By TIOL News Service

NEW DELHI, JAN 04, 2013: THE Commissioner (Appeals) set aside the penalties imposed upon the respondents u/r Rule 26 of CER, 2002 on the ground that the respondents are employees, authorised signatories/directors etc. of the main manufacturing units, who have discharged duty liability along with interest and penalty equal to 25% of the duty in terms of provisions of section 11A(1A) of the CEA, 1944. By adverting to the 1st proviso of section 11A(2), he has held that if full duty demanded along with interest and penalty equal to 25% of the duty specified in the notice is paid within 30 days of the receipt of notice, the proceedings in respect of such person and other persons to whom notices are served shall be deemed to be conclusive as to the matter stated in the notice.

In sum, the Commissioner(A) has concluded that on compliance of requirement of payment of dues as above, it is not only the person from whom duty is demanded but other persons also are entitled to have benefit of deeming fiction of conclusion of proceedings in the notice. While arriving at the above conclusion, the Commissioner (Appeals) relied upon Board's Circular No.831/08/2006-CX, dtd. 26.07.06.

Thoroughly aggrieved with this largesse, the Revenue is before the CESTAT.

Their sole submission is - the penalty was imposed on the respondents under Rule 26 of CER, 2002 which is an independent rule, the benefit in terms of 1st proviso to section 11A(2) of the CEA, 1944 is not available to the respondents; that Rule 26 operates in a different scenario where a person acquires, transports, removes, deposits, keep, conceal, sell or purchase or deal with any manner with any excisable goods which he knows or has reasons to believe that they are liable to confiscation under the concerned Act; that the rule 26 is independent of section 11A of the CEA, 1944 where separate penalty has been prescribed on persons found guilty in committing offences. Inasmuch as the manufacturing units have deposited the duty along with interest and 25% of penalty, they have admitted the clandestine manufacture and clearance of the goods on their part and the respondents who are authorised representatives of the said manufacturing units, are imposable with penalty under Rule 26.

The Bench observed -

"3. After hearing the other sides, I find that the moot question required to be decided in the present appeals filed by the Revenue is as to whether the respondents would get the benefit of provisions of section 11A(2) when the main manufacturer discharges his duty liability along with interest and 25% of penalty. For appreciating the said provisions the same are being reproduced below:-

" x x x"

4. Sub-section 1 of section 11A provides for issuance of show cause notice demanding short paid or non-paid duty within the period of either one year from the relevant date or five years where there is misstatement of suppression of facts. Subsection 1A which was introduced w.e.f. 13.07.06 gives the option to person to whom the notice is served under the proviso to sub-section 1 by Central Excise officer to pay duty in full or in part along with interest and penalty equal to the 25% of the duty within a period of 30 days of receipt of the notice. Sub-section 2 refers to a person to whom notice is served under sub-section 1. Proviso to sub-section 2 of section 11A is to the effect that on payment of duty along with interest and penalty of 25%, proceedings in respect of such person and other persons to whom notices are serving under sub-section 1, served under section 11 shall be deemed to be conclusive as to the matter stated therein. A combined reading of sub-section 1A, sub-section 2 and proviso to sub-section 2 of section 11 makes it very clear that the said provisions are applicable in respect of persons to whom notice stands issued under subsection 1 of section 11A. Notice under sub-section 1 of section 11A is issued to a person who has either not paid the duty or short paid the duty. As such notice to sub-section 1 of section 11 is issued to a manufacturing unit or a person who is required to pay duty but has not paid the duty. Notice under sub-section 1 of section 11A cannot be issued to independent persons who are authorised representatives of manufacturing units in as much as such authorised representatives are under no obligation to pay any duty of excise and as such the question of short payment or non-payment of duty does not arise.

5. Further when we analyze proviso to sub-section 2 of section 11A, the same refers to conclusion of proceedings in respect of such person. Such person refer to the persons to whom notice has been served under sub-section 1 of section 11A and who have paid the duty along with interest and 25% of penalty within a period of 30 days of receipt of the notice. Accordingly, it has to be concluded that the proceedings do not come to an end in respect of all the persons in as much as the expression used in the said proviso is only in respect of such persons and not all the notices.

6. I also find that the proviso to section 2 also refers to the other persons. As such it has to be seen as to who "other person" can be in respect of which the proceedings would get concluded on payment of duty interest and part penalty. The said proviso does not refer to all other persons, but the same qualifies the other persons to whom notices are served under sub-section 1. As such the reference to other persons in the said proviso is not to all other persons to whom notices are served for imposition of penalty under law but are restricted to other persons to whom notices are served under sub-section 1 of section 11A. As already observed, notices under sub-section 1 of section 11A are served only to those persons who are required to pay duty and have either not paid duty or short paid. Notices under sub-section 1 are not to be issued to other persons who may be employees of the manufacturing unit. As such analyzing the proviso to sub-section 2 of section 11A, it becomes clear that the proceedings are deemed to be conclusive only in respect of such person who discharges his duty liability in terms of sub-section 1A or to whom notices stands served under sub-section 1.

7. Referring to the provisions of Rule 26 of Central Excise Rules, 2002, it is seen that the same prescribes for imposition of penalty in certain circumstances. For better appreciation, the said rule is re-produced below:-

"RULE 26. Penalty for certain offences. - [(1)] Any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with any excisable goods which he knows or has been reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or "[(two thousand rupees], whichever is greater."

8. As is seen from the above, the invocation of penal provision of Rule 26 is dependent upon so many factors which are unconnected with the provisions of section 11A. No doubt a combined show cause notice under section 11A demanding short paid or non-paid dues along with proposal to imposition of penalties under Rule 26 is issued but as already discussed, the two proposals are independent of each other and mutually exclusive. Rule 26 which provides for imposition of penalty in certain circumstances cannot be said to be a part of the proviso to sub-section 2 of section 11A so as to conclude the proceedings in respect of all noticees on payment of duty, interest and part penalty by main manufacturer. The said proviso in my view only concludes the proceedings in respect of the persons against whom notice under section 11A is issued and who have deposited the duty in terms of provisions of sub-section 1A of section 11A. As such I agree with the Revenue that payment of short paid and non-paid duty by the main manufacturer would not result in conclusion of proceedings against all other persons on whom penalty stands proposed to be imposed in terms of Rule 26. If the legislative intent was extending immunity to all connected persons, the language used would have been simpliciter "in respect of all persons."

9. I may here discuss the Board's circular relied upon by Commissioner(Appeals). Para 2 of Circular No.831/08/2006-CX, dtd. 26.07.06 reads as under:-

"2. Section 11A of the Central Excise Act, 194 has been amended to introduce an optional scheme for enabling voluntary payment of duty by assessees in full or in part in cases involving fraud, misstatement etc. along with interest and 25% of the duty amount as penalty within 30 days of the receipt of the show cause notice thereby dispensing with the rigours of adjudication procedure. This is an additional facility given to the Trade to settle the dispute at an early stage to reduce litigation and also aid in collection of tax dues more expeditiously. The scheme is optional and not compulsory. The assessee has the further option of using the proposal facility in full or in part. In case of part payment, the remaining amount will be subject to regular proceedings as per the law."

10. A reading of the above circular nowhere clarifies the issue as to whether payment by the main manufacturer would result in stopping of proceedings in respect of all the persons or the same would amount to settle the dispute vis-a-vis the main manufacturer only. As such nothing turns on the said Circular."

The Bench, therefore, concluded that the Commissioner(Appeals)'s orders allowing the appeals of respondents by extending the benefit of proviso to sub-section 2 of section 11A are not in accordance with law. All the same, after noting that the appellate authority had not discussed the merits of the case, the impugned orders were set aside and matter remanded for fresh decision after independently examining the role of each and every respondent and the applicability of Rule 26.

Revenue's appeals were allowed in above terms.

Settlement: See 2005-TIOL-254-CESTAT-MUM

(See 2013-TIOL-26-CESTAT-DEL)