By TIOL News Service

NEW DELHI, MAY 18, 2015: A demand of duty of Rs.1,45,34,221/- stands confirmed against the manufacturing unit M/s. Allianz Steel Ltd. along with imposition of penalty of identical amount. In addition penalty of Rs.5 lakhs is imposed the Managing Director of the Company u/r 26 of CER, 2002. In addition, penalties of Rs. 10 lakhs stand imposed on each of other two applicants M/s. K G Ispat Pvt Ltd. and M/s. Jain Ispat, who are registered dealers, under Rule 26 of Central Excise Rules, 2002.

Since nobody appeared for M/s. Allianz Steel Ltd. and the MD although the matter was coming up repeatedly, their stay applications were dismissed for non-prosecution and both the applicants were directed to deposit the entire dues and report compliance.

Both the Members of the Division Bench agreed on the fate of the applications for stay filed by M/s. Allianz Steel Ltd. and the MD, as mentioned above. However, in respect of the Stay applications filed by M/s. K G Ispat Pvt Ltd. and M/s. Jain Ispat the Members differed.

The Member (J) agreed with the submissions made by the two appellants, who are registered dealers and had supplied Waste and Scrap under the cover of invoice, which allegedly have not been received by M/s. Allianz Steel Ltd.; that penalties are not imposable in view of the decision in Woodmen Industries (upheld by Supreme Court) [that penalty u/r 26 is applicable only on persons and not on firms constituted under the law] and in view of the Larger Bench decision in the case of Steel Tubes of India Ltd. - 2007-TIOL-1720-CESTAT-DEL-LB.

However, the Member (T) observed that the adjudicating authority had clearly mentioned in his findings that these two dealers were issuing fake invoices of rejected ingots and other waste material without supply of goods enabling all other appellants to avail Cenvat credit; that transporters were non existent and/or no lorry receipts were issued by the transport firm allegedly shown in the invoices. That in view of overwhelming evidence regarding M/s KG.Ispat and M/s. Jain Ispat being involved in fraudulent activity of issuance of fake invoices enabling M/s. Allianz Steel Ltd. to avail Cenvat credit, it will not be proper to grant total waiver of pre-deposit, the Member (T) observed. The Member (T) also highlighted that pursuant to the amendment to Rule 26 of CER, 2002 vide notification 8/2007-CE(NT), issue of fake invoices also attracts penalty and the judgments cited by the appellant were for the prior period.

Holding that the balance of convenience is in favour of Revenue, both the appellants viz. M/s KG. Ispat and M/s. Jain Ispat were directed by the Member (T) to make a pre-deposit of 50% of the penalty levied for obtaining stay from recovery of the balance dues.

Therefore, the matter came to be referred to the third Member.

The third member on reference viz. Member (T) passed an order recently.

The Member (T) inter alia held as under -

"Though Larger Bench of the Tribunal in the case of Steel Tubes of India Ltd. vs. CCE, Indore (supra) and another bench of the Tribunal in the case of Woodmen Industries vs. CCE, Patna (supra) has held that the word 'any person' in Rule 26 refers only to a natural person and penalty under this Rule can not be imposed on a company or a firm, I find that the Apex Court in the case of Madhumilan Syntex Ltd. vs. Union of India - 2007-TIOL-44-SC-IT in para 23 of the judgment with regard to the question of prosecution of a company under the provisions of the Income Tax Act has held that while it is, no doubt, true that a company is not a natural person but is a 'legal' or 'juristic' person, the 'Corporate criminal liability' is not unknown to law, that law is well settled on the point and that while a juristic person cannot be ordered to suffer imprisonment, other consequences, like payment of fine would ensue."

Citing the Tribunal decision in Twenty First Century Wire Rods Ltd. vs. CCE & Cus, Goa - 2009-TIOL-2579-CESTAT-MUM which followed the apex court decision in Madhumilan Syntex, the Member (T) further observed –

"In view of this, on this point I agree with the decision of Member (Technical) that penalty under Rule 26, whether under sub-Rule (1) of Rule 26 or under sub-Rule (2) of Rule 26 can be imposed on a juristic person also i.e. on a company or a firm. Moreover, if a private limited company or public limited company or a partnership or a proprietorship firm as a registered dealer issues bogus invoices without supply of any material to enable another person avail the Cenvat credit it would not be correct to say that in such cases the person who had issued the bogus invoices would not be liable for penalty under Rule-26 (2)."

In as much as the third Member on reference held that this was not a case where the requirement of pre-deposit of penalty for compliance with the provisions of Section 35F should be totally waived. Holding that the pre-deposit ordered by the Member (Technical) is reasonable, the third Member (T) on reference agreed with the decision of Member (T) of the referral bench.

Conclusion: The Majority order, therefore, is -

+ the stay petition filed by M/s Allianz Steel Ltd. and Shri Vikram Agnihotri are dismissed for non-prosecution and both the appellants are directed to deposit the entire dues.

+ the other two appellants M/s Jain Ispat and M/s K.G. Ispat Pvt Ltd., are directed to deposit 50% of the penalty levied upon them as a condition of hearing of their appeal.

(See 2015-TIOL-884-CESTAT-DEL)