CCE Indore 2006 (10) TMI 146 - CESTAT NEW DELHI LB - the penalties in case where it was levied on a firm or legal entity is not desirable. However the penalty levied on individual or proprietorship firm can be sustained. In the instant case the ld. Counsel for the assessee have also argued that no physical verification no cross-examination no verification from the buyers no investigation regarding raw material and electricity consumed were made by the department. Ld. Counsels also relied upon the ratio laid-down in the case of Continental Cement Company vs. Union of India 2014 (9) TMI 243 - ALLAHABAD HIGH COURT where certain guidelines were provided in the cases of clandestine removal. In other words the corroborative evidence is required as per the ratio laid-down by the Allahabad High Court. Further there are various missing events and no res gestai (as per Section 6 of the Indian Evidence Act) is made out. When it is so then it is deemed fit to remand the matters to the original authority to decide the issue afresh but by providing an opportunity of hearing to the assessees. Additional evidence if necessary may be admitted as per law. However it is made clear again that as per Rule 26 of the Central Excise Rules 2002 the penalties can be imposed only on individual or the proprietorship concern. Conclusion - i) Penalties imposed on firms or corporate entities are not sustainable and must be quashed. ii) Penalties on individuals or proprietorship concerns may be upheld. iii) The demand for duty based on alleged clandestine removal is remanded for fresh adjudication due to procedural lapses and insufficient evidence. Appeal allowed by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in these appeals are:

• Whether penalties can be imposed on corporate entities or firms in cases of alleged clandestine removal of excisable goods, specifically sponge iron and ingots.
• The validity and sufficiency of evidence relied upon by the department to establish clandestine removal, including the adequacy of investigation procedures such as physical verification, cross-examination, and verification of inputs like raw materials and electricity consumption.
• The procedural correctness and adherence to principles of natural justice in the adjudication process leading to demand and penalty imposition.
• The applicability of established legal precedents and guidelines governing clandestine removal cases and penalty imposition in excise matters.
• The appropriate forum and procedure for adjudication of duty demands arising from alleged clandestine removal, including the scope for remand and reappraisal of facts.

2. ISSUE-WISE DETAILED ANALYSIS

Penalty Imposition on Corporate Entities vs. Individuals/Proprietorship Firms

Relevant legal framework and precedents: The Tribunal relied heavily on the Supreme Court's ruling in Commissioner vs. Woodmen Industries (2004), which established that penalties for excise violations cannot be imposed on firms or corporate entities but only on individuals. This principle was further reinforced by the Tribunal's own decision in Steel Tubes of India Limited vs. CCE, Indore (2007).

Court's interpretation and reasoning: The Tribunal emphasized that the imposition of penalty must align with the legal mandate restricting penalties to natural persons or proprietorship concerns. Penalties levied on companies or firms were deemed impermissible and thus not sustainable.

Key evidence and findings: The record showed penalties imposed on both buyers and transporters, including firms and companies. The Tribunal noted that penalties on firms or corporate entities contravened the established legal position.

Application of law to facts: Applying the Supreme Court's ratio, the Tribunal held that penalties imposed on firms or corporate entities must be set aside, while penalties on individuals or proprietorship firms could be upheld.

Treatment of competing arguments: The Revenue argued for sustaining penalties on all parties involved, but the Tribunal found the legal precedent decisive in limiting penalty imposition to individuals only.

Conclusion: Penalties imposed on firms or corporate entities were quashed; only penalties on individuals or proprietorship concerns were sustainable.

Validity and Sufficiency of Evidence for Clandestine Removal and Demand for Duty

Relevant legal framework and precedents: The Tribunal referred to the Allahabad High Court's decision in Continental Cement Company vs. Union of India (2014), which laid down guidelines requiring corroborative evidence in clandestine removal cases. The importance of physical verification, cross-examination, and investigation into inputs such as raw materials and electricity consumption was underscored.

Court's interpretation and reasoning: The Tribunal observed that the department's case was primarily based on entries found in a seized diary and some documentary evidence from transporters. However, there was a lack of physical verification, no cross-examination of witnesses, and no inquiry into raw material or electricity consumption to corroborate the alleged clandestine removal.

Key evidence and findings: The seized diary contained systematic entries of commission received from sales, but this alone was insufficient to conclusively establish clandestine removal. The absence of res gestae events or other corroborative evidence weakened the department's case.

Application of law to facts: Given the lack of comprehensive investigation and corroborative evidence, the Tribunal found the demand for duty to be based on inconsistent appraisal of facts and procedural lapses.

Treatment of competing arguments: The department contended that the diary and transporter evidence sufficed, but the Tribunal held that such evidence without further investigation and opportunity to the assessee was inadequate.

Conclusion: The Tribunal remanded the matter to the original authority for de novo adjudication, directing that the assessee be given an opportunity of hearing and that additional evidence be admitted as per law.

Procedural Fairness and Adherence to Principles of Natural Justice

Relevant legal framework: Principles of natural justice require that parties be given a fair opportunity to present their case, including the right to be heard and to cross-examine adverse witnesses.

Court's interpretation and reasoning: The Tribunal noted violations of natural justice in the original adjudication, including lack of opportunity for cross-examination and failure to consider all relevant facts and evidence.

Key findings: The original orders were found to suffer from inconsistencies and procedural deficiencies.

Application of law to facts: The Tribunal emphasized that fair procedure must be followed in excise adjudications, particularly in complex matters involving clandestine removal.

Conclusion: The matter was remanded for fresh adjudication with strict adherence to natural justice.

Scope and Procedure for Remand and Reappraisal of Facts

Relevant legal framework: The Tribunal has jurisdiction to remand matters for fresh adjudication when original orders are found to be flawed or incomplete.

Court's interpretation and reasoning: The Tribunal exercised its power to remand the matters to the original authority for fresh adjudication, emphasizing that additional evidence may be admitted and the assessee must be heard.

Conclusion: Remand was ordered for de novo adjudication ensuring compliance with legal and procedural safeguards.

3. SIGNIFICANT HOLDINGS

"In such type of cases, no penalty can be imposed on a corporate entity. The penalty can be imposed only on a person and not on a firm."

"As per Rule 26 of the Central Excise Rules, 2002, the penalties can be imposed only on individual or the proprietorship concern as per the ratio laid-down by the Hon'ble Supreme Court."

"The impugned order suffers from various inconsistencies with reference to appraisal of facts and also due to violation of principles of natural justice."

"No physical verification, no cross-examination, no verification from the buyers, no investigation regarding raw material and electricity consumed were made by the department."

"Corroborative evidence is required as per the ratio laid-down by the Allahabad High Court."

"We deem fit to remand the matters to the original authority to decide the issue afresh but by providing an opportunity of hearing to the assessees. Additional evidence, if necessary, may be admitted as per law."

The Tribunal's final determinations were:

• Penalties imposed on firms or corporate entities are not sustainable and must be quashed.
• Penalties on individuals or proprietorship concerns may be upheld.
• The demand for duty based on alleged clandestine removal is remanded for fresh adjudication due to procedural lapses and insufficient evidence.
• The original authority must provide an opportunity of hearing and admit additional evidence if necessary.