Riyaz Rafiq Padela Vs Commissioner of Central Excise & ST (CESTAT Mumbai)
CESTAT Mumbai held that offence of money-laundering committed by an individual with a deliberate design with the motive to enhance his gains, disregarding the interests of nation and society as a whole and which by no stretch of imagination can be termed as offence of trivial nature.
Facts- During the period from 19.07.2005 to 24.03.2006, eighty-five claims of rebate were filed by five entities claiming themselves to be the merchant exporter with valid IEC number. After causing verification of Central Excise duty paid status of the goods from the Central Excise Range where the goods were manufactured and from JNCH from where the goods were exported, 19 rebate claims were sanctioned.
Based upon the intelligence and on subsequent investigations it was found that the goods were neither manufactured nor were exported and rebate claims were filed on the basis of fake documents. Thus, it was alleged that five merchant exporters along with various other co-noticees had defrauded the government exchequer. It was also found that the three merchant exporters whose rebate claims were sanctioned did not existed at all and were only created to defraud the government exchequer.
Conclusion- Held that from the facts as stated in the impugned order we are very clear in our mind that the appellants had conspired and perpetuated the alleged fraud by filing these rebate claims to defraud the exchequer of the amount claimed by them as rebate without payment of any central excise duty and without exporting any goods. It is settled principle in law and the legal maxim “fraud vitiates everything” is very relevant to the facts herein.
Thus, it is well settled by the various decisions of this Court and policy of the State as also the view of international community that the offence of money-laundering is committed by an individual with a deliberate design with the motive to enhance his gains, disregarding the interests of nation and society as a whole and which by no stretch of imagination can be termed as offence of trivial nature.
Held that the conspiracy of money-laundering, which is a three-staged process, is hatched in secrecy and executed in darkness, thus, it becomes imperative for the State to frame such a stringent law, which not only punishes the offender proportionately, but also helps in preventing the offence and creating a deterrent effect.
FULL TEXT OF THE CESTAT MUMBAI ORDER
These appeals are directed against order in original No 08/CSP(08)COMMR/ RGD/10-11 dated 31st August 2010 of the Commissioner of Customs, C.Ex. & S.T., Raigad. In respect of the two appellant namely Shri M K Patel (Appellant 1) and Shri Riyaz Padela (Appellant 2) the impugned order held as follows:
“8. (i) The amount of Rs. 1,01,35,000/- (Rupees One Crore One Lakh Thirty Five Thousand Only) paid by Shri M K Patel is ordered to be adjusted against the amount of demands confirmed against M/s Xian Organics, M/s Swift Trading (India) and M/s New Life Organics.
(ii) Penalty of Rs. 90,00,000/- (Rupees Ninety Lacs Only) is imposed under Rule 26 of Central Excise Rules, 2002 on Shri M K Patel (Noticee No 9).
9. (i) The amount of Rs. 6,00,000/- (Rupees Six Lakh Only) paid by Shri Riyaz Padela is ordered to be adjusted against the amount of demands confirmed against M/s Xian Organics, M/s Swift Trading (India) and M/s New Life Organics.
(ii) Penalty of Rs. 50,00,000/- (Rupees Fifty Lacs Only) is imposed under Rule 26 of Central Excise Rules, 2002 on Shri Riyaz Padela (Noticee No 10).”
2.1 During the period from 19.07.2005 to 24.03.2006, eighty five claim of rebate were filed by five entities namely M/s. New Life Organics, Ankleshwar, Gujarat, M/s. Xian Organics, Valsad, Gujarat, M/s. Swift Trading (I), Masjid, Mumbai, M/s. Real Business House, Valsad, Gujarat, M/s. J.D. Trading House, Ankleshwar, Gujarat, claiming themselves to be the merchant exporter with valid IEC number. After causing verification of Central Excise duty paid status of the goods from the Central Excise Range where the goods were manufactured and from JNCH from where the goods were exported, 19 rebate claims filed by M/s. New Life Organics, M/s. Xian Organics and M/s. Swift Trading (I), Masjid, Mumbai amounting to Rs. 1,59,07,687/- rebate claims were sanctioned.
2.2 Based upon the intelligence and on subsequent investigations it was found that the goods were neither manufactured nor were exported and rebate claims were filed on the basis of fake documents. Thus it was alleged that five merchant exporters along with various other co-noticees had defrauded the government exchequer. It was also found that the three merchant exporters whose rebate claims were sanctioned did not existed at all and were only created to defraud the government exchequer.
2.3 On completion of investigations a Show Cause Notice dated 09.06.2008 was issued to the various noticees including the two appellants for:
i Demand and recovery of amount of Rs 1,59,07,687/- erroneously sanctioned and paid as rebate of Central Excise Duty, under Rule 18 of Central Excise Rules, 2002 read with proviso to Section 11 A (1) of the Central excise Act, 1944 from the noticees identified (including the appellants) jointly or severally.
ii. Appropriation of the amount of Rs 1,59,07,687/-deposited during the investigation against the amount of rebate erroneously paid.
iii. Imposition of penalty under Section 11 AC on the Noticee No 1 to 3 and 6 to 12.
iv. Rejection of the remaining 66 (85-19) rebate claims.
v. Imposition of penalty under Rule 26 &/ or 27 of the Central excise Rules, 2002 on all the noticees (including the two appellants) for their acts of aiding the act of commission of the claim to fraudulent rebate.
2.4 The show cause notice has been adjudicated as per the impugned order referred to in para 1 above
2.5 Registry has confirmed that against the impugned order three more appeals viz E/2118, 2119 and 2135/2010-Ex [DB] were filed. However these three appeals have been dismissed and only these two appeals are now pending for consideration.
3.1 We have heard Shri Jitendra Motwani along with Shri Chirag Shetty, Advocates for appellant 1 and Shri Ashok Singh along with Shri Pravin Singh, Advocates and for appellant no 2. We have also heard Shri Bhilegaonkar Deepak, Additional Commissioner, Authorized Representative for the revenue.
3.2 Arguing for the Appellant 1, his counsels submitted as follows:
> The Appellant is ex superintendent of Central Excise. Since the investigations had raised question mark over manufacturing and export of the goods, Appellant deposited Rs. 1,01,35,000/- under protest.
> The Appellant was not aware about the forged and fabricated nature of the documents. It came to the knowledge of the Appellant only after the investigation by the department.
> The role of the Appellant was limited to introduction of Mr. Riyaz Padela with Mr. Deepak Jare. In so far as Mr. Bansode is concerned, the Appellant had only introduced Mr. Jare with Mr. Bansode in case of any difficulty in filing the rebate claim he could have sought Mr. Bansode’s help.
> Appellant has only introduced Mr. Padela with Mr. Jare and Mr. Bhansode without any knowledge of document been forged and fabricated documents.
> It is submitted that the Appellant has not forged or fabricated any documents. The allegation regarding making some entry in the seal covers is totally incorrect and without any basis. The Appellant has not made any entry in any of the documents as alleged.
> The statements of the Appellant are not voluntary statements and were taken under duress and coercion.
> The Appellant after the show cause notice was issued requested for relied upon documents through their counsel letter dated 18.01.2010, 18.03.2010 and 09.04.2010 however till date no relied upon documents has been provided to the Appellant. [(para 67 of the impugned order)].
> The so-called hand writing expert report is concerned which is made basis for confirmation of penalty upon the Appellant has yet not been provided to the Appellant despite of repeated request to the Adjudicating Authority.
> The Appellant submits that Rule 26 of the Central Excise Rule, 2002 cannot be imposed upon the Appellant for mere introduction of Mr. Padela with Mr. Jare and for passing of the documents on two three occasions from Mr. Padela to the employee of CHA and vice versa without physical possession, delivery and transportation of the goods.
> The Hon’ble Bombay High Court has in case of Bansal Steel Corporation & Ors [Central Excise Appeal No. 108 of 2007 order dated 16.08.2017] has categorically held in para 9 to 12 that Rule 209A of the Central Excise Rule, 2002 is attracted only when the person has physically dealt with the excisable goods with the knowledge or belief that the goods were liable for confiscation. In the said judgment the Hon’ble High Court has relied upon the previous two judgments of the Hon’ble Bombay High Court in the matter of Commissioner of Central Excise Vs M/s. Ramesh Kumar Rajendra Kumar and Co & Anr decided on 14.09.2010 and Jayantilal Thakkar & Co.
> there is no allegation that the Appellant has physically dealt with the goods so as to imposed penalty under Rule, 26.
> This Hon’ble Tribunal in the matter of Nalwa Metals & Alloys Ltd & Ors Vs Commissioner of Central Excise, Mumbai – III in Appeal No. E/1628/97-Mum has categorically held in para 5 that Appellant in that case was not involved in transporting, removing, depositing, keeping, concealing etc of any excisable goods which are liable for confiscation. It was further held that Rule 209A of the Central Excise Rule cannot be imposed upon the Appellant. It is also held that in the new Central Excise Rule 2002, Rule 26 is pari materia to Rule 209A, when it was realized by the government that offence of similar nature is also occurring for extending the fraudulent benefit by way of fake documents, the legislature have consciously inserted sub-rule 2 in Rule 26 to bring such offences under the ambit of penal provision. Since the provision of sub-rule 2 of Rule 26 was neither existing in Rule 26 (1) nor in Rule 209A of the Central Excise Rule, the provision of sub rule (2) cannot be made applicable prior to 01.03.2007 when sub-rule (2) was inserted.
> In the present case also the allegations pertains to prior to 01.03.2007 and there is no allegation of physically dealing with the goods by the Appellant and as such Rule 26 (2) cannot be given a retrospective effect. Hence, the penalty of Rs. 90,00,000/- imposed upon the Appellant is not sustainable.
> In view of the aforesaid submission the penalty imposed upon the Appellant may be quashed and set aside.
3.3 Arguing for the appellant 2, his counsels submitted as follows:
> From para 94.1 and 109.2 of the impugned order, it is very clear that the whole case of the Department made out against the Appellant is that he used to deal with the fabricated documents which were further used to claim rebates. Accordingly, the entire allegation on the Appellant is solely about handling of the said fabricated papers.
> Penalty has been imposed upon the appellant under Rule 26 of the Central Excise Rules, 2002.
> It is relevant to note that Rule 26 at the relevant point in time provided for the penalty only if the person physically dealt with the goods. Reliance is placed on the decision of Hon’ble Bombay High Court in M/s Bansal Steel Corporation and Ors. etc., [Order dated 12.09.2017 in CEA No. 108 of 2007] para 11.
> The provisions of the Rule 26 of the Excise Rules are not attracted in the present case as sole allegation against the Appellant is with respect to the handling of documents for claiming the rebate. However, as stated above, mere handling of documents without the other ingredients as specified in the Rule 26 viz. physically dealing with the excisable goods with the knowledge or belief that the goods are liable for confiscation, will not attract the penal provision under said Rule. Therefore, no penalty is liable to be imposed on the Appellant under Rule 26 of the Excise Rules.
> Rule 26 was amended in the year 2007 vide which a sub-clause (2) was added in the said Rule to penalize a person even for handling of documents without actual supply of materials or any other documents on the basis of which the user of said document is likely to take any ineligible benefit. The said sub-rule was brought in effect from 01.03.2007. However, it is submitted that the period of dispute in the present case is July 2005 to March 2006 i.e. which is before the insertion of the said penal provision under Rule 26. Therefore, it is relevant to submit that the very fact that an amendment was categorically introduced to the effect to make such persons who are not even dealing with the goods liable to penalty, makes it amply clear that there was no intention of the legislation to impose such a penalty on mere handling of documents prior to the said amendment. This amendment is prospective in nature, Reliance is placed on the following decisions
