2025 (5) TMI 1217 - AT - Central Excise

Clandestine removal - Central Excise duty evasion of Polyester Texturised Yarn (PTY) which was manufactured and cleared by M/s Bhagyashali Textile Mills (P) Limited through the warehouse of the appellant by misdeclaration and undervaluation - imposition of penalty under Rule 209A of the Central Excise Rules 2004 - period of dispute relates to financial years 1997-98 1998-99 - HELD THAT - From plain reading of the legal provisions under the Central Excise Act 1944 and the Central Excise Rules 1944 it is clear that a penalty may be imposed on any person under Rule 209A ibid if it is established that in relation to excisable goods which are liable to confiscation under Rule 173Q ibid or Rule 209A ibid such a person had knowledge or had reason to believe that any act or omission to do an act by him would enable violation of Central Excise statute and would lead to confiscation of such excisable goods. In fact the appellant is the warehouse operator and had actually stored the excisable goods manufactured by BTMPL before its delivery to the customers of BTMPL on the basis of Delivery Orders and Central Excise Invoices issued by BTMPL. Thus it is not the case of the Revenue that in the factual matrix of the present case that the impugned excisable goods were clandestinely removed by the appellant or that the appellant is in any way concerned with preparation of documents for undervaluation or misdeclaration of the excisable goods alleged to have been removed clandestinely without payment of appropriate central excise duty. The appellant held no responsibility for the warehoused goods and in the event of theft or fire it is the responsibility of the manufacturer BTMPL and accordingly the goods were insured by themselves. Upon receipt of the PTY/goods from BTMPL for warehousing/storage in their godowns they use to enter the receipt of materials in general ledger book and prepare Goods Receipt Notes (GRNs) copies of which were given to the manufacturer/BTMPL. The appellant was unaware of the exact quality/description of the goods and followed the numbers printed/written on the bags/carton by BTMPL for re-cognising the identity of the goods and for its delivery in providing warehousing and storage facility to BTMPL. Further it is found that there is no specific finding given in the impugned order for proving that the appellant having been done an act or omitted to have done certain act or having a reasonable belief or understanding that such action done or omitted to have been done by him would lead to confiscation of impugned goods. From the above factual position the penalty under Section 209A ibid cannot be imposed on the appellant. The SCN did not propose for confiscation of the seized goods under panchanama dated 07.07.1999 which was subsequently released provisionally upon execution of bond and bank guarantee by BTMPL and the learned Commissioner also did not confiscate the impugned goods. In the absence of confiscation of goods in the impugned order under Rule 173Q ibid or Rule 209 ibid which are alleged to have been undervalued and clandestinely removed it is not feasible to fasten the liability on the appellant on the ground that they had knowledge of such goods being liable to confiscation when those were stored in their warehouse on behalf of BTMPL - imposition of penalty under Rule 209A ibid without providing such an important ingredient of the existence of knowledge on the part of the appellant or reasonable ground to believe that their act of storage/warehousing would lead to confiscation of impugned goods does not have the sanction of law and thus to this extent the impugned order imposing penalty under Rule 209A of the Central Excise Rules 1944 on the appellant is not legally sustainable. Further in the case R.C.Jain 2014 (12) TMI 1223 - CESTAT AHMEDABAD the Co-ordinate Bench of this Tribunal have held that the penalty under Section 112(b) of the Customs Act 1962 and Rule 209A of the Central Excise Rules 1944 is not sustainable in the absence of establishing that the appellant was aware for forgery or fake nature. It is found that in the case Nirmal Transports 2011 (1) TMI 758 - CESTAT MUMBAI the Coordinate Bench of this Tribunal have held that the penalty under Rule 209A of the Central Excise Rules 1944 is not imposable on mere allegation and the act of aiding and abetting of the appellant is to be proved by the department. The impugned order imposing penalty on the appellant under Rule 209A of the Central Excise Rules 1944 is not legally sustainable. Conclusion - i) Penalty under Rule 209A of the Central Excise Rules 1944 cannot be imposed unless it is established that the person had knowledge or had reason to believe that the goods were liable to confiscation under the Act or Rules. ii) In the absence of confiscation of goods or evidence of knowledge or intent imposition of penalty under Rule 209A is not legally sustainable. iii) Mere allegation or suspicion of aiding and abetting evasion without concrete evidence is insufficient for penalty. The impugned order dated 31.12.2012 to the extent it had imposed penalty on the appellant is set aside and the appeal is allowed in favour of the appellant.

Summary

The primary legal questions considered by the Tribunal in this appeal are:

(i) Whether the appellant, a warehousing agency, was involved in the alleged evasion of Central Excise duty by the manufacturer through misdeclaration and undervaluation of Polyester Texturised Yarn (PTY) cleared via the appellant's warehouse;

(ii) Whether the appellant is liable for penalty under Rule 209A of the Central Excise Rules, 1944, given the facts and evidence presented, particularly for the financial years 1997-98 and 1998-99.

Regarding the first issue, the appellant's role was scrutinized in the context of the Central Excise Act, 1944 and the Central Excise Rules, 1944. The appellant provided warehousing services to the manufacturer, storing PTY goods before delivery to customers. The department alleged that the manufacturer evaded duty by undervaluing goods and clandestinely clearing them through the appellant's warehouse, using two sets of records to conceal actual sale proceeds. However, the appellant contended that their involvement was limited strictly to warehousing and delivery as per instructions contained in delivery orders issued by the manufacturer, without any knowledge or participation in undervaluation or evasion.

The Tribunal examined the evidence, including the voluntary statement of the appellant's partner, which detailed the warehousing procedures. It was established that the appellant did not purchase or sell the goods, nor did they have responsibility for the goods beyond storage. Deliveries were made strictly on the basis of delivery orders authorized by the manufacturer's officials. The appellant maintained records of inward and outward goods but did not control or influence the valuation or invoicing of goods. The Tribunal noted that the manufacturer had issued central excise invoices in the appellant's name, but this alone did not implicate the appellant in the evasion.

In the impugned order, the Commissioner had found the appellant's role suspicious, reasoning that delivery of goods per delivery orders containing quality and quantity details, which were not reflected in excise invoices, implied active connivance. The Commissioner concluded that the appellant was liable for penalty under Rule 209A. However, the Tribunal critically analyzed this conclusion, noting the absence of concrete evidence that the appellant had knowledge or reason to believe that the goods were undervalued or liable to confiscation. The Tribunal emphasized that the appellant's role was limited to following instructions and that there was no finding that the appellant had prepared or manipulated documents or had any intent to evade duty.

Regarding the second issue of penalty imposition under Rule 209A, the Tribunal referred to the relevant statutory provisions. Rule 209A penalizes any person who acquires possession of, or is concerned in transporting, removing, depositing, keeping, concealing, selling, or purchasing excisable goods which he knows or has reason to believe are liable to confiscation. The Tribunal highlighted that the essential ingredient for penalty under Rule 209A is knowledge or reason to believe that the goods are liable to confiscation due to evasion of duty.

The Tribunal observed that the show cause notice did not propose confiscation of the seized goods, which were provisionally released on bond and bank guarantee. The impugned order also did not confiscate the goods. In the absence of confiscation or evidence that the appellant knew or had reason to believe that the goods were liable to confiscation, the imposition of penalty under Rule 209A was not sustainable.

The Tribunal further relied on precedents to support its reasoning. In the case of Nirmal Transports, the Tribunal held that mere allegation of aiding and abetting evasion is insufficient to impose penalty; the department must prove knowledge or involvement. Similarly, in R.C. Jain, the Tribunal held that penalty under Rule 209A is not sustainable without establishing awareness of forgery or fake documents. These decisions underscore the principle that penalty cannot be imposed solely on suspicion or inference without concrete proof of knowledge or intent.

The Tribunal also noted that the appellant was not involved in the preparation or issuance of excise invoices or delivery orders, which were the instruments allegedly used for undervaluation. The appellant's function was confined to warehousing and delivery as per instructions from the manufacturer, with no evidence of complicity or intent to evade duty.

In conclusion, the Tribunal found that the impugned order's penalty imposition on the appellant under Rule 209A lacked the necessary legal foundation. The appellant did not have knowledge or reason to believe that the goods stored and delivered by them were undervalued or liable to confiscation. The absence of confiscation of goods and failure to establish the appellant's involvement in evasion negated the basis for penalty. Therefore, the Tribunal set aside the penalty imposed on the appellant and allowed the appeal.

Significant holdings include the Tribunal's clear articulation that:

"Penalty under Rule 209A of the Central Excise Rules, 1944 cannot be imposed unless it is established that the person had knowledge or had reason to believe that the goods were liable to confiscation under the Act or Rules."

"In the absence of confiscation of goods or evidence of knowledge or intent, imposition of penalty under Rule 209A is not legally sustainable."

"Mere allegation or suspicion of aiding and abetting evasion without concrete evidence is insufficient for penalty."

These principles reaffirm the requirement of mens rea (knowledge or intent) for penal consequences under the Central Excise statutory framework and protect persons engaged in warehousing or transportation from unjust penalty imposition based on mere association with the manufacturer.