IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated 17.3.2011 CORAM THE HONOURABLE MR.JUSTICE R.SUDHAKAR Writ Petition No.4410 of 2008 and M.P.No.1 of 2008; W.P.No.1544 of 2008 and M.P.Nos.1 and 2 of 2008; W.P.Nos.3346 and 3347 of 2008 and M.P.Nos.2 and 3 of 2008 M/s.Marshal Power and Telecom (India) Limited, represented by its Project Coordinator, K.Suresh Kumar, No.21/3, Mylam Road, Sedarapet, Pondicherry-605 111. ... Petitioner in W.P.No.4410 of 2008 Dr.B.Rajagopalan. ... Petitioner in W.P.No.1544 of 2008 Mr.B.Muralidhar. ... Petitioner in W.P.No.3346 of 2008 Ms.Subhadra Kunduri. ... Petitioner in W.P.No.3347 of 2008 -Vs.- 1. The Customs & Central Excise Settlement Commission, Additional Bench, II Floor, Narmada Block, Customs House, 60 Rajaji Salai, Chennai-600 001. 2. The Commissioner of Central Excise, Beach Road, Pondicherry 605 001. 3. The Additional Director General, Directorate General of Central Excise Intelligence, Chennai Zonal Unit, C-3, C Wing, 2nd Floor, Rajaji Bhavan, Besant Nagar, Chennai 600 090. ... Respondents in all W.Ps. https://hcservices.ecourts.gov.in/hcservices/ All the four Writ Petitions are filed under Article 226 of the Constitution of India praying to issue a Writ of Certiorari, calling for the records comprised in the impugned final order No.55/2007-CE dated 6.9.2007 insofar as imposition of personal penalty on the respective petitioners on the file of the first respondent and quash the same. For petitioner in W.P.No.4410 of 2008 : Mr.V.C.Janardhanan For petitioner in W.P.Nos.1544, 3346 and 3347 of 2008 : Mr.Mohammed Shaffiq for M/s.G.R.M.Palaniappan and K.Magesh For respondents in all W.Ps. : Mr.K.Ramakrishna Reddy, Senior Central Government Counsel COMMON ORDER All the four Writ Petitions are filed praying to issue a Writ of Certiorari, calling for the records comprised in the impugned final order No.55/2007-CE dated 6.9.2007 insofar as imposition of personal penalty on the respective petitioners on the file of the first respondent and quash the same. 2. The relief sought for in all the four writ petitions is one and the same. Hence, by consent of both parties all the four writ petitions are taken up together and disposed of by this common order. 3. Four writ petitions have been filed, one by the company and the other three by the Directors and President of the Company challenging the order of the Customs & Central Excise Settlement Commission, the first respondent. 4. The brief facts in all the four cases are as follows:- Petitioner company is engaged in manufacture of Aluminium Conductor Steel of various types falling under Chapter Heading 7406 of Central Excise Tariff Act, 1985. Petitioner company is 100 per cent Export Oriented Unit (EOU in short). The Directorate General of Central Excise Intelligence on reasonable belief and information made a search of the petitioner company on 14.10.2003 at the factory and corporate office premises at Pondicherry and Chennai. Documents were seized and mahazar was drawn. Statements were recorded from Senior President, Special Director, the promoters of the company and other https://hcservices.ecourts.gov.in/hcservices/ personnel like President, Head – Corporate Planning, Excise in- charge, said to be involved in the affairs of the company. After perusal of the documents seized and on the basis of the investigation and the statements recorded, the department was of the view that the petitioner company, a 100 per cent EOU did not make any export and has procured raw materials without payment of duty availing the concession extended to 100 per cent EOU. The duty free raw materials were used for manufacture of conductors, which were cleared to Domestic Tariff Area (DTA in short) (i.e.) to State Electricity Board concerns, like TNEB, HVPNL, RRVPNL and APTRANSCO. No excise duty was paid on any of their clearance to DTA, whereas excise duty was collected from the customers. All these activities were conducted clandestinely, violating the provisions of the Central Excise and the Regulation in respect of 100 per cent EOU, within the control of the Madras Export Processing Zone (MEPZ in short). 5. It is the further allegation of the department that the petitioner company did not obtain the permission for manufacture and removal of goods to DTA from MEPZ, which can be obtained only on fulfillment of the export obligations. 6. In view of the above nature of charge, a show cause notice dated 30.9.2004 was issued demanding duty and for other action as per law. The summary of the charge and the payment made by petitioners is as follows:- "14.0 Voluntary payment: 14.1 MPTEL have voluntarily paid an amount of Rs.50,00,000/- (Rs.Fifty Lakh only) under T.R.Challans, as shown in Annexure-E to SCN and debited the same towards their duty liability on their clearances made in DTA to electricity Board/Concerns, without payment of Central Excise duty. 15.0 SUMMARY: 15.1 From the investigations conducted against MPTEL, it therefore appears that: * MPTEL is an 100% EOU having their factory premises at No.84 Akashpattu Village, Vanur Taluk, Villupuram District and were engaged in the manufacture of ACSR conductors etc.; * MPTEL have procured raw materials such as aluminium rods/ingots, steel wires etc., required for the manufacture of ACSR conductors, without payment of excise duty under C.T.3 certificates availing the concession extended to 100% EOUs; * MPTEL have not made any exports of manufactured goods from their factory, but have used the duty free raw https://hcservices.ecourts.gov.in/hcservices/ materials for the manufacture of ACSR conductors, which were cleared in DTA, i.e., to various state electricity Board/Concerns; * MPTEL have cleared the manufactured goods under Commercial invoices, by charging excise duty and have collected excise duty, which was not remitted to Government exchequer; * The IONs and other correspondence between the personnel of MPTEL have clearly unearthed the modus of illicit manufacture and removal of goods; * The procurement of raw materials under C.T.3 certificates without payment of duty, manufacture of goods at the factory premises of MPTEL were evident from the documents seized from Corporate Office and factory premises of MPTEL; * The substantial consumption of electricity at the factory premises of MPTEL appears to confirm the production of goods carried out by MPTEL; * All the customers of MPTEL have furnished the documents relating to their entire transactions with MPTEL, which appears to confirm the clandestine manufacture and removal of goods by MPTEL; * The Senior President, Special Director, President, Head-Corporate Planning, Senior Manager-International Division (in-charge of excise) of MPTEL have in their respective statements admitted the entire modus, i.e., procurement of duty free raw materials, usage of the same in the manufacture of goods that were cleared in DTA without payment of duty, collection of excise duty from customers and non-payment of the same to Government exchequer, making no exports, application to de-bond the EOU status of MPTEL to regularize the illicit clearances etc.; * MPTEL are liable to pay the appropriate Central Excise duties on the clandestine manufacture and clearances of ACSR conductors effected to TNEB, HVPNL, RRVPNL & APTRANSCO; * MPTEL have voluntarily paid an amount of Rs.50 lakhs towards the duty liability on their past clearances; 16.0 In view of the foregoing details of their acts of omission and commission, MPTEL appear to have contravened the following provisions:- https://hcservices.ecourts.gov.in/hcservices/ i. Rules 9(1) and 100D of erstwhile Central Excise Rules, 1944, Rule 17(1) of Central Excise (No.2) Rules, 2001 & Rule 17(1) of Central Excise Rules, 2002 in as much as they removed ACSR conductors manufactured by them, without payment of the appropriate duties payable thereon; ii. Rule 100B of erstwhile Central Excise Rules, 1944, Rule 17(2) of Central Excise (No.2) Rules, 2001 & Rule 17(2) of Central Excise Rules, 2002 in as much as they failed to maintain proper account in respect of the finished goods removed without payment of duty; iii. Rule 100E of erstwhile Central Excise Rules, 1944, Rule 17(1) of Central Excise (No.2) Rules, 2001 & Rule 17(1) of Central Excise Rules, 2002 in as much as they removed the goods without the cover of proper Central Excise invoice, as required; iv. Rule 100F of erstwhile Central Excise Rules, 1944, Rule 17(3) of Central Excise (No.2) Rules, 2001 & Rule 17(3) of Central Excise Rules, 2002 in as much as they failed to furnish the details of their transactions involving clandestine removals in the periodical returns filed by them; 17.0 By their above-detailed acts and the consequential contravention of the Rules ibid, MPTEL appear to have evaded payment of payable Central Excise duties on the ACSR conductors manufactured and cleared by them in DTA to various state electricity Board/Concerns during the period from 1999-2000 (from March 2000) to 2001-02 (upto March 2002) in the manner detailed above." 7. Consequently, the Department in its show cause notice alleged evasion of Excise Duty as hereunder and also proposed the levy of penalty:- "20.0. In view of the foregoing it appears that MPTEL are liable to: i. pay Central Excise duty totally amounting to Rs.2,76,46,994/- (as detailed in Annexure-D) on the manufactured ACSR conductors removed to TNEB, HVPNL, RRVPNL & APTRANSCO during the period from 1999-2000 (from March 2000) to 2001-02 (upto March 2002) without payment of duty due thereon, under erstwhile Rule 9(2) of the Central Excise Rules, 1944 and under Rule 17(1) of Central Excise (No.2) Rules, 2001 & Central Excise https://hcservices.ecourts.gov.in/hcservices/ Rules, 2002 read with proviso to Section 11A(1) of the Central Excise Act, 1944. ii. Pay an amount of Rs.89,58,603.76 that was collected from the customers towards Central Excise duty under the Commercial invoices raised by them for removal of conductors and not paid to Government exchequer, in terms of Section 11D of Central Excise Act, 1944. iii. penalty equivalent to the amount of duty mentioned at (i) above under Section 11AC of the Central Excise Act, 1944. iv. pay interest at the appropriate applicable rates on the amount of duty demanded at (i) above in terms of Section 11AB of Central Excise Act, 1944. v. penalties under Rules 209 of the erstwhile Central Excise Rules 1944 and under Rule 25 & 27 of Central Excise (No.2) Rules, 2001 & Central Excise Rules, 2002 for the contraventions cited supra." 8. Insofar as individuals are concerned, the imputation in the show cause notice at paras 21 and 22 is as follows:- "21.0 The documents, evidence, details and depositions narrated in the foregoing paragraphs by themselves reveal the role of Dr.B.a.Rajagopalan as the main person who was actively and personally involved in the various aspects of MPTEL's activities, which were in contravention of the statutory provisions. From the seized documents it was noticed that as the Senior President of MPTEL, Dr.Rajagopalan has been periodically appraised by his sub-ordinate officers on the issue relating to illicit manufacture and clearance of ACSR conductors. It is seen that on some of the IONs addressed to him involving Central Excise matters, he has made his comments/approvals etc., which were identified by him in his depositions also. Further, the seizure of a file from his residence containing inter-alia duty quantification chart, clearly mentioning the removals made to four electricity Board/Concerns without payment of duty and workings of excise duty for those clearances itself appears to prove his involvement in the unjust affairs of MPTEL. Therefore, Dr.B.a.Rajagopalan, as the Senior President of MPTEL by his individual and co- ordinated acts, thus appear to be liable to https://hcservices.ecourts.gov.in/hcservices/ penalty under Rule 209A of the erstwhile Central Excise Rules, 1944 and under Rule 26 of Central Excise (No.2) Rules, 2001 & Central Excise Rules, 2002. 22.0 Similarly, Shri B.Muralidhar, Special Director of MPTEL, Shri A.S.Dumenil, President, Ms.Subhadra Kunduri, Head-Corporate Planning of MPTEL have concerned themselves in organizing the manufacture and clearance of ACSR conductors without payment of duty by MPTEL. The IONs issued by Shri Dumenil detailing the misdeeds committed by MPTEL in clandestine removal of MPTEL and Ms.Subhadra signing the packing slips for goods consigned to APTRANSCO have all appears to indicate their involvement in the affairs of MPTEL. It therefore appears that Shri B.Muralidhar, Sri Dumenil and Ms.Subhadra have dealt with excisable goods which they knew and had reason to believe that they were liable for confiscation and thus have rendered themselves liable for penalty under Rule 209A of the erstwhile Central Excise Rules, 1944, Rule 26 of the Central Excise (No.2) Rules, 2001 read with Section 38A of the Central Excise Act, 1944 and Rule 26 of the Central Excise Rules, 2002." 9. The petitioner company and the individuals were called upon to show cause as to why duty and penalty should not be levied as stated in para 23 which reads as follows:- "23.0 In view of the foregoing, M/s.Marshal Power & Telecom (India) Limited, No.84 Akashpattu Village, Vannur Taluk, Villupuram Dist., PIN-605 101 are hereby required to show cause to the Commissioner of Central Excise, Goubert Avenue, Beach Road, Pondicherry-605 001 ("the adjudicating authority") within 30(thirty) days from the date of receipt of this notice as to why: i. the total amount of Rs.2,76,46,994/- (Rupees Two Crore Seventy Six Lakhs Forty Six Thousand Nine Hundred And Ninety Four only) (BCD – Rs.1,39,83,088.07, SAD – 31,572/-, Surcharge – Rs.46,73,730/-, CVD – Rs.89,58,603.76) (as detailed in Annexure-D) should not be demanded from them towards the Central Excise duties payable by them, as detailed above in terms of the proviso to Section 11A(1) of the Central Excise Act, 1944; https://hcservices.ecourts.gov.in/hcservices/ ii. an amount of Rs.89,58,603.76 (Rupees Eighty Nine Lakhs Fifty Eight Thousand Six Hundred Three and Seventy Six Paise only) should not be recovered from them in terms of Section 11 D of Central Excise Act, 1944 in as much as the said amount representing excise duty was collected from the customers for the goods removed in DTA to various electricity Board/Concerns, under commercial invoices and not paid to Government exchequer; iii. a sum of Rs.50,00,000/- (Rupees Fifty Lakhs only) paid by MPTEL vide TR-6 challans listed at Annexure-E to this SCN should not be appropriated against demands made above; iv. Penalty equivalent to the total amount of duty mentioned (i) above should not be imposed on them under Section 11AC of Central Excise Act, 1944; v. Interest at the appropriate applicable rates on the amount of duty mentioned at (i) above should not be paid by them under Section 11AB of the Central Excise Act, 1944; vi. Penalties should not be imposed on them under Rule 209 of erstwhile Central Excise Rules, 1944 and under Rule 25 & 27 of Central Excise (No.2) Rules, 2001 & Central Excise Rules, 2002;" 10. Insofar as the penalty against the individual person is concerned, para 24 of the show cause notice reads as follows:- "24.0 Dr.B.a.Rajagopalan, Senior President, Shri B.Muralidhar, Special Director, Shri A.S.Dumenil, President & Ms.Subhadra Kunduri, Head-Corporate Planning of MPTEL are hereby required to show cause to the Commissioner of Central Excise, O/o the Commissioner of Central Excise, Goubert Avenue, Beach Road, Pondicherry-605 001 ("the adjudicating authority") within 30 (thirty) days from the date of receipt of this notice as to why penalty should not be imposed on him under Rule 209A of erstwhile Central Excise Rules, 1944 and Rule 26 of Central Excise (No.2) Rules, 2001 & Central Excise Rules, 2002 for contravening the provisions of Central Excise Act, 1944 and Rules thereunder as detailed in foregoing paras." https://hcservices.ecourts.gov.in/hcservices/ 11. The case was adjudicated by the Commissioner of Central Excise and by order dated 28.11.2005 in (C.No.V/Ch.74/15/52/2004- Cx.Adj.) Order-in-Original No.18/2005, the Commissioner came to conclusion that the petitioner company has manufactured ACSR conductors evade payment of Central Excise Duty. The clearance was made under commercial invoices and not under invoices prescribed for EOU. The clearance has not been acknowledged in the statutory accounts and the petitioners have failed to furnish the same to the Central Excise Department in the prescribed form. The petitioners also collected the excise duty under the commercial invoice and failed to deposit to the revenue account. 12. The petitioner was engaged in manufacturing and clandestine removal of excisable goods without the permission of the competent authority, viz., the Development Commissioner of MEPZ of the Central Excise Department. As the result of the finding as above, the Commissioner confirmed the demand of the duty in terms of the show-cause notice. The Commissioner in paras 25 and 26 dealt with the manner in which the manufacture and clearance of the goods were done in a clandestine manner contravening the provisions of the Central Excise Act, resulting in the Commissioner passing an order in paras 25, 26 and 27 which reads as follows:- "25. As the activities relating to manufacture and clearance of the ACSR conductors have been suppressed from the department with an intent to evade payment of duty, the proviso under Sec.11A(1) of the Act has been rightly invoked in this case. As these allegations stand proved MPTEL is liable for penalty under Sec.11AC of the Act. As the contravention of various provisions of the Act and the rules made thereunder with an intent to evade payment of duty is proved, MPTEL is also liable for penalty under Rule 209 of the Central Excise Rules, 1944 and Rule 25 & Rule 27 of the Central Excise (No.2) Rules, 2001 and Central Excise Rules, 2002. 26. The notice has brought out the roles of Dr.B.a.Rajagopalan, as the main person who was actively and personally involved in the various aspects of MPTEL's activities, which were in contravention of the statutory provisions. The seized documents reveal the fact of the above allegation and depositions of the personnel of MPTEL corroborate the same and as promoter of MPTEL and as its Senior President, he had approved the unaccounted manufacture and clandestine removal as is evident especially from the statement of Shri Dumenil, President of MPTEL given on 14.10.2003 apart from the statements of others and other seized documents, especially those from his house. Similarly, it has also been established that https://hcservices.ecourts.gov.in/hcservices/ Shri.B.Muralidhar, Shri Adelwert S. Dumenil and have concerned themselves in organizing the manufacture and clearance of ACSR conductors without payment of duty by MPTEL knowingly as they were aware of the unaccounted and clandestine removal of the goods as evidenced by the seized documents and statements. Ms.Subhadra Kunduri as Head- Corporate Planning was aware that no excise duty was paid on the goods cleared and yet knowingly signed the packing slips for goods consigned to APTRANSCO. None of these individuals have put forth any denials against the allegations nor come forward with any evidence to contradict the findings narrated in the notice. Therefore, their roles in the clandestine removal of ACSR Conductors by MPTEL during the period from March 2000 to March 2002 stand proved beyond any doubt. Therefore they are liable for penalty under Rule 209A of the Central Excise Rules, 1944 and Rule 26 of the Central Excise (No.2) Rules, 2001 and Central Excise Rules, 2002. 27. In view of the above discussions, I pass the following order: ORDER (i) I confirm Central Excise Duty of Rs.2,76,46,994/- (two crores seventy six lakhs forty six thousand nine hundred and ninety four) demanded from MPTEL relating to the ACSR conductors removed (to TNEB, HVPNL, RRVPNL & APTRANSCO) during the period from 1999-2000 (from March 2000) to 2001-02 (upto March 2002) under Rule 9 (2) of the Central Excise Rules, 1944 and under Rule 17(1) of the Central Excise (No.2) Rules, 2001 and Central Excise Rules, 2002 read with proviso to Sec.11A(2) of the Act. (ii) I appropriate the amount of Rs.50 lakhs (fifty lakhs) paid by MPTEL on various dates during the investigation and as detailed in Annexure E of the SCN towards the above duty demand and the balance amount is liable to be paid by MPTEL. (iii) I hold that MPTEL is liable to pay interest at appropriate rates on the amount of duty at (i) above under Sec.11AB of the Act. (iv) I impose a penalty of Rs.2,76,46,994/- (two crores seventy six lakhs forty six thousand nine hundred and ninety four) on MPTEL being an amount equivalent to the duty determined above under Se.11AC of the Act. https://hcservices.ecourts.gov.in/hcservices/ (v) In terms of Sec.11D(3) of the Act, I confirm an amount of Rs.89,58,603.76 (Rules eighty nine lakhs fifty eight thousand six hundred three and seventy six paise only) is due to be paid by MPTEL to the account of the Government. (vi) I impose a penalty of Rs.35 lakhs (thirty five lakhs) on MPTEL under Rule 209 of the Central Excise Rules, 1944 and Rule 25 and 27 of the Central Excise (No.2) Rules, 2001 and Central Excise Rules, 2002 for contravention of the various provisions. (vii) I impose a penalty of Rs.15,00,000/- (fifteen lakhs) on Dr.B.a.Rajagopalan, Senior President of MPTEL under Rule 209A of the Central Excise Rules, 1944 and Rule 26 of the Central Excise (No.2) Rules, 2001 and Central Excise Rules, 2002. (viii) I impose a penalty of Rs.5,00,000/- (five lakhs) on Shri.B.Muralidhar, Special Director of MPTEL under Rule 209A of the Central Excise Rules, 1944 and Rule 26 of the Central Excise (No.2) Rules, 2001 and Central Excise Rules, 2002. (ix) I impose a penalty of Rs.5,00,000/- (five lakhs) on Adelwert S. Dumenil, President of MPTEL under Rule 209A of the Central Excise Rules, 1944 and Rule 26 of the Central Excise (No.2) Rules, 2001 and Central Excise Rules, 2002. (x) I impose a penalty of Rs.1,00,000/- (one lakh) on Ms.Subhadra Kunduri, Head-Corporate Planning of MPTEL under Rule 209A of the Central Excise Rules, 1944 and Rule 26 of the Central Excise (No.2) Rules, 2001 and Central Excise Rules, 2002." (emphasis supplied) 13. Chapter-V of the Central Excise Act, 1944 provides for settlement of cases. Petitioner based on the show cause notice admitting certain liability filed an application for settlement of the case. From the narration of the facts in the order of the Settlement Commission it appears that the petitioner admitted a sum of Rs.89,58,604/- and paid the same in installments and there is no dispute on this. The adjudicating authority on his part proceeded to adjudicate the case as above as there was no stay of proceedings. The Settlement Commission, however, on the basis of the application filed proceeded to decide the matter on the basis of the pleadings of the petitioner and the stand of the department independently and passed orders from time to time admitting the case and granting time for payment of admitted liability. https://hcservices.ecourts.gov.in/hcservices/ 14. The Settlement Commission after considering the stand of the petitioner and that of the Department, came to the conclusion that the benefit of notification No.8/97 can be extended to illegal clearance made by the applicant, an export oriented unit in respect of DTA sales even though it is done without permission. The relevant portion of the order reads as follows:- "The main point to be decided by the Bench is as to what rate of duty should be applicable to the clearances made by the applicant, i.e., whether the duty chargeable should be only be the Central Excise Duty in terms of notification No.8/97-CE or it should be customs duty applicable in terms of proviso to Section 3(1) of the Central Excise Act, 1944. After careful examination of the various aspects involved, the Bench observes that in this case, the final product manufactured was from indigenous raw material. Besides, the capital goods used in the manufacture were also indigenous. The only aspect that remains in the present case is that the goods were removed without permission and without following the necessary procedures and formalities. Considering the decision of the Honourable Supreme Court in civil appeal No.D/4511 of 2006, in the case of Commissioner Central Excise, Ahemedabad, read with the Tribunal order as reported in 2005(191) ELT 1174 (Tri-Mumbai) in the case of M/s.Denim Limited vs. Commissioner Central Excise Ahemedabad, as discussed in para 5.1 above, it is observed that the benefit of exemption would be applicable even to goods cleared to DTA without permission as applicable to goods cleared to DTA with due permission. Thus, in this case, the benefit of Notification No.8/97-CE can be extended to the illegal clearances made by the applicant. .............. The fact that finished products were manufactured out of indigenous raw material had been certified by the department. In view of this, the Bench is of the view that the duty liability in