2025 (7) TMI 66 - AT - Central Excise

Clandestine manufacture and removal - M.S. Round/TMT Bars - sufficient oral and documentary corroborated evidence to demonstrate that the appellants were engaged in clandestine removal of the goods or not - levy of penalty u/r 26 (1) of CER - main appellant on whom duty was conformed is granted Form-4 on 13th February 2020 under the Sabka Vishwas Scheme (SVLDRS) - HELD THAT - In form SVLDRS-4 it has been mentioned that the appellant Bhagyalaxmi Steel Industries has deposited Rs. 4 07, 378.90 under SVLDRS scheme being the amount determined by the designated committee under Section 126 of Finance (2) Act 2019 and the declarant has filed appeal before CESTAT Ahmedabad against any order in respect of the tax imposed and whereas the said appeal is deemed to be withdrawn in accordance with the provisions of sub-Section 6 of Section 127 of the Finance (2) Act 2019. In these circumstances Excise Appeal No. 12246 of 2019 Bhagyalaxmi Steel Industries vs. CCE ST Bhavnagar is deemed to have been allowed by the CESTAT and the demand of Central Excise duty and penalty from appellant Bhagyalaxmi Steel Industries is hereby set aside. When appeal of the main appellant Bhagyalaxmi Steel Industries has been allowed and the order regarding demand of Central Excise Duty and penalty imposed by the lower Adjudicating Authority and the Commissioner have been set aside it appears just and proper that penalty imposed on co-noticee Shri Rajendra P. Agrawal should also be set aside and his appeal is liable to be allowed. The impugned order set aside - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

(a) Whether the demand of Central Excise duty of Rs. 20,36,913/- confirmed against the appellant for clandestine manufacture and clearance of M.S. Round/TMT Bars without payment of duty and without issuing invoices is justified and sustainable under the provisions of the Central Excise Act, 1944 and Central Excise Rules, 2002.

(b) Whether the penalty imposed on appellant No. 1 under Section 11AC(1) of the Central Excise Act, 1944 and on appellant No. 2 under Rule 26(1) of the Central Excise Rules, 2002 is legally valid and proper.

(c) Whether the appeal of the main appellant, Bhagyalaxmi Steel Industries, is liable to be withdrawn or treated as allowed in view of the grant of Form-4 under the Sabka Vishwas Legacy Dispute Resolution Scheme (SVLDRS), 2019.

(d) Whether the co-noticee appellant, Shri Rajendra P. Agrawal, partner of the main appellant, is entitled to relief from penalty following the settlement of the main appellant's liability under SVLDRS, despite not having filed a declaration under the scheme.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of Demand of Central Excise Duty for Clandestine Clearance

The relevant legal framework comprises Section 11A(10) of the Central Excise Act, 1944, which empowers the adjudicating authority to confirm duty demand in cases of clandestine removal of excisable goods, and Section 11AA for imposition of interest on confirmed demand. The Central Excise Rules, 2002, particularly Rule 26, govern penalties for such violations.

The lower adjudicating authority found that the appellant clandestinely manufactured and cleared excisable goods without payment of duty and without issuing invoices. The Principal Commissioner (Appeals) upheld this finding, relying on sufficient oral and documentary evidence adduced by the department corroborating clandestine removal.

The Court noted that the department had discharged its burden of proof by demonstrating that the goods were removed clandestinely, attracting excise duty liability. The evidence included records and corroborative material indicating non-issuance of invoices and non-payment of duty.

Competing arguments by the appellants challenging the clandestine nature of removal were considered but found unsubstantiated against the evidentiary record. The Court applied the law to facts and concluded that the demand of Rs. 20,36,913/- was justified and legally sustainable.

Issue (b): Validity of Penalties Imposed on Appellants

Penalties were imposed under Section 11AC(1) of the Central Excise Act on appellant No. 1 and under Rule 26(1) of the Central Excise Rules on appellant No. 2. The legal framework mandates penalties for concealment of duty or involvement in clandestine removal.

The Tribunal noted that the penalty imposition was in consonance with the confirmed duty demand and the involvement of appellant No. 2 in selling, storing, and removing excisable goods he knew or had reason to believe were liable to confiscation.

The appellants contended that penalty relief should follow due to settlement under SVLDRS or lack of direct involvement. However, the Principal Commissioner found the penalty imposition correct and legal, rejecting these contentions.

The Court initially upheld the penalties based on the statutory provisions and evidence of culpability.

Issue (c): Effect of Settlement under Sabka Vishwas Legacy Dispute Resolution Scheme (SVLDRS), 2019 on Appeal of Main Appellant

The SVLDRS scheme, introduced under Section 126 and Section 127 of the Finance (No. 2) Act, 2019, provides for settlement of legacy disputes by payment of a determined amount and withdrawal of appeals.

The appellant Bhagyalaxmi Steel Industries was granted Form-4 under SVLDRS on 13th February, 2020, having deposited Rs. 4,07,378.90 as determined by the designated committee. The scheme deems appeals withdrawn upon such settlement.

The Tribunal examined the scheme provisions and the Form-4 issued, which explicitly states that the appeal is deemed withdrawn under sub-section 6 of Section 127. Consequently, the Tribunal held that Excise Appeal No. 12246 of 2019 filed by Bhagyalaxmi Steel Industries is deemed allowed and the demand of Central Excise duty and penalty against it is set aside.

This interpretation aligns with the legislative intent of SVLDRS to resolve legacy disputes conclusively and avoid protracted litigation.

Issue (d): Entitlement of Co-noticee to Relief from Penalty Following Main Appellant's Settlement under SVLDRS

The appellant Shri Rajendra P. Agrawal, partner of the main appellant, had penalty imposed under Rule 26(1) of the Central Excise Rules. The question arose whether he is entitled to relief from penalty following the main appellant's settlement under SVLDRS, despite not having filed a declaration under the scheme.

The Tribunal relied on precedents including the appellant's own case (Final Order No. 10089/2025 dated 5th February, 2025), and other Division Bench decisions such as Prakash Steelage Limited vs. CCE & ST Bharuch and rulings in Anil K. Modani and Subhash Panchal cases. These decisions establish that once the main duty demand is settled under SVLDRS, penalties on co-noticees are waived under the scheme's provisions, even if they have not filed declarations themselves.

The Tribunal distinguished conflicting Single Member Bench decisions, emphasizing the binding nature of Division Bench rulings.

Applying these principles, the Tribunal held that since the main appellant's appeal was allowed and demand/penalty set aside, it is just and proper to set aside the penalty imposed on Shri Rajendra P. Agrawal as well, allowing his appeal.

3. SIGNIFICANT HOLDINGS

"In form SVLDRS-4, it has been mentioned that the appellant Bhagyalaxmi Steel Industries has deposited Rs. 4,07,378.90 under SVLDRS scheme, being the amount determined by the designated committee under Section 126 of Finance (2) Act, 2019 and the declarant has filed appeal before CESTAT Ahmedabad against any order in respect of the tax imposed and whereas the said appeal is deemed to be withdrawn in accordance with the provisions of sub-Section 6 of Section 127 of the Finance (2) Act, 2019."

"Once the duty demand case is settled under SVLDRS-2019, as per scheme itself, there is a waiver of penalties on the main assessee against whom, the demand was confirmed as well as on other co-noticees."

"Where the main case is settled under SVLDRS, the penalties in respect of other co-noticees will not sustain even if they have not filed a declaration under SVLDRS-2019."

The Tribunal conclusively determined that the demand of excise duty and penalties originally confirmed against the appellants were legally sustainable based on evidence of clandestine removal. However, following the main appellant's settlement under SVLDRS and deposit of the determined amount, the appeal of the main appellant is deemed allowed, setting aside the demand and penalty.

Further, the Tribunal extended relief to the co-noticee appellant, holding that penalties imposed on him are also liable to be set aside in view of the main appellant's settlement and binding precedents on waiver of penalties for co-noticees under SVLDRS.

Accordingly, both appeals were allowed, and the impugned orders of the lower adjudicating authority and the Principal Commissioner (Appeals) were set aside.