Penalties on both proprietorship firm & proprietor amounts to double penalty and hence unsustainable

Noor Mohd. & Brothers Vs Commr. of CGST & Central Excise (CESTAT Kolkata)

CESTAT Kolkata held that imposition of penalties on both proprietorship firm and proprietor amounts to imposition of penalty twice and the same is unsustainable in the eyes of law.

Facts- In this case, 2088 Kgs of “Gul” valued at Rs.2,67,890/- were seized from the Appellant. The seizure was effected on 10/12/2013 and the Department attributed the Central Excise Duty on the seizure goods amounting to Rs.2,09,704/-.

The seized goods were released provisionally on 15/01/2014 on execution of bond along with security deposit of Rs. 67,000/-.

Show Cause Notice was issued to the Partnership firm seeking to know as to why the seized goods should not be confiscated and penalties should not be imposed on the firm. The Show Cause Notice was also issued to the partner Moinuddin Ansari seeking to know as to why penalty should not be imposed on him.

After due process, the Adjudicating Authority, wherein he confiscated the seized goods and imposed redemption fine of Rs.67,000/-. He also appropriated Rs.67,000/- towards redemption fine which has already paid as security deposit. He confirmed the involvement of Rs.2,09,704/- towards Excise Duty on various firms. He imposed penalty of Rs.2,09,704/- on the partnership firm in terms of Rule 25 (1)(c) of CER Rules, 2002 read with Section 11 AC of the CEA, 1944. He also imposed personal penalty of Rs.2,09,704 on the partner Mr. Moinuddin Ansari. The Appeals filed by the Appellants before the Commissioner(Appeals) came to be dismissed. Hence the Appellants are before the Tribunal.

Conclusion- From the order portion of the OIO, it is seen that the Adjudicating Authority has not given the option of payment of penalty @ 25% which he was required to do. The Tribunal Ahmedabad in the case of CCE Ahmedabad Vs. Kalpesh Founders & Engineers-2009 (248) E. L. T. 354 (Tri.-Ahmd.) has held that when the Adjudicating Authority as also Commissioner (Appeals) acted illegally and contrary to the first Proviso to Section 11AC of the Act, and no option to pay penalty of 25% within 30 days was given to the assessee the fault lies with the authorities and not with the assessee.

In respect of the penalty imposed on the Partner, the Hon’ble Punjab and Haryana High Court in the case of Vinod Kumar Gupta Vs. CCE-2013 (287) E. L. T. 54 (P & H) have held that proprietorship firm or proprietor thereof cannot be treated as two different legal entities. Partnership firm is a firm in mercantile usage, however, penalty imposed on the proprietorship or partnership firms would mean penalty on the proprietor or partners thereof, therefore, imposition of penalties one on the proprietorship firm and second on the proprietor would amount to imposition of penalty twice, which cannot be sustained in the eyes of the law.

FULL TEXT OF THE CESTAT KOLKATA ORDER

In this case, 2088 Kgs of “Gul” valued at Rs.2,67,890/- were seized from the Appellant partnership firm known as Noor Md. & Brothers. The seizure was effected on 10/12/2013 and the Department attributed the Central Excise Duty on the seizure goods amounting to Rs.2,09,704/-. The seized goods were released provisionally on 15/01/2014 on execution of bond along with security deposit of Rs. 67,000/-. Show Cause Notice was issued to the Partnership firm seeking to know as to why the seized goods should not be confiscated and penalties should not be imposed on the firm. The Show Cause Notice was also issued to the partner Moinuddin Ansari seeking to know as to why penalty should not be imposed on him. After due process, the Adjudicating Authority passed the OIO No.04/AC/CE/BKP/KOL-III/2014-15 dated 16/02/2015, wherein he confiscated the seized goods and imposed redemption fine of Rs.67,000/-. He also appropriated Rs.67,000/- towards redemption fine which has already paid as security deposit. He confirmed the involvement of Rs.2,09,704/- towards Excise Duty on various firms. He imposed penalty of Rs.2,09,704/- on the partnership firm in terms of Rule 25 (1)(c) of CER Rules, 2002 read with Section 11 AC of the CEA, 1944. He also imposed personal penalty of Rs.2,09,704 on the partner Mr. Moinuddin Ansari. The Appeals filed by the Appellants before the Commissioner (Appeals) came to be dismissed. Hence the Appellants are before the Tribunal.

2. The Ld. Advocate submits that subsequent to the release of the seized goods on provisional basis, they have cleared these goods on regular basis of payment of the necessary excise duties. He provides evidence towards the same by the entries made in their Daily Stock Register as well as in the ER-1 Returns showing the details of clearance of such seized and provisionally released goods. Therefore, as per him, the entire Excise Duty amount of Rs.2,09,704/- already stands paid in the normal course itself. Hence, mentioning of this amount in the Order portion by the Adjudicating Authority gives an impression that the Department is allowed to recover this amount from them which is erroneous. He does not dispute the redemption fine of Rs.67,000/-imposed. However, the partnership firm is contesting the penalty imposed under Section 11 AC for amount of Rs.2,09,704/-. He submits that the Adjudicating Authority was bound to give an option of paying the penalty @ 25% if the duty with interest was paid within 30 days from the date of communication of the OIO. In this case, the Excise Duty was paid in the normal course itself. No amount on account of interest is payable therefore, if the option was given to them to pay the penalty @ of 25%, the penalty would have paid and closed the issue. On this issue, he cites the case law of Commr. of Central Excise, Ahmedabad Vs. Kalpesh Founders & Engineers-2009 (248) E. L. T. 354 (Tri.-Ahmd.), wherein, the Tribunal had allowed the Respondent to pay the penalty @ of 25%. This decision was agitated by the Revenue before the Hon’ble High Court and the Hon’ble Supreme Court. The Revenue’s Appeals were rejected at both these fora.

3. With regard to the personal penalty of Rs.2,09,704/- on Moinnudin Ansari, Partner of the firm, he submits that as the penalty has already been imposed on the Partnership firm, the Adjudicating Authority is in error in imposing separate penalty on partner. On this issue he relies on the case law of Vinod Kumar Gupta Vs. Commr. of Central Excise, 2013 (287) E. L. T. 54 (P & H).

4. The Ld. Authorized Representative submits that this is a clear case of attempt to make clandestine clearance as the stocks verified at the premises of the Appellant did not tally with their DSA records and excess stock was found in the factory premises. Therefore, he reiterates the findings of the Lower Authorities and justifies the penalties imposed on the partnership firm.

5. Heard both sides.

6. The Appellant has been able to demonstrate that the seized goods which were provisionally released were cleared on payment of proper Excise Duty as it is evident from the documents produced like DSA, ER-1 Returns, etc. Therefore, once the duty of Rs.2,09,704/- has already been paid in the normal course, the Department cannot be once again recover this amount from the Appellant. The confirmation of Rs.2,09,704/- as Excise Duty to be paid as held by the Adjudicating Authority is infructuous and is set aside.

7. From the order portion of the OIO, it is seen that the Adjudicating Authority has not given the option of payment of penalty @ 25% which he was required to do. The Tribunal Ahmedabad in the case of CCE Ahmedabad Vs. Kalpesh Founders & Engineers-2009 (248) E. L. T. 354 (Tri.-Ahmd.) has held as under:

5. Admittedly, the Original Adjudicating Authority had vacated the show cause notice in its totality. The demand of duty was increased and penalty was imposed by Commissioner (Appeals) vide his impugned order. However, the appellate authority never gave any option to the assessee to deposit the dues along with 25% of penalty within a period of thirty days from the receipt of his order. Provisos were the subject matter of consideration of their own lordships of Punjab and Haryana Court in the case of Commissioner of Central Excise, Rohtan v. JR Fabrics Pvt. Ltd. reported in 2009 (238) E.L.T. 209 (P & H). After taking note of the Hon’ble Supreme Court’s judgment in the case of Dharmendra Textile Processors, it was observed that when the Adjudicating Authority as also Commissioner (Appeals) acted illegally and contrary to the first Proviso to Section 11AC of the Act, and no option to pay penalty of 25% within 30 days was given to the assessee the fault lies with the authorities and not with the assessee. As such the Hon’ble Delhi High Court’s decision in the case of Malbro Appliances Pvt. Ltd. reported in 2007 (208) E.L.T. 503 (Del.) = 2007 (5) S.T.R. 256 (Del.) and KP Pouches Pvt. Ltd. judgment reported in 2008 (228) E.L.T. 31 (Delhi) was concurred with.

6. In view of the above discussion I enhance the penalty equal to the duty confirmed against the respondents. However, in view of the Provisos to Section 11AC and the Hon’ble High Court’s judgments referred supra, I give an option to the assessee to deposit the entire dues along with 25% of penalty within a period of thirty days of communication of the present order, in which case the penalty shall stand restricted to 25% of the duty amount. Revenue’s appeal is disposed off in above terms.

8. The Appeals of the Revenue against this Tribunal decision have been dismissed by the High Court and Supreme Court.

9. Therefore, relying on this case law, I give an option to the Appellant to pay 25% of Rs.2,09,704/- as penalty. The Appellant should pay the same within the 30 days from the date of communication of this order.

10. In respect of the penalty imposed on the Partner, the Hon’ble Punjab and Haryana High Court in the case of Vinod Kumar Gupta Vs. CCE-2013 (287) E. L. T. 54 (P & H) have held as under:

9. Having heard learned counsel for the parties, we are of the considered opinion that proprietorship firm or proprietor thereof cannot be treated as two different legal entities. Partnership firm is a firm in mercantile usage, however, penalty imposed on the proprietorship or partnership firms would mean penalty on the proprietor or partners thereof, therefore, imposition of penalties one on the proprietorship firm and second on the proprietor would amount to imposition of penalty twice, which cannot be sustained in the eyes of the law.

11. Relying on this decision, the penalty on the partner Mr. Moinuddin Ansari is set aside.

12. The Appeals are partly allowed on the above lines. (Dictated and pronounced in the open court.)