Can Excise Department Levy Penalty on Director for Company's Procedural Lapse in Clearing Goods?

In a pivotal case, the question arose:

Can the Excise Department hold a director accountable for a company's procedural missteps?

At the heart of this debate was Shri Azaz Lokhandwala, the director of Schurter Electronis (India) Pvt. Ltd, who faced a Rs. 1 Lakh penalty under Rule 26 of Central Excise Rules, 2002.

The department set this up against the backdrop of a settled duty demand against the company under the Sabka Vishwas (Legacy Dispute Resolution Scheme), 2019.

Thus, the department alleged that Lokhandwala had knowledge of duty payments made without the necessary authorization.

The Tribunal, delving into the details, identified glaring inconsistencies.

#1 -> The show cause notice had proposed a penalty under Rule 25(1)(d), but the adjudication order confirmed it under Rule 26. This wasn't just a minor oversight but a significant flaw in the legal process.

#2 -> The show cause notice lacked a concrete charge against the director.

#3 -> The company had cleared the goods after paying the due duty.

The only error?

The absence of permission for the quantity cleared in DTA.

So the Tribunal emphasized that

There was no suppression of facts in the entire case. The company transparently cleared the goods, backed the goods by the appropriate invoices. Such a procedural oversight, they argued, did not merit a penalty on the director.

In conclusion, the Tribunal's decision, announced on 18.08.2023, set a precedent. It highlighted the significance of procedural accuracy and the need for concrete evidence before imposing penalties, especially on company directors.

Judgement:

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Court Name : CESTAT Ahmedabad

Parties : Azaz Lokhandwala Director vs C.C.E. & S.T.-Vadodara-i

Decision Date : 18 August 2023

Judgement ref : Excise Appeal No. 10275 of 2013 - DB

This appeal is filed by Shri Azaz Lokhandwala who is director of Schurter Electronis (India) Pvt. India Pvt. Ltd challenging the imposition of penalty of Rs 1 Lakh under Rule 26 of Central Excise Rules, 2002. As regard the case of demand of duty against the company M/s Schurter Electronis (India) Pvt. Ltd the same was settled under Sabka Vishwas (Legacy Dispute Resolution Scheme), 2019 and the appeal stand dismissed as deemed withdrawn by this Tribunal vide final order No. A/11724/2021 dated 30.04.2021. The penalty against the director was imposed on the ground that he was aware of all the facts regarding payment of duty without obtaining authorization from the development commissioner and it was also known that such DTA entitlement requires authorization as the said authorization was obtained by them for the earlier period therefore knowingly he was involved in short payment of duty in respect of DTA clearance without permission.

2. Shri Saurabh Dixit, Learned Counsel, appearing on behalf of the appellant at the outset submits that the short payment of duty is due to inadvertence on the part of the company which is procedure lapse. Therefore for this reason personal penalty cannot be imposed for any procedure lapse on the part of the appellant he further submits that in show cause notice the goods penalty was proposed under Rule 25(1)(d), whereas, in the adjudication order penalty was confirmed under Rule 26 for this reason also penalty is not sustainable.

3. Shri A.K. Samota, Learned Superintendent (AR) appearing on behalf of the revenue reiterates the findings of the impugned order.

4. On careful consideration of the submission made by the both the sides and perusal on record, we find that in the show cause notice there is no charge made against the director of the company and straight way the penalty under Rule 25(1)(d) of Central Excise Rules, 2002 was proposed however in the Adjudication order the penalty was confirmed under Rule 26 of Central Excise Rules, 2002. The adjudicating Authority has given the findings that merely by motioning wrong provision the penalty cannot be set aside.

4.1 In this regard we find that it is not only wrong rule mentioned in the show cause notice but even there is no effective charge was made holding the present appellant liable for penalty under either rule 25 or Rule 26.

4.2 Moreover we find that in the present case there is a procedural lapse on the part of the company the goods were cleared on payment of duty. The only lapse is that the appellant could not obtain the permission for the quantity cleared in DTA. There is no suppression of facts in the entire case as the goods were cleared by on the appropriate invoice and on payment of duty therefore even though if there is a short payment of duty for which the penalty cannot be imposed on the director of the company. For this reason we are of the opinion that penalty of Rs. 1 Lakh imposed to the director of the company is not sustainable.

5. Accordingly, the penalty is set aside appeal is allowed.

(Pronounced in the open court on18.08.2023)

(RAMESH NAIR)

MEMBER (JUDICIAL)

(C L MAHAR)

MEMBER (TECHNICAL)