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2017 (2) TMI 1317

Penalty u/r 26 of CER 2001/2002 and Rule 13/15 of CCR 2002/2004 - whether when the main noticee M/s. HUF have been granted immunity from imposition of penalty by the Settlement Commission, whether penalty can be imposed upon the present appellants, who are charged with colluding and abbeting M/s. HUF? - Held that: - As per the majority order, the present appeals are not to be allowed on the basis of immunity available to them on account of main noticee having settled the issue before the Settlement Commission and their liability to penal action is to be examined on the basis of merits of each case. - As the same have not been discussed, the appeals may be listed for disposal on merits. - E/2178-2181/2009-EX(DB) - Interim Order Nos. IO/E/22-25/2017-EX(DB) - Dated:- 15-2-2017 - Ms. Archana Wadhwa, Member (J) and Shri Manmohan Singh, Member (T) Third Member on Difference of Opinion Shri B. Ravichandran, Member (T) Shri Mayank Garg, Advocate, for the Appellant. Ms. Shweta Bector, DR, for the Respondent. ORDER [Order per : Archana Wadhwa, Member (J), (for the Bench)]. - All the appeals are being disposed of by a common order as they arise out of same impugned order passed by th .....

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nd that the short issue required to be decided is as to whether when the main noticee M/s. HUF have been granted immunity from imposition of penalty by the Settlement Commission, whether penalty can be imposed upon the present appellants, who are charged with colluding and abbeting M/s. HUF. The issue was considered in detail by the Tribunal in the case of S.K. Colombowala referred supra. It is seen that originally there was difference of opinion between two Members. Whereas Member Judicial by following the Hon ble Supreme Court decision in the case of Union of India v. Onkar S. Kanwar [2002 (145) E.L.T. 266 (S.C.)] held that settlement of dispute by the main declarant under Kar Vivad Samadhan Scheme to operate full and final settlement in respect of all other persons. As it was held by the Hon ble Supreme Court that abettor cannot be penalized more than the original importer, penalties on the co-noticee was set aside. The said order was differed by learned Member Technical who was of the view that since the Supreme Court decision in the case of Onkar S. Kanwar was in respect of Kar Vivad Samadhan Scheme, the same would not be applicable to settlement of dispute before the Settleme .....

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(Tri.-Mum.)], it was held that co-accused cannot be vested with any higher penal consequences when the main accused stands absolved of penal consequences, no question of imposition of penalty on the appellants co-accused can arise. 6. In the case of Radiant Silk Mills v. CCE, Jaipur [2013 (288) E.L.T. 311 (Tri.-Del.)], the entire case law on the subject was taken into consideration and it was held that in view of the majority order in the case of S.K. Colombowala, the penalties on the co-noticee have to be set aside. 7. Inasmuch as the main appellants had admittedly settled the dispute before the Settlement Commission and has not been vested with any penal liability, imposition of penalties on the present appellants, who are only charged with colliding and abeting the main appellant, is neither justified nor warranted and would be against the settled proposition of law in the above referred matters. 8. We find no fairness in the argument of learned DR that S.K. Colombowala decision could not be followed and the appellants appeal should be decided on merits, after considering their role in the entire bogus transaction. When the legal issues stand decided by the prece .....

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ission, penalties on co-noticee were also to be set aside. 11. Facts involved in the case are described in Member (Judicial) s draft order which are considered by me. Issue involved relates to availment of Cenvat credit on the strength of paper transactions without accompaniment of the goods resulting in credit being availed fraudulently in which main party M/s. Minda and other co-noticees have actively participated in completing the fraud. 12. I have further examined the facts and modus operandi followed and subsequent proceeding before Settlement Commission vis-a-vis legal provision of Settlement Commission and prevailing legal precedents etc. Para 2 and Para 3 of Member (Judicial) draft order are reproduced for easy reference Para 2. Briefly discussed the facts of the case are that one M/s. Minda HUF Ltd. (herein referred to as HUF) was engaged in the manufacture of automobile locksets and was availing the benefit of Cenvat credit of duty paid on various inputs and capital goods. Inquiries were conducted and it was found that the some of the firms, including the present applicants, were not having the facility to manufacture the inputs and were neither registered .....

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t the cost of Revenue for their unjust enrichment, indulging in the fraudulent activity to deceive revenue. Actually all these co-noticees were independent perpetuators of fraud. Invoices were issued without existence of unit (in case of M/s. M.K, Tools, Ghaziabad), or unit said to have been located on invoice but not found and units held out to be engaged in manufacture of other items than described in paper invoices i.e. M/s. SRG Machines, Modinagar). In other case, supplier (M/s. Aianta Enterprises) was found to be manufacturer of wire but actually it issued invoices of automobiles locks which could not be produced. In case of a unit called M/s. Glass Plastics. Ghaziabad. no machine were found to have been installed. A Company in the name and style of M/s. Ashish alloys casting was found without electric connection. In HSN Engineering, though unit was found to have been engaged in the manufacture, it had no facility to manufacture specified parts of automobile lock/sets was not found. Same is the case with M/s. Meerut Steels, Modinagar and M/s. Vas Techno Engineers, Ghaziabad. M/s. Saoar Welding Electrodes, Modinagar s partner Shri N.P. Gupta admitted that he never supplied any .....

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itted under direct tax enactment or indirect tax enactment, but by no stretch of imagination, the same would be granted in respect of offences under the Prevention of Corruption Act. A person may commit several offences under different Acts; immunity granted in relation to one Act would not mean that immunity granted would automatically extend to others. By way of example, we may notice that a person may be prosecuted for commission of an offence in relation to property under the Penal Code as also under another Act, say for example, the Prevention of Corruption Act, Whereas charges under the Prevention of Corruption Act may fail, no sanction having been accorded therefore, the charges under the Penal Code would not. Thus this Court accepted the principle that the Immunity could not cover certain other offences than those covered in direct and indirect tax enactments. The Court also accepted that the immunity could not be granted to any other person automatically merely it was granted to a tax-payer who had made declaration under Section 88 of the Finance Act. 17. Reliance was placed on Supreme Court judgment in the case of Onkar S. Kanwar [2002 (145) E.L.T. 266 (S.C.)] by Hon .....

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l Industries Ltd. v. UOI - 1997 (89) E.L.T. 247 (S.C.) Para 99 (iv) of the said judgment laying down the principle reads as under : (iv) It is not open to any person to make a refund claim on the basis of a decision of a Court or Tribunal rendered in the case of another person. He cannot also claim that the decision of the Court/Tribunal in another person s case has led him to discover the mistake of law under which he has paid the tax nor can he claim that he is entitled to prefer a writ petition or to institute a suit within three years of such alleged discovery of mistake of law. A person, whether a manufacturer or importer, must fight his own battle and must succeed or fail in such proceedings. Once the assessment of levy has become final in his case, he cannot seek to reopen it nor can he claim refund without reopening such assessment/order on the ground of a decision in another person s case. Any proposition to the contrary not only results in substantial prejudice to public interest but is offensive to several well established principles of law. It also leads to grave public mischief. Section 72 of the Contract Act, or for that matter Section 17(1)(c) of the Limitation .....

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nd that order of Settlement Commission were not binding on Tribunal to grant relief to persons who were not before the Settlement Commission. To reach to such conclusion, the Tribunal relied upon the decision of the Apex Court in Chengal Varayanaidu v. Jagannath as reported in AIR-1994-S.C.-853. Thus the decision in S.K. Colombowala v. Commissioner of Customs (Import), Mumbai 2007(220) E.L.T. 492 (Tri. Mum) does not hold the filed of law when considering various decisions, Hon ble Supreme Court in the case of M. Natarajan v. State by Inspector of Police, SPE, CBI, ACB, Chennai 2008 (226) E.L.T. 679 (S.C.) 21. When a Single Member Bench of Tribunal at Chennai (noting the two conflicting decisions of S.K. Colombowala - 2007 (220) E.L.T. 492 (Tri. Mum) and K.I. International 2012 (282) E.L.T. 67 (Tri.-Chennai), referred the matter to Larger Bench as reported in Rajesh v. C.C. Tuticorin as reported in 2013 (296) E.L.T. 520 (T-Ch), the Larger Bench declined to answer stating that the decision in K.I. International is pending before Hon ble High Court of Madras and returned the reference with an advice to the Single Bench to decide the issue on merits as reported in 2013 (298) E.L.T .....

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gar the firm was found not having any production activity or any electric connection, M/s. Ajanta Enterprises was found engaged in the manufacture of wire by using wire rod mostly received from SAIL. No facility to manufacture goods covered under invoices issued by them was found M/s. Glass Plastic and Chem Industries was found running under two sheds were no machine was found installed. In the case of M/s. Ashish Alloy and Castings Pvt. Ltd., Ghaziabad, the unit was found manufacturing FRP sheets. As per manufacturing process of FRP it came to notice that facility of manufacture of goods namely automobile lock parts was not available there. M/s. FISN Engg., Ghaziabad was found engaged in the production of wire by wire extrusion of M.S. Wire. Thus, the facility to manufacture the goods having specification shown to consigned to MFIL was not available with them. No manufacturing facility was noticed at M/s. Meerut Steels, Ghaziabad and at M/s. Vas Techno Engineers, Ghaziabad. Further, M/s. Sagar Welding Electrode, Modinagar were found engaged in the manufacture of wire drawn out of wire rod. In this context, I would like to mention statement of Shri Deeraj Singh dated 27-10-2006 and .....

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Tools and Shri N.P Gupta of M/s. Sagar Welding Electric Stores. Similar transactions are also noticed in respect of such firms which failed to appear in compliance to summons issued in this regard. In most of the cases the same person was found withdrawing the amount on behalf of different suppliers. Thus, I observe that this well planned modus operandi was adopted only to avail fraudulent and wrong Cenvat credit in which these suppliers have placed a vital role. Para 18.1 I further observe that statement of the persons related to these supplier firms were also recorded from time to time to ascertain factual position. In most of the cases, the concerned person already admitted non-dispatch of goods. Role of four appellants in compliance is depicted below : (i) M/s. SRG Machines, Near Vishal Dharamkanta, Modinagar : (Owner - Ms. Mamta Garg) The unit was found located in the given address but engaged in the manufacture of steel wire raw and iron recovered from MHL revealed that automobile lock parts having different specifications etc. Non-receipt of goods under the cover of the invoices issued by M/s. SRG Machines at MHL, is clear from the statement of various key officials of .....

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gment of Hon ble High Court of Rajasthan in the case of Rajesh Goyal v. Union of India - 2012 (284) E.L.T. 164 (Raj.) expressing anxiety over consequences of tax fraud in the following language. Para 7 Albeit, leaned counsel for both the parties have argues ad longtum on mixed questions of law and fact, but here, we are confined merely to the adjudication of the instant bail petition. It is true that the alleged offence is non-cognizable and also compoundable as envisaged by Section 9A of the Act of 1944. It is also true that the offence is punishable with imprisonment for a term which may extend to seven years and with fine, but the amount of excise duty, the petitioner is found to have evaded, is undoubtedly large and shocking. It amounts to ₹ 338.25 lac. To my firm view, the act of the petitioner may be termed as Royal Thievery which is opposed to both democracy and society order. Evading excise duty or tax which is required to be paid by the industrialists or businessmen, if not paid honestly by them is also an indirect from of corruption in this civilized society of democratic State. Such act of evasion of excise duty not only affects the economy of the State but de .....

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vailing benefit of Cenvat credit duty paid on inputs. It was alleged that the said company has shown records for receipt of various duty paid inputs and availed credit without actually receiving the said inputs and using the same in the manufacture of final products. In other words, based on only invoices issued by the suppliers, the company availed credit, resulting in loss of revenue to the Government. Accordingly, show cause notice dated 12-2-2007 was issued to large number of persons including the four, who are in appeals now. M/s. Minda HUF Ltd. along with three other noticees approached the Settlement Commission. The Settlement Commission vide Final order dated 5-7-2007 appropriated duty of ₹ 2,20,00,975/- paid by the main applicant along with interest of 10%. Immunity was granted from fine, penalty and prosecution to the applicants, who approached the Settlement Commission. 28. The Original Authority proceeded to adjudicate the case in respect of 16 other noticees, who are not party to the settlement. He imposed penalties on each one of them in terms of Rule 26 of Central Excise Rules 2001/2002 read with Rule 13/Rule 15 of Cenvat Credit Rules 2002/2004. The four a .....

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he written submissions and various case laws relied upon by both the sides. 32. To begin with, I note that the Member (J) as well as ld. Counsel for the appellants heavily relied on the decision of the Tribunal in S.K. Colombowala (supra). In the said case, the Tribunal was examining the liability to penalty of co- noticees when the main notice settled the case before the Settlement Commission. The issue involved was that the main notice was in possession of advance licence for duty free import of goods. The broker dealing with advance licence misrepresented to D.G.F.T. and thereafter huge duty free imports were made resulting in loss of revenue. When the proceedings were initiated, the main party along with Director approached the Settlement Commission and got immunity from penalty and prosecution. The Original Authority imposed penalties on the other noticees. It is to be noted that the case dealt with was one composite fraudulent act of misusing advance licence with fraudulent intent, in which certain individuals and CHA and its Director were also imposed with penalty. The Tribunal in S.K. Colombowala (supra) relied on the decision of the Hon ble Supreme Court in Union of I .....

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y to cases where the show cause notice is pending adjudication, would be unreasonable. If read in this manner the order would be discriminatory. An interpretation which leads to discrimination must be avoided. An interpretation, as suggested by Mr. Ganesh, would also be against the object of the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order. It is therefore not possible to accept the submissions of Mr. Ganesh. In our view the reasoning given by the High Court of Kerala is correct and needs to be upheld. It is apparent that the KVSS scheme and the order issued by the Government clearly provided for settlement by the main declarant to operate as full and final settlement in respect of all other persons, on whom show cause notice was issued in respect of the same matter. Reliance on the said decision of the Hon ble Supreme Court to hold that the settlement of case by the main noticee before the Settlement Commission in terms of Section 127 (J) of Customs Act, 1962 will conclude that the proceeding against all co-noticees is not legally sustainable. The Tribunal emphasised that the expression case refers to any proceedings under Customs Act or any other Act for assessment a .....

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. However, on examination, if it is found that any of the co-noticees, who did not approach the Settlement Commission, has committed an offence distinct and is liable for penalty to that offence, then automatic immunity cannot be extended to such co-noticee. Here, it may not be out of place to mention that the appellants in the present case were charged with offence of non-registration with the department, issuing documents showing duty payment without actual manufacture and clearance of goods, etc. Prima facie, these acts were separate and distinct liable for penal consequences. Accordingly, irrespective of the main noticee, who availed irregular Cenvat credit, getting immunity from Settlement Commission, the appellants herein cannot automatically get their penalty set aside on that ground alone. The merits of the case against the appellants are to be examined separately. 35. Section 32E of the Central Excise Act, 1944 deals with application for settlement of cases before the Settlement Commission. Section 31(c) defines the scope of term case which means any proceedings under this Act or any other Act for the levy, assessment and collection of excise duty pending before an Ad .....

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inct and can be treated for penal action independently, then no immunity will be extended automatically to such co-noticee even if the main assessee gets the matter settled before the Settlement Commission. 37. Ld. Counsel also submits, briefly, regarding non-liability of the appellant for penalty on merits as already noted earlier in this order. Only the legal issue regarding immunity available to the co-noticee (here, the four appellants ) has been examined in the present reference as there is no decision on merit recorded by the Division Bench. 38. In view of the above discussions and analysis, I hold that the appeals by the appellants cannot be allowed automatically on the ground that the main noticee got immunity from the Settlement Commission. The reference is answered accordingly. [Order pronounced on 2-2-2017] Sd./- B. Ravichandran Member (Technical) INTERIM ORDER 39. As per the majority order, the present appeals are not to be allowed on the basis of immunity available to them on account of main noticee having settled the issue before the Settlement Commission and their liability to penal action is to be examined on the basis of merits of each case. As the s .....

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