2025 (7) TMI 1073 - AT - Central Excise

Levy of penalty u/r 26 of Central Excise Rules 2002 on GPA Holder - no general power of attorney available in record at any given time from the stage of carrying out the investigation commencing upto the stage of passing and issuing the order-in-original - locus standi of appellant in terms of the provisions contained under Rule 2 (c) of the Central Excise Rules 2002 - issuance of SCN - direct involvement of appellant in evasion of Customs and Central Excise duty or not - memorandum of understanding was a valid legal document to attract imposition of penalty or not. Service of SCN - impugned SCN was issued on 31.10.2006 whereas the Order-in-Original was issued on 27.07.2016 and it was communicated to the appellant on 31.08.2016 - HELD THAT - After taking into consideration the peculiar facts of this case and the nature of the evidence collected by the department it does not seem proper to set-aside the impugned Order-in-Original merely on the ground of delay. Further the appellant and the other Managers of the unit were provided opportunity of personal hearing by the Department several times but they did not respond. At page 19 para-3 of the Order-in-Original the Commissioner has stated that in the interest of natural justice the noticee and the co-noticees were asked to file their submission and attend personal hearing in the matter fixed on 08.04.2015 but no one appeared for personal hearing on the given date. Subsequently the personal hearing was fixed on 07.07.2015 25.08.2015 and 27.11.2015. The personal hearing letters sent to the noticees were returned undelivered. The personal hearing letter dated 13.01.2016 was forwarded to the JAC Central Excise Division- Umbergaon to deliver the same to the noticee and co-noticee. The JRO vide letter dated 22.01.2016 informed that since the premises were closed the personal hearing notices of the noticee and co-noticee have been pasted at the given address under Panchnama dated 21.02.2016. Another personal hearing letter dated 16.02.2016 was issued to the noticee and co-noticees but neither any response received from their side nor any one appeared. Involvement of appellant in evasion of Customs and Central Excise duty - Commissioner has stated that regarding imposition of personal penalty on Shri Surendra B. Verma General Power of Attorney holder of the noticee and Shri Shyamlal T Bihani proprietor of M/s. Systematic Corporation and M/s. Styale Corporation it is established that both of them were instrumental in execution of the plan to defraud the government - HELD THAT - It is found that both of them were having knowledge about the provisions of 100%EOU and even then had misused the concession given by the government with intent to evade payment of duty by creating a paper trail for the movement of finished goods. It is also found that Shri Surendra B. Verma General Power of Attorney holder of the noticee and Shri Shyamlal T Bihani proprietor of M/s Systematic Corporation and M/s Styale Corporation actively participated to abuse the law of the land and continued to partake in execution of offence commissioned in collusion with Shri Kirtikumar Chhotelal Modi Proprietor of the noticee and Shri Sitaram Sharma over all in charge cum Authorised Signatory of the noticee. It is found that Shri Mahendra B. Verma was also beneficiary in form of remuneration from the noticee as is evident from the Memorandum of Understanding dated 22.11.2001 submitted by Shri Surendra B. Verma vide letter dated 09.10.2006. Accordingly Shri Kirtikumar Chhotelal Modi Proprietor Shri Sitaram Sharma over all in-charge cum Authorised Signatory Shri Surendra B. Verma power of attorney holder for the noticee Shri Mahendra B. Verma and Shri Shyamlal T. Bihani Proprietor of M/s Styale Corporation Systematic Corporation all are responsible for diversion of finished goods illicitly into the Domestic Tariff Area in violation of Exim Policy Customs Act 1962 and Central Excise Act 1944 without payment of appropriate Central Excise duty and production of forged documents as proof of exports and warehousing and thereby all of them had committed an offence of the nature as described in Rule 26 of Central Excise Rules 2002 rendering themselves liable for penal action under said Rule 26 of Central Excise Rules 2002. Memorandum of Understanding dated 22.11.2001 was a valid legal document to attract penal action on the appellant under Rule 26 of Central Excise Rules 2002 or not - HELD THAT - The Memorandum of Understanding was given to the department by the appellant only on 09.10.2006. I do not agree with the above submissions made by the appellant. Merely because the Memorandum of Understanding was not submitted earlier before any Court of law Bank or Customs and Central Excise authorities inference cannot be drawn that Memorandum of Understanding is a private document or non-operative or a void document. The Memorandum of Understanding was submitted by the appellant Shri Surendra B Verma vide letter dated 09.10.2006 therefore the learned Commissioner has rightly taken it into consideration as a valid legal document and the submission of the appellant cannot be accepted that Memorandum of Understanding cannot be relied upon while fixing liability on the appellant. Responsibility of appellant for evasion of duty on the finished goods not exported but cleared and sold in the home/ domestic market without payment of duty clandestinely by the unit and the provisions contained under Rule 26 of Central Excise Rules 2002 - HELD THAT - On the basis of evidence collected by the department the Commissioner came to the conclusion that in view of the statement dated 20.02.2003 and 03.10.2006 of Shri Surendra B. Verma and Memorandum of Understanding produced by Shri Surendra B. Verma it appears that Shri Shyamlal T. Bihani alongwith Shri Surendra B. Verma were not only handling the affairs of the appellant firm but M/s. Karnavati Garments and Matresses Umbergaon was in fact owned by them and Shri Kiritkumar Chhotelal Modi was a dummy proprietor created by them - The Memorandum of Understanding produced by Shri Surendra B. Verma also shows that Shri Mahendra B. Verma was also a beneficiary in form of remuneration from the noticee. All these persons alongwith Shri Kiritkumar Chhotelal Modi being Proprietor are responsible for diversion of finished goods illicitly into the Domestic Tariff Area in violation of Exim Policy Customs Act 1962 and Central Excise Act 1944 without payment of appropriate Central Excise duty and they produced forged documents as proof of exports and warehousing. The impugned Order-in-Original has been passed in accordance with relevant provisions of Central Excise Act 1944 and Central Excise Rules 2002 and no illegality or irregularity has been committed by the Commissioner in passing the impugned order. The order is reasonable and has been passed after correct appreciation of evidence collected by the Revenue against the appellant - Appeal dismissed.

Summary

ISSUES:

Whether penalty under Rule 26 of Central Excise Rules, 2002 can be imposed on a person who is a General Power of Attorney holder but denies locus standi or authorization from the proprietor.Whether a Memorandum of Understanding (MOU), not filed with any authority or bank and produced belatedly, can be treated as a valid legal document for fixing liability under Rule 26 of Central Excise Rules, 2002.Whether delay of nearly ten years between issuance of show cause notice and adjudication order violates sub-Section (11) of Section 11A of Central Excise Act, 1944, thereby invalidating the order.Whether the appellant, who denies involvement in evasion of duty, can be held liable for penalty under Rule 26 of Central Excise Rules, 2002 based on evidence of knowledge and participation in diversion of goods.Whether Rule 26 of Central Excise Rules, 2002 applies only to certain categories of persons and thus cannot be imposed indiscriminately on every person associated with the unit.

RULINGS / HOLDINGS:

The Court held that penalty under Rule 26 of Central Excise Rules, 2002 can be imposed on a General Power of Attorney holder who is found to be "instrumental in execution of the plan to defraud the government" and who had "knowledge about the provisions" and misused the concession granted to the unit.The Memorandum of Understanding, though not filed earlier with any authority, was rightly considered a valid legal document by the Commissioner once produced, and cannot be dismissed as merely a private document lacking evidentiary value.The delay in adjudication beyond one year from the date of show cause notice does not automatically invalidate the order under sub-Section (11) of Section 11A of Central Excise Act, 1944, as the provision uses the phrase "where it is possible to do so," allowing for genuine reasons such as voluminous evidence and non-appearance of parties; thus, the delay was not held to be improper in the facts of the case.The appellant was held liable for penalty under Rule 26 of Central Excise Rules, 2002 based on admissions in statements and documentary evidence indicating active participation and knowledge of clandestine removal and sale of goods without payment of duty.The Court rejected the contention that Rule 26 applies only to certain categories of persons and affirmed its applicability to the appellant given the established involvement in the offence.

RATIONALE:

The Court applied the provisions of Rule 26 of Central Excise Rules, 2002 which prescribe penalty for persons involved in offences under the Central Excise Act, 1944.Reference was made to sub-Section (11) of Section 11A of Central Excise Act, 1944 and relevant judicial interpretation clarifying that the statutory time limit for adjudication is subject to the feasibility of completing the adjudication within the prescribed period, considering practical difficulties.The Court relied on the statements recorded under Section 14 of the Central Excise Act, 1944 and documentary evidence including the Memorandum of Understanding to establish the appellant's role and knowledge in the evasion scheme.The decision reflects a doctrinal stance that formal non-submission of documents prior to investigation does not negate their evidentiary value once produced, especially when corroborated by other evidence.No dissent or concurring opinions were recorded; the judgment confirms the penalty after a comprehensive review of evidence and submissions.