By TIOL News Service

NEW DELHI, AUG 20, 2015: AFTER completion of the investigation, a demand notice was issued to M/s. Decora Tubes Ltd. (DTL) for recovery of CE duty of Rs.2.89crores on Aluminium Sections clandestinely manufactured and cleared during 2001-2003. Imposition of penalty was also proposed on M.B. Baheti, Managing Director, Ravindernath Jain, Joint Director, H.P. Gupta, Advisor and Rajesh Maheshwari, Manager (Finance).

The SCN was adjudicated by the CCE, Indore vide o-in-o dated 25.10.2005 and the demand was confirmed and penalties were imposed on the co-noticees referred above.

In the meantime, on 11.7.2005 , the Madhya Pradesh High Court passed an order for liquidation of the company and an official liquidator was appointed.

Against the adjudication order M.B. Baheti and Rajesh Maheshwari filed appeals before the CESTAT. There is no knowledge about appeals by the company and other co-noticees.

Be that as it may, before the CESTAT, the appellant submitted that in terms of Section 446 of the Companies Act, 1956 when a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending on the date of the winding up order, shall be proceeded with, against the company, except by leave of the Tribunal and subject to such terms as the Tribunal may impose; that in the present case, since a liquidation order has been passed by the High Court on 11.07.2005, the Commissioner could not proceed against it without the permission of the Company Law Tribunal, that since the question of penalty against the appellant under Rule 26 of the Central Excise Rules, 2002 on M.B. Baheti and Rajesh Maheshwari is linked with the question of duty demand against the appellant company - M/s.DTL and since the adjudication proceedings in respect of M/s.DTL are illegal, the Commissioner's order imposing penalty on M.B. Baheti and Rajesh Maheshwari is also contrary to the provisions of law.

Furthermore, since there is no evidence indicating that Baheti had personal knowledge about the tax evasion by Aluminium Division, there is absolutely no justification for imposition of penalty on him under Rule 26 of the Rules.

In the matter of penalty imposed on Rajesh Maheshwari, his counsel submitted that he was only an employee of the DTL, who was acting on the instructions of Shri Ravinder Jain and Shri H.P. Gupta and therefore imposition of penalty on him under rule 26 is not justified. Reliance is placed on the decision in Z.U. Alvi - 2002-TIOL-281-CESTAT-DEL in support.

The AR supported the order imposing penalties by reiterating the findings of the CCE.

The Bench observed -

Liquidation vis-à-vis adjudication

In the present case, the show cause notice had been issued not only to the appellant company M/s. DTL, Unit-II (Aluminium Division) but also to the Managing Director, Shri M.B. Baheti, Shri Ravindernath Jain, Joint Managing Director and Shri Rajesh Maheshwari, Manager (Finance). Even if the Commissioner could not adjudicate the question of duty demand against M/s.DTL in view of the liquidation order of the High Court on 11.07.2005, in our view, the Commissioner could always adjudicate the question of imposition of penalty on the appellant, Shri M.B. Baheti and Shri Rajesh Maheshwari. Moreover, though the Commissioner has confirmed the duty demand against M/s.DTL, they are not in appeal and, therefore, this Tribunal is not required to go into the question as to whether the confirmation of duty demand against M/s.DTL was correct or not. In these appeals, we are only required to go into the question as to whether penalty under Rule 26 of the Central Excise Rules, 2002 was imposable on Shri M.B. Baheti, Managing Director of the appellant company and Shri Rajesh Maheshwari, Manager (Finance) of the appellant company and whether in this regard, there is an adequate evidence on record.

In the matter of penalty imposed on Rajesh Maheshwari , the Tribunal held -

We find that not only the incriminating documents have been recovered from his residence, he in his statement has also admitted to have been involved in clandestine removal of the goods manufactured by DTL without payment of duty. Not only this, as recorded by the Commissioner in para-19 of the impugned order, he has also admitted that for the purpose of removing the goods without payment of duty two firms viz. M/s. SMMW, Indore under his proprietorship and another firm, M/s.MBMW, Indore under proprietorship of Shri Ashen Nagar have been floated. It is also undisputed that the goods cleared without payment of duty to M/s.SMMW, Indore whose proprietor was Shri Rajesh Maheshwari, Manager (Finance) and to M/s.MBMW, Indore, whose proprietor was Shri Ashen Nagar, another employee of M/s DTL, were being sold by these firms. Since Shri Rajesh Maheshwari, Manager (Finance) besides being an employee of M/s. DTL was also proprietor of M/s. SMMW from where the clandestinely cleared goods were being sold, he cannot be considered to be mere an employee who was acting purely on the direction of the Managing Director. Therefore, Shri Rajesh Maheshwari has to be treated the person who was involved in acquiring possession of and in sale of the clandestinely cleared goods while having knowledge that the same were liable for confiscation. Therefore, imposition of penalty on Shri Rajesh Maheshwari under Rule 26 has to be upheld.

As regards penalty imposed on M.B. Baheti , Managing Director,the Bench extracted the findings of the Commissioner and observed -

From the above findings of the Commissioner as reproduced above, it will be seen that the statement dated 28.07.2003 of Shri M.Baheti, Managing Director, which is being used against him, is that after taking stock of the situations in the wake of search of Unit M/s. DTL, Unit-II, he had removed Shri Rajesh Maheshwari from M/s. DTL as he found him solely responsible for this act. From this statement, no conclusion can be drawn that Shri M. Baheti was involved in day-to-day functions of the Aluminium Division of M/s.DTL or had knowledge about its activity of duty evasion. Moreover, from his statement referred to in para-15 of the show cause notice, it is seen that Shri H.P. Gupta, Advisor and Shri Rajesh Maheshwari, Manager (Finance) had been reporting to Mr. Ravindra Jain, Joint Managing Director and that during 1997-98, M/s. DTL (Aluminium Division) had become a sick unit and it had been decided to sell the assets of the aluminium division of the company to Shri Ravindera Jain and Shri Jain was inducted to run this Unit. Thus from this statement, it is clear that it is Shri Ravinder Jain, who was running the Aluminium Division and Shri M. Baheti was not involved in day-to-day functions of this Unit. In our view, therefore, the evidences on record are not sufficient to conclude that Shri Baheti was, in any way, concerned in removal of the clandestinely cleared goods from M/s. DTL. In view of this, the imposition of penalty under Rule 26 of the Central Excise Rules on Shri M. Baheti would not be sustainable and has to be set aside.

The appeal filed by M.B. Baheti, Managing Director was allowed and that filed by Rajesh Maheshwari was dismissed.

(See 2015-TIOL-1743-CESTAT-DEL)