By TIOL News Service

MUMBAI, Apr 5, 2006 : MORE than two decades ago, the South Regional Bench of the Tribunal had offered the following sagely advise: - “Merely culling out a few sentences here and there from the Judgment does not amount to citation of a precedent of binding nature.”  This was the case of Govindaraju and Another vs. Collector of Central Excise, Bangalore, cited as 1985(22)ELT 546(T).

This sentence was used by the Larger Bench of the Tribunal while delivering the landmark order in the context of brand name and the small scale exemption.  No doubt, no credit was given to the gentleman who had given this advise, namely Shri C.T.A.Pillai, Member(Technical).  We on our part salute him.

The reason for this brief history is an interesting case that came before the Tribunal recently.

But before that, a reminder that the caption to this piece is also our version and not what the Tribunal delivered.

Normally, one tends to go by the head notes rather than the judgment or the paragraph in its entirety for a head note is supposed to be essence of a judgment, nothing more nothing less.  But after you read this piece, you will make it a point to ensure that you unfailingly read the entire text.

In the present appeal, the respondents had taken over the unit and given an undertaking that they will take over all the liability of the company taken over.  As fate would have it, after the company was taken over by the present management, a show cause notice which was issued to the earlier company was adjudicated by the Assistant Commissioner.  In his order, he confirmed the demand of duty along with interest and a penalty of Rs.1,50,000/- under rule 96ZO(3) read with Rules 173Q was imposed.

The Commissioner(A) set aside the penalty on the ground that the present management cannot be held liable for the irregularity committed by their predecessor relying on the Tribunal’s decision in the case of Marcandy Prasad Radhakrishna Prasad Pvt. Ltd. vs. CCE, Cal-II – 1998(102)ELT 705(Tri), wherein it was held that “Penalty – Present management is not responsible for illegal activities carried out during time of previous management – Penalty not imposable – Rule 173Q of Central Excise Rules, 1944.”   The other ground on which the penalty was set aside was that the order-in-original referred to Rule 173Q, which was invocable only in respect of contraventions of Rules under Chapter VIIA of the erstwhile Central Excise Rules, 1944 and not for offences committed under the Compounded levy scheme.

There ought not to have been any cause for the Revenue to be unhappy when the fact remained that the headnote extracted above was from the decision of the Tribunal.

Gotcha!

In appeal, the Ld. Departmental Representative averred that the Tribunal’s decision cited by the Commissioner(A) has been wrongly quoted as the relevant paragraph 5.3, read as under :-

“Question would, however, remain whether the appellants would be liable to penalty under Rule 173Q.  The adjudicating authority has not at all discussed the pleas regarding the previous management and the present management is not at all concerned.  In the absence of any finding by the adjudicating authority, no case for penalty is made out under Rule 173Q read with any other Rule of the Central Excise Rules.”

It was further submitted that in the Marcandy Prasad case, it was neither the involvement of the present management or of the past management, which was looked into by the adjudicating authority and, therefore, on this ground the penalty was held as not imposable and not on the plea that the present management cannot be held responsible for illegal activity carried out during the time of previous management, as cited by the Commissioner (Appeals).  It was further submitted that the penalty was correctly invoked under rule 96ZO(3) and mere mentioning of Rule 173Q will not make a difference.

The Bench pored over the referred decision and came to the conclusion that the finding of the Tribunal’s decision has been wrongly quoted and the Commissioner (A) had only gone by the head note and has not looked into the relevant paragraph, which speaks otherwise.  Further, it also held that the penalty has been clearly imposed under rule 96ZO(3), which was also mentioned in the show cause notice separately and mere mentioning the provisions “read with rule 173Q” will not cause to nullify the imposition of penalty.

Accordingly, Revenue’s appeal was allowed by setting aside the order passed by the Commissioner (Appeals) and consequently the order-in-original was restored.

(See 2006-TIOL-407-CESTAT-MUM in 'Excise' + 2006-TIOL-407-CESTAT-MUM in 'Legal Corner')