Steel Tubes Of India Ltd. v. Commissioner Of C. Ex., Indore

[Order per : M.V. Ravindran, Member (J)]. - The issue that is referred to the Larger Bench in this case is as follows :

(a)     Whether the decision of the division bench in the case of Shaper Chemicals Ltd. v. Commissioner of Central Excise, Mumbai-VII as reported in has laid down the correct law as regards the imposition of penalty under Rule 209A of the Central Excise Rules, 1944 and;

(b)     Whether the decision of the division bench in the case of Indian Roadways Corporation Ltd. v. C.C.E., Rajkot as reported in (Tribunal) = 2005 (71) RLT 203 has laid down the correct law in context of imposition of penalty under Rule 209A of the Central Excise Rules, 1944.

2. We find that the Tribunal in the case of Shaper Chemicals Ltd., (supra) has held that :

“After hearing both sides and considering the materials on record, it is found :

(a) Since there are no goods to be moving, as found by the learned Commissioner and credit has been availed only on documents without receipt of any goods, the question of liability of any goods to confiscation does not arise and has not been determined. To effect and uphold penalty liability goods should have been found to be liable to confiscation. Since it is the case of Revenue itself that there were no goods which actually moved, the liability under Rule 209A arrived only on account of role in fraudulent availment of credit cannot be upheld. All appeals as regards Rule 209-A are to be allowed after setting aside the order of penalty under the rule.”

3. In the case of Indian Roadways Corporation (supra) it was held by the tribunal as under :

“As regards the appellant Corporation, it is well settled position that Corporation has no mind of its own. It therefore, cannot knowingly deal with ball bearings knowing that they were liable to confiscation under the Central Excise Act, 1944. Penalty on Transport Corporation where the bearings were found in the routine course of its business i.e. therefore not upheld. Moreover their employee was acting beyond the scope of employment and they cannot be therefore, be held vicariously liable. Penalty under Rule 209A of the Corporation is set aside.”

4. We have heard the arguments put forth by both sides and gave anxious reading to the case laws cited by them. The referral bench has doubted the correctness of the above decisions on the reading of the Rule 209A of the Central Excise Rules, 1944. In order to appreciate the questions referred to the larger bench it is necessary to read the said rule :

“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 three times the value of such goods or five thousand rupees, whichever is greater”.

5. As regards the imposition of penalty under rule 209A, we find that these provisions were introduced for the first time in the Central Excise Rules with effect from 14-4-1986. Both sides could not produce the objects and reasons for introduction of the said rule.

6. It can be seen that the said rule starts with the expression “Any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing”, which would indicate that all these acts are in respect of physical handling of the goods i.e. the acts could not have been done without handling or movement of the excisable goods. 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 common knowledge, that the physical possession of the goods is a must for doing the activity of transporting etc. The words “or in any other manner deals with any excisable goods” indicate that it is to be read as an extension of the activities enumerated in the rule. It is found that this expression has been interpreted by the tribunal in the case of Godrej Boyce & Mfg. Co. Ltd. v. CCE, Mumbai-II as reported in at paragraph 71 as under :

“Sub-section (a) speaks of wider purport and would cover a person who plans improper importation or does perform actions pursuant. Sub-section (b) is restrictive in the sense that it relates to physical contact with the goods. Section 112 of the Customs Act covers the situation as it existed a number of years ago when all acts of smuggling revolved around the physical importation of goods and handing thereof. It does not cover the activities which lead to or result in illegal importation etc. Thus where a person makes a fraudulent declaration and obtains a license under which the goods are subsequently imported by another person, the wordings of proviso (b) to Section 112 might not enable imposition of penalty upon him. The phrase’ in any other manner dealing with any goods’ must be read as the extension of the number of activities enumerated there before and cannot cover the area of the action undertaken by that person which would ultimately render the same goods liable to confiscation. The situation, perhaps, may be covered under sub-section (a) but not under (b). Sub-section necessarily involve contact with physical goods. Rule 209-A of the Central Excise Rules, 1944 is a carbon copy of part (b) of Section 112 and suffers from the same shortcomings.”

7. The learned counsel has correctly pointed out that the issue is covered by the ratio of the judgment of the Hon’ble High Court of Judicature Bombay in the case of Jayantilal Thakkar & Company v. Union of India as reported at (Bom.) = (Bom.). In that case the Petitioners were challenging the issuance of the show cause notice proposing to impose penalty under Rule 209A of Central Excise Rules, 1944, the same rule, which we are concerned with. Their lordships in their judgment held as under :

“Let us now, turn to the text of the statutory provisions to answer the question raised herein above. The proper dissection of the statutory provisions categorically demonstrate that the basic requirement is that the person charged must deal with the excisable goods either by acquiring possession thereof or by transporting, or by concealing or selling or purchasing or in any other manner dealing with it with the knowledge or with a reason to believe that the goods dealt with by him are liable to confiscation under the Act or the Rules.

With the above understanding of statutory provisions, let us turn to the show cause notices at hand. The relevant text of one of the specimen notices is reproduced hereinbelow :-

OFFICE OF THE COLLECTOR OF CENTRAL EXCISE, DELHI ROOM No. 273, C.R. BUILDING, IP ESTATE NEW DELHI

(vi) It further appears that M/s Lodha Company, Bombay and M/s Jayanti Lal Thakkar Company Chartered Accountants of GTC have deliberately certified the books of accounts of GTC to be true in spite of noticing identical invoices/delivery challans raised by the franchise units of GTC and existence of these documents in the GTC records, one invoice under the cover of original GP-1 and other invoice of same serial number under the cover of zerox copy of the same GP-1 and then discounting of both from different banks and other financial institutions. From balance sheets of GTC for the years 1988-89 to 1991-92 and schedules Annexed thereto, it appears that the above named Chartered Accountants had examined all such reasons. It appears that by dealing in this manner the records of GTC and which were purchased by GTC, the above named Chartered Accountants have prima facie dealt with these excisable goods which they knew or had reasons to believe are liable to confiscation under the said Act or the Rules made thereunder and thereby they have rendered themselves liable for penal action under Rule 209A of the said Rules.

The above text of the notice nowhere made out a case that the petitioners in any way; at any time; had handled the excisable goods muchless dealt with the same with knowledge as required under Rule 209A of the Rules. If that be so, the question of knowledge or reason to believe that the goods dealt with by them were liable to be confiscated under the Act or Rules did not arise at all. The show cause notices and the allegations made therein do not answer the mandatory requirement of Section 9(1)(bbb) of the Act or of the Rule 209-A of the Rules.

It is too much to allege or to presume that the advocates or the legal advisers or auditors of the company to handle muchless deal with the excisable goods as contemplated under Section 9(1)(bbb) of the Act or Rule 209A of the Rules while discharging their professional duties. The cases at hand are the cases wherein the show cause notices are absolutely without jurisdiction muchless they do not make out any case of any of the notices having dealt with the excisable goods with specific knowledge so as to stand to the test of either Section 9(1)(bbb) of the Act or Rule 209A of the Rules as such each show cause notice in our opinion, is non est and liable to be quashed and set aside.”

8. The ratio as laid down by Hon’ble High Court squarely covers the issue referred to the larger bench in as much that for imposition of penalty under Rule 209A of the Central Excise Rules, 1944, the person must have dealt with the excisable goods with knowledge that they are liable for confiscation. In a given situation, where an assessee is only issuing invoices wherein there is no movement of the goods, they cannot be visited with penalty under Rule 209A. Respectfully following the judgment of the Hon’ble High Court of Bombay, we hold that the conclusion reached by the West Zonal Bench in the case of Shaper Chemicals Ltd. (supra) is correct and does not require any reconsideration.

9. As regards the second issue in reference it can be noticed that the Rule 209A pre-supposes a knowledge as to the liability of the confiscation of the goods which being transported etc. It was argued extensively by the authorized representative for the department that the expression “Any person” would include any company or association or body of individual, whether incorporated or not. Reliance was also placed on the definition of the word person in Section 3(42) of The General Clauses Act, 1897, for this proposition. Undoubtedly the expression “Any person” would include a natural and unnatural person i.e. it would include in its ambit any company or corporation or body of individual/s. The moot question is that whether such unnatural body corporate has its own mind, to have knowledge that the goods are liable for confiscation. It is common knowledge that a corporation/company is run by a Board of Directors, who are individuals. They are the trustees of the shareholders of the corporation/company. The decisions taken by the Board of Directors would be for the company but it will not be a decision of the corporation/company. In a given situation, if the Board of Directors decide between themselves, and pass a resolution to engage in the act of evasion of the duty on excisable goods it would be an act of individuals who did so for their personal gain. The corporation/company, stands to no gain out of misdemeanors of the individuals i.e. Board of Directors. In the eyes of law, the corporate entity being a person would be held responsible for the act of the natural persons. But in order to punish the guilty individuals, the veil of corporate entity had to be lifted to understand the correct picture. Precisely for these reasons only the provisions of Rule 209A came in to statute, in order to punish the guilty acting behind the veil of corporation/company. If in a given situation a parcel booking clerk of the Indian Railways, in order to have some personal gain, colludes with others to book the goods without any duty paying documents (though he has knowledge that the goods have to be booked on the basis of duty paying documents) and the goods are seized by the authorities at the destination point, can the Indian Railways be penalized under the provisions of Rule 209A of the Central Excise Rules, 1944? The resounding answer would be “NO” as Indian Railways is not having any knowledge that the goods so booked are liable for confiscation. The booking clerk is in knowledge and hence he is liable to be penalized under the said Rule 209A. Accordingly, we find that the conclusion reached by the Tribunal in the case of Indian Roadways Corporation Ltd. (supra) is also correct and does not require any reconsideration.

10. For the foregoing reasons, we are of the opinion that the conclusion reached by the Tribunal in the case of Shaper Chemicals Ltd. (supra) and Indian Roadways Corporation Ltd., are correct conclusions and do not require any reconsideration. The reference is answered accordingly and papers are returned to the original Bench for further orders.

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