Central Excise Appeal No. 7 of 2010 -1- **** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Central Excise Appeal No. 7 of 2010 Date of decision: 17.3.2011 M/s Vee Kay Enterprises, Faridabad ...Appellant Versus Commissioner of Central Excise ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Mr. Jagmohan Bansal, Advocate for the appellant. Mr. Gurpreet Singh, Senior Standing counsel for the respondent. **** ADARSH KUMAR GOEL, J. 1. This order will dispose of CEAs No.7 and 105 of 2010 as it is stated by learned counsel for the parties that questions of law involved in both the appeals are identical. 2. CEA No.7 of 2010 has been preferred by the assessee under Section 35G of the Central Excise Act, 1944 against order dated 4.9.2009 passed by the Customs, Excise & Service Tax Appellate Tribunal, New Delhi (for short “the Tribunal”) claiming following substantial questions of law:- “i) Whether the Ld. Tribunal has passed the impugned order in violation of principle of natural justice? Central Excise Appeal No. 7 of 2010 -2- **** ii) Whether penalty under Rule 25 can be imposed by invoking ingredients of Rule 26? iii) Whether penalty prior to March, 2007 can be imposed upon a dealer when specific provision was inserted in Rule 26 w.e.f. 01.03.2007? iv) Whether penalty under Rule 25(1) (b) and 25(1)(d) can be imposed upon a dealer? v) Whether it is justified to impose penalty equivalent to the amount of Cenvat Credit when the same amount of penalty has been imposed upon the user of credit? 3. The assessee is a registered dealer under the provisions of Central Excise Act, 1944 ( for short “the Act”). It came to light during investigation that the appellant was party to fraud in enabling credit to be taken for the duty paid without actual receipt of material which was a condition precedent for availing of cenvat credit as per Cenvat Credit Rules, 2004. After considering the matter, order-in- original dated 7.1.2009 was passed raising demand of duty after disallowing the cenvat credit and imposing penalty under Rule 25 of Central Excise Rules, 2002. The Adjudicating Authority levied penalty not only on the dealer wrongly availing cenvat credit but also on the appellant who by issuing fake invoices, facilitated the evasion of duty by wrongful availment of cenvat credit. The said penalty was equal to the value of duty. The plea of the appellant was that it did not take cenvat credit itself and only issued invoices on the basis of which two manufacturers, namely, M/s Kay Iron Works Central Excise Appeal No. 7 of 2010 -3- **** (Jorian) Pvt. Ltd., village (Jorian), Yanuna Nagar and M/s United Chain Industries, earlier situated at E-17, Industrial Area, Yamuna Nagar and now at village (Jorian), Yamuna Nagar took the cenvat credit. Further plea was that under Rule 26(2) a person issuing excise duty invoice without delivery of the goods was also liable to pay penalty to the extent of the amount of benefit taken, the said provision was added with effect from 1.3.2007 which was after the allegedly wrongful act of the appellant. These contentions were not accepted and the appellant was held liable to pay penalty equal to the amount of alleged evasion of duty. The Appellate Authority i.e. the Tribunal observed:- “15. There could be no dispute on the proposition that the penal statue cannot be applied retrospectively. In respect of persons whose activities are clearly covered by the provisions of Rule 25, the penalties are imposable under the said Section. As regards penalty imposed on the persons under Rule 26, as their role is covered under unamended Rule 26 ( i.e. 26(1) in the present form), even before the amendment, the penalties on these persons are sustainable. Therefore, it is not a case of retrospective application of penal provisions. 16. The reliance is being placed on the decision of the Larger Bench in the case of Steel Tubes of India Ltd. reported in 2007 (217) ELT 506 (Tri-LB). In the said decision it has been held that the assessee was only Central Excise Appeal No. 7 of 2010 -4- **** issuing invoices and there was no movement of goods, and therefore, they cannot be visited with penalty under Rule 209A. The said decision of the Tribunal relies on the judgment of the Hon'ble High Court of Bombay in the case of Jayanthilalk Thakker and Company reported at 2006(195) ELT (Bom) in which it was held that the Chartered Accountant and the law firm could not be held to have dealt with the goods “in any other manner” attracting the provisions of Rule 209A of the Central Excise Rules. From the facts disclosed in the order, there is no indication as to whether there were any goods at all involved, whether there was payment of sale consideration or there was any commission involved. The findings of the Tribunal in the said case that a person cannot transport without taking possession are unexceptionable. But the taking over of physical possession in respect of other activities like purchase or sale is not always necessary. Let us consider a case of an import by an India based importer who sells the goods imported by him or high sea sale basis; the orders for import could be placed without even seeing the goods; the goods could be transported by ships and sale takes place on high sea sale basis. In such cases, the party who sells on high sea sale basis has purchased and sold but he has not taken possession or transported. It is a Central Excise Appeal No. 7 of 2010 -5- **** common knowledge that there are similar situations in domestic transactions of selling or purchasing. A Delhi based trader may order a consignment in Mumbai, but may transfer the consignment by sale to a party in Chennai and he may not take physical possession or be concerned about transporting. 16.2 The reliance has been placed on the extract from principles of statutory interpretation by Justice G.P.Singh, regarding retrospective operation of penal statutes and a submission was made that Rule of construction against retro activity of penal loss is not restricted to acts providing for criminal offences but applies also to laws which provides for other penal consequences of a severe nature. As we have held that the action of these two manufacturers appellants attract the provisions of Rule 14 and 15 of Cenvat Credit Rules read with Section 11AC, there is no retrospective application of penal provisions in their case. Similarly, as we have held that in respect of registered dealers, the rule 25 of the Central Excise Rules is applicable there is no retrospective application of penal provision in respect of such dealers. 16.3 The reliance placed on the decision of the Hon'ble High Court of Kerala in Kallatra Abbas Haji cited supra relating to non-reliability of retracted confession of co- accused is not relevant as in the facts of the present Central Excise Appeal No. 7 of 2010 -6- **** cases the registered dealers, the transporters, the two manufacturers and the ultimate users have corroborated version of each other. The other evidence like banking transaction also corroborated the submissions of these parties.” 4. We have heard learned counsel for the parties. 5. Learned counsel for the appellant submitted that since the period during which the appellant issued invoices is prior to 1.3.2007, the rule under which penalty was created for the first time i.e. Rule 26(2) having come into force on 1.3.2007, the same could not be invoked to levy penalty against the appellant. Reliance has been placed on the following orders:- (i) CEA No.56 of 2009 Commissioner of Central Excise Commissionerate, Chandigarh Vs. Sh. Ashish Gupta decided on 18.2.2010; (ii) Commissioner of Ex., Jalandhar Vs. Satish Metal Co. 2007(210) E.L.T. 341 (P&H); and (iii) CEA No.80 of 2006 Commissioner, Central Excise Commissionerate, Jalandhar Vs. M/s Ruby Impex, 1049, Industrial Area, Jalandhar decided on 10.2.2010. 6. Alternatively , it was submitted even if the appellant was liable to pay duty it did not stand on the same footing as person who wrongly availed of the credit and doctrine of proportionality was required to be applied by taking into account the extent of culpability. Central Excise Appeal No. 7 of 2010 -7- **** In this regard reliance has been placed on order of this Court dated 5.7.2010 in CEA No.125 of 2010 Commissioner of Central Excise, Chandigarh-I Vs. M/s Lalit Steel and Agro Industries making distinction in the matter of quantum of penalty between person who wrongly availed of the cenvat credit and the person who merely issued invoice on the basis of which cenvat credit was wrongly availed. To consider the rival submissions, we may refer to the relevant rules which are as under:- “ Rule 25-Confiscation and Penalty (1) Subject to the provisions of Section 11AC of the Act, if any producer, manufacturer, registered person or a warehouse or a registered dealer;- (a) remove any exciseable goods in contravention of any of the provisions of these rules or the notifications issued under these rules; or (b) does not account for any exciseable goods produced or manufactured or stored by him; or (c) engages in the manufacture, production or storage or any exciseable goods without having applied for the registration certificate required under section 6 of the Act; or (d) contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty, then, all such goods shall be liable to confiscation and the producer or manufacturer or Central Excise Appeal No. 7 of 2010 -8- **** registered person of the warehouse or a registered dealer, as the case may be, shall be liable to a penalty not exceeding the duty on the exciseable goods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or clause ( c) or clause (d) has been committed, or [rupees two thousand] whichever is greater. (2) An order under sub-rule (1) shall be issued by the Central Excise Officer, following the principles of natural justice.” “ Rule 26:- Penalty for certain offences: (1) Any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or [two thousand rupees], whichever is greater. (2) Any person, who issues- (i) an excise duty invoice without delivery of the goods specified therein or abets in making such invoice; or (ii) any other document or abets in making such document, on the basis of which the user of said invoice or document is likely to take or has taken any ineligible Central Excise Appeal No. 7 of 2010 -9- **** benefit under the Act or the rules made thereunder like claiming of CENVAT Credit under the CENVAT Credit Rules, 2004 or refund, shall be liable to a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater.” 7. Learned counsel for the revenue supported the impugned order. 8. Question for consideration is whether penalty could be levied on the person who did not actually deliver the goods and merely issued a fake invoice which enabled wrong availing of cenvat credit and the extent of penalty which could be levied. 9. As regards applicability of provisions introduced on 1.3.2007 to alleged acts committed prior to the said date, the matter is covered by orders of this Court referred to above which are not shown to be distinguishable. Accordingly, we hold that the amended provisions will not apply to the acts committed prior thereto. 10. Inspite of non applicability of rule 26(2), penalty could be levied as the appellant was concerned in selling or dealing with the goods which were liable to confiscation inasmuch as the appellant claimed to have sold the goods in respect of which the cenvat credit was taken. In such a case, rule 25(1)(d) and 26(1) are also applicable. The person who purports to sell goods cannot say that he was not a person concerned with the selling of goods and merely issued invoice or that he did not contravene a provision relating to evasion of duty. The appellant issued invoices without delivery of Central Excise Appeal No. 7 of 2010 -10- **** goods with intent to enable evasion of duty to which effect a finding has been recorded and which finding has not been challenged. We are, thus, unable to hold that appellant was not liable to pay any penalty. 11. As regards alternative submission of the appellant, that even if there is jurisdiction to levy penalty equal to the amount of duty evaded distinction in culpability may be found in person who actually evades the duty and the person who enables the same to be done. This distinction in culpability may be required to be gone into from case to case. The Tribunal does not seem to have been conscious of this issue. 12. The penalty prescribed is admittedly not the minimum. Its quantum will thus be in discretion to be exercised having regard to mitigating or aggravating circumstances. In the context of exercise of discretion of imposition of appropriate sentence, it was observed in State of Karnataka V. Puttaraja, AIR 2004 SC 433:- “10. ....It has been very aptly indicated in Dannis Councle MCGDautha V. State of Callifornia, 302 US 183 : 28 LD 2nd 711, that no formula of a foolproof nature is possible that would provide a reasonable criterion in determining a just and appropriate punishment in the infinite variety of circumstances that may affect the gravity of the crime. In the absence of any foolproof formula which may provide any basis for reasonable criteria to correctly assess various circumstances germane to the consideration of Central Excise Appeal No. 7 of 2010 -11- **** gravity of crime, the discretionary judgment in the facts of each case, is the only way in which such judgment may be equitable distinguished.” Since in the present case the Tribunal has not considered the issue of quantum of penalty, the matter may require fresh consideration of the Tribunal to determine the quantum of penalty which ought to be levied on the appellant. Accordingly, we allow these appeals partly as above and remand the matters to the Tribunal for passing an appropriate orders on the quantum of penalty. 13. The parties may appear before the Tribunal on July 04, 2011 for further proceedings. 12. A photocopy of this order be placed on the file of connected case. (Adarsh Kumar Goel) Judge March 17, 2011 (Ajay Kumar Mittal) Pka Judge