CX - Issuing fake or forged gate passes - Respondent not having physically dealt with excisable goods penalty u/r 209A cannot be invoked: HC
By TIOL News Service
MUMBAI, SEPT 15, 2017: IN this appeal filed by the CCE, Mumbai, against the order of CESTAT, the substantial question of lawreads:
"Whether in the facts and circumstances of the case and in law, the CESTAT is correct to hold that the ingredients of Rule 209A of Central Excise Rules, 1944 under which the penalty has been imposed in this case are attracted only if the persons concerned have physically dealt with excisable goods with the knowledge or belief that such goods were liable to confiscation & that the provisions are not attracted unless the person concerned has physically dealt with such goods?"
One M/s. Singhal Swaroop Ispat Ltd. was engaged in manufacturing of mild steel ingots. Pursuant to certain information regarding misuse of modvat credit by way of using fake/forged/invalid documents, searches were conducted in March 1992 and certain incriminating documents were seized. Investigations revealed that M/s. Singhal Swaroop Ispat Ltd. had availed modvat credit on 19 gate passes and 158 certificates/subsidiary gate passes.
Out of these 19 gate passes, 12 gate passes were issued by Respondent No. 1 and which were alleged to be forged/fake/fictitious. It was alleged that Respondents No. 2 and 3 who were looking after day-to-day affairs of Respondent No. 1 as well as one Shri. M.S.R.S. Gadhwal had used blank gate passbooks of Respondent No. 1 for issuing fake gate passes, which gate passes were endorsed by Shri. Gadhwal to M/s. Singhal Swaroop Ispat Ltd. to enable them to avail modvat credit.
A show cause notice was issued to M/s. Singhal Swaroop Ispat Ltd. demanding duty of Rs. 42,74,268.50 as well as Rs. 4,36,278.15. Show cause notices were also issued to 37 other parties including the Respondents. The penal provision under Rule 209A of the CER, 1944 was invoked, inter alia , upon the Respondents.
The Adjudicating Authority vide order in original dated 29 April 1997, disallowed the modvat credit of Rs. 47,10,546.65 and imposed a penalty of Rs. 10,00,000/- each on Respondents No. 1 and 2 and Rs. 5,00,000/- on Respondent No. 3 under Rule 209A of the said Rules.
The CESTAT vide impugned order dated 7 March 2006 allowed the Appeals filed by the Respondents and set aside the penalty imposed on them, by observing that the ingredients of Rule 209A of the said Rules under which the penalties were imposed is attracted only if the person concerned physically dealt with the excisable goods with the knowledge or belief that such goods were liable to confiscation.
As mentioned, Revenue had filed an appeal before the Bombay High Court in the year 2007 and the same was admitted by order dated 5 June 2008 when the substantial question of law was framed. The appeal was decided recently.
The High Court considered the rival submissions and after extracting rule 209A of the CER, 1944 adverted to the Division Bench decision dated 14 September 2010 passed in The Commissioner of Central Excise Vs. M/s. Ramesh Kumar Rajendra Kumar & Co. & Anr. Central Excise Appeal No. 18 of 2006, in paragraph 7 of which it is observed -
"The sine qua non for a penalty on any person under the above rule is: either he has acquired possession of any excisable goods with the knowledge or belief that the goods are liable to confiscation under the Act or Rules or he has been in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing or has in any other manner dealt with any excisable goods with such knowledge or belief. Acquisition of possession of goods is, indisputably, a physical act i.e. the act which could not have been done without handling or movement of excisable goods as mentioned in the rule. The words "who acquires possession" would indicate that the person sought to be penalized under this rule has to first acquire the possession and then do the activity of transportation etc. as contained in the rule. It is, thus, clear that the physical possession of the goods is a must for doing the activity of transporting referred in rule 209A. The ratio laid down by this Court in Jayantilal Thakkar & Co. (supra) covers the issue. In the said judgment, it is held that in the given situation, if the assess is only issuing invoices wherein there is no movement of the goods, they cannot be visited with penalty under rule 209A."
The High Court, thereafter, concluded -
"11. …, it is clear that Rule 209A can be invoked and the penalty imposed only when the person has physically dealt with the excisable goods with the knowledge or belief that the goods are liable for confiscation. In the present case, the allegation was of unused gate passbooks being misused by the Respondents for the purpose of issuing fake/forged gate passes to assist M/s. Singhal Swaroop Ispat Ltd. There was no case of the Respondents having physically dealt with the excisable goods with the knowledge or belief that such goods were liable to confiscation. We are thus, of the view that Rule 209A cannot be invoked in the present case…."
In fine, the Revenue appeal was dismissed.
(See 2017-TIOL-1883-HC-MUM-CX )