CX - When main assessee pays duty with interest and 25% penalty within 30 days of SCN, no penalty proceedings against other noticees: CESTAT
By TIOL News Service
NEW DELHI , JULY 11, 2013: THE persons involved:
1. Agrawal Sponge Ltd - a manufacturer of MS Ingots.
2. Deepak Agrawal - the Director of M/s. Agrawal Sponge Ltd.
3. Abir Steel Rolling Mills Pvt. Ltd. - buyer of the MS Ingots from M/s. Agrawal Sponge
4. Harikrishna Madanlal Agrawal - a broker through whom the sales have been made by M/s. Agrawal Sponge Ltd.
5. A Show Cause Notice proposed demand of duty and interest from Agrawal Sponge and penalty on all the four above.
Agrawal Sponge paid the entire duty with interest and 25% penalty within thirty days of the issue of Show Cause Notice. The Assistant Commissioner still adjudicated the matter and confirmed the duty and equal penalty on Agrawal Sponge, but dropped the proceedings on the other three.
The Department appealed to the Commissioner (Appeals) who dismissed the appeals and now, the Revenue is in appeal before the Tribunal.
The question is whether penalties are imposable on the co-noticees when the issue is concluded against the main noticee.
The tribunal observed,
1. Sub-Section (1A) gives an option to the person chargeable with duty which has not been levied or paid or has been short levied or short paid or to whom erroneous refund has been made, by the reason of fraud, collusion etc. on his part, to pay the entire disputed amount of duty along with interest there on payable under Section 11AB and an amount equal to 25% of the duty towards penalty, within 30 days from the date of receipt of the Show Cause Notice.
2. In terms of first proviso to Sub-Section (2) of Section 11A, if the person chargeable with duty or to whom erroneous refund has been made, discharges the duty liability along with interest and also pays 25% of the duty demanded towards penalty within the period prescribed in Sub-Section (1A), the proceedings in respect of "such person and other persons" to whom the Notice are served under Sub-Section (1), shall without prejudice to the provisions of Section (9), (9A) and (9AA), be deemed to be a conclusive as to the matter stated therein.
3. There is no dispute that once the payment of the disputed amount of duty along with interest and 25% of duty towards penalty has been made by a manufacturer/assessee in terms of Sub-Section (1A) within stipulated period, the proceedings against him shall stand concluded and as such there would be no question of the manufacturer/assessee facing penalty under section 11AC equal to the duty demand confirmed.
4. In fact so far as a manufacturer/assessee liable to pay duty is concerned, the benefit of Sub-Section (1A) read with Sub-Section (2) of Section 11A available after issue of Show Cause Notice but before the Adjudication, is equivalent to the benefit available to him under first and second proviso to Section 11AC, which is available after conclusion of Adjudication proceedings and for which the he is required to pay duty demand confirmed along with interest and 25% of duty as penalty within 30 days from the date of communication of the Adjudication Order.
5. Thus Sub-Section (1A) read with Sub-Section (2) of Section 11A can be treated as an additional facility given to a manufacturer/assessee to settle his tax dispute immediately after issue of the Show Cause Notice and thereby reduce the litigation involving Adjudication and appeals, besides aiding, in collection of tax dues expeditiously.
The point of dispute is as to when the Show Cause Notice issued to the manufacturer/assessee for demand of duty along with interest and imposition of penalty under Section 11AC on him, also show causes other persons (co-noticees) like Directors or employees of the manufacturer/assessee company or other persons like Transporters or Customers who have dealt with the goods in respect of which either the duty liability had not been discharged or has been discharged only partly, for imposition of penalty under section 26 of the Central Excise Rules, whether the Show Cause Notice would also stand concluded in respect of the co-noticees as to the matter stated therein, when the manufacturer/assessee has paid the duty along with interest and 25% of duty on penalty within 30 days of the receipt of the Show Cause Notice.
The Tribunal observed,
1. The first provisos to Sub-Section (2) use the words "proceedings in respect of such person and other persons to whom notice are served under Sub-Section (1)". The word "such person" is obviously the person referred to in Sub-Section(1) as "person chargeable with the duty which has not been levied or paid or which had been short levied or short paid or to whom refund has erroneous been made" i.e. the person who is liable to pay the duty.
2. The question arises as to which persons are covered by the words "other persons".
3. The words "other persons" in first proviso to Sub-Section (2) have to be given a meaning different from the words "such persons". Revenue's contention would have been correct if the words "other person" were not there in 1st proviso to Section 11A(2) and in that case, there would have been no scope for doubt that on compliance with the provisions of Section (1A), only the proceedings against the person chargeable with duty would stand concluded. But since the legislature has used the words "such person and other persons" in 1st proviso to Section 11A(2), the words "other persons" have to be given a meaning, different from "such person". Adopting the Revenue's stand would amount to adopting a construction of the 1st proviso to Section 11A (2), which would make the words "other persons" redundant, which is not permissible.
4. Therefore, the words "other persons" used in first proviso to Sub-Section (2) would cover the co-noticees/persons who face the allegations of contravention of Central Excise Rules, which are linked with the allegation of deliberate/fraudulent short payment, non-payment or erroneous refund of duty against the person chargeable with duty facing the duty demand i.e. the person who are alleged to have knowingly dealt with the excisable goods, liable for confiscation in the manner mentioned in Rule 26 (1) of the Central Excise Rules, 2002 and for this reason have been Show Caused for imposition of penalty under this Rule, either in the notice under section 11A (1) issued to the person chargeable with duty or by separate notices issued in this regard. This interpretation would make sense, as when the proceedings against the manufacturer/assessee stand concluded on payment of disputed amount of duty plus interest plus 25% of the duty as penalty, there would be no sense in continuing the proceedings for imposition of penalty under Rule 26 against other persons like traders who had purchased the goods, transporters who had transported the goods cleared by manufacturer/assessee, the Directors/employees of the manufacturer/assessee company.
5. The intention of Sub-Section (1A) read with Sub-Section (2) of Section 11A, as is evident from Board's Circular No. 831/08/06-EX dt. 26.07.06, is to give opportunity to manufacturer/assessee to settle his tax dispute immediately after the receipt of issue of Show Cause and thereby avoiding the litigation. The interpretation of these provisions sought by the Revenue would be contrary to this objective. Revenue Appeal Dismissed.
In parting: See 2013-TIOL-768-CESTAT-MUM
(See 2013-TIOL-1048-CESTAT-DEL)
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