Case Law Details
M/s. Rajhans Enterprises Vs Commissioner of Central Tax (CESTAT Bangalore)
Commissioner (A) has allowed the appeal of the firm and set aside the duty demand and the penalty; however, penalty under Rule 26 of the Central Excise Rules, 2002 imposed on the Managing Partner of the appellant-firm was upheld on the ground that no separate appeal has been filed by the Managing Partner. He further submitted that the Commissioner (A) has wrongly held that there is no concept of joint appeal and the Managing Partner has to separately file an appeal under Rule 3(1) and (2) of the sub-rules. It is his further submission that a joint appeal is very much permissible under law because it is a firm and not a company and in the case of firm, the appeal was filed challenging the demand on the firm as well as the penalty imposed on the Managing Partner of the firm.
Held by CESTAT
After considering the submissions of both the parties and perusal of the material on record, CESTAT find that there was joint appeal filed by the firm as well as the Managing Partner of the firm and the Commissioner (A) vide the impugned order has allowed the appeal of the firm on merit and dropped the demand as well as penalty but upheld the penalty of Rs.1,10,000/- on Shri A. Ravindranath, Managing Partner under Rule 26 of Central Excise Rules. Further, I find that once the appeal of the firm has been allowed on merit, then the penalty on the Managing Partner cannot be imposed under Rule 26 of the Central Excise Rules. For this, CESTAT find support in the decisions relied upon by the appellant cited supra. Further, I find that in the decision relied upon by the appellant, it has been held that a joint appeal is permissible by the firm as well as the Partner because under Law a Partnership Firm is not a separate legal entity as in the case of Company under the Companies Act.
CESTAT allowed the appeals of the appellant by setting aside the impugned order imposing the penalty on the Managing Partner under Rule 26 of the Central Excise Rules, 2002 merely on the ground that he has not filed a separate appeal.
FULL TEXT OF THE CESTAT ORDER IS AS FOLLOWS:-
The appellants have filed these two appeals directed against the common impugned order dated 26.12.2017 passed by the Commissioner (A), whereby the Commissioner (A) has allowed the appeal of the firm M/s. Rajhans Enterprises but dismissed the appeal of the Managing Director Shri A. Ravindranath on whom penalty of Rs.1,10,000/- was imposed under Rule 26 of Central Excise Rules, 2002 only on the ground that no separate appeal has been preferred by the Managing Director of the firm. Since the issue in both the appeals is identical, therefore, both the appeals are being disposed of by this common order.
2. Briefly the facts of the present case are that the appellants are engaged in the manufacture of excisable goods viz. printed cartons falling under Chapter Heading 4819 of Central Excise Tariff Act, 1985 and are availing the benefit of CENVAT credit on inputs, input services and capital goods. Based on the information received regarding clandestine clearance of the goods manufactured by a leading Gutkha manufacturing unit at Bangalore, the Department had conducted an investigation on the said Gutkha manufacturer viz., M/s. Dhariwal Industries Limited (M/s. DIL) and it was observed from the seized records of M/s. DIL that they had manufactured and cleared RMD Gutkha during the period 2007-08 clandestinely i.e., without payment of central excise duty. During further investigation, the department had seized several records from the premises of Shri Sohanraj Mehta, C & F agent of M/s. DIL. From the seized records, certain documents mentioned the name of the appellant for having received amounts on day-to-day basis, out of the funds generated by sale of unaccounted Gutkha. Amongst various other inputs used for the manufacture of Gutkha by M/s. DIL, packing materials also is one of the inputs used. Further, the documents seized from the premises of C & F agent revealed the name of appellant for having received the amount on day-to-day basis for clearance of packing materials. The documents contained date-wise sales, other expenses and amounts paid to various persons and quantity sold clandestinely without payment of duty. The details of sales effected and payments made during the said period clearly revealed that an amount of Rs.97 lakhs was paid to the appellant. Shri Sohanraj Mehta also agreed in his statement given before the Income Tax Authorities that the amounts shown in the table are related to clandestine removal of goods and payments made in respect of such clearance. Based on case materials and documents seized by the Income Tax Authorities, Bangalore and the statements recorded by the Central Excise Officers, a show-cause notice dated 3.12.2012 was issued to the appellants alleging that a quantity of 19,31,715 Nos. of cartons were clandestinely cleared without payment of duty during the period from November 2007 to February 2008 to M/s. DIL, Bangalore demanding duty liability of Rs.4,33,069/- on the value of unaccounted clearances of packing materials of Rs.26,27,845/-along with interest and penalty. After due process of law, the adjudicating authority vide the impugned order confirmed the demand of Rs.4,33,069/- for the value of unaccounted clearances of Rs.26,27,845/- under proviso to Section 11A of the Central Excise Act along with applicable interest under Section 11AB of Central Excise Act and imposed a penalty of Rs.4,33,069/- in terms of Section 11AC of the Central Excise Act. The lower authority also imposed a personal penalty of Rs.1,10,000/- on Shri A. Ravindranath, Managing Partner of the appellant’s unit under Rule 26 of Central Excise Rules for contravening the provisions of Central Excise Act.
3. Heard both the sides and perused the records.
4. Learned counsel for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law. He further submitted that the impugned order is contrary to the binding judicial precedent on the same issue. He also submitted that the Commissioner (A) has allowed the appeal of the firm and set aside the duty demand and the penalty; however, penalty under Rule 26 of the Central Excise Rules, 2002 imposed on the Managing Partner of the appellant-firm was upheld on the ground that no separate appeal has been filed by the Managing Partner. He further submitted that the Commissioner (A) has wrongly held that there is no concept of joint appeal and the Managing Partner has to separately file an appeal under Rule 3(1) and (2) of the sub-rules. It is his further submission that a joint appeal is very much permissible under law because it is a firm and not a company and in the case of firm, the appeal was filed challenging the demand on the firm as well as the penalty imposed on the Managing Partner of the firm. He also submitted that once the demand along with penalty has been set aside on the firm on merit, the penalty on the Managing Partner automatically goes and there is no need to file a separate appeal by the Managing Partner challenging the imposition of penalty. In support of this submission, he relied upon the following decisions:
- Benu Ramesh Agarwal vs. CCE: 2014 (305) ELT 375 (Bom.)
- Universal Automobile & Ancillary Ltd. vs. CCE: 1991 (56) ELT 346 (Tri.)
5. On the other hand, the learned AR reiterated the findings of the impugned order.
6. After considering the submissions of both the parties and perusal of the material on record, I find that there was joint appeal filed by the firm as well as the Managing Partner of the firm and the Commissioner (A) vide the impugned order has allowed the appeal of the firm on merit and dropped the demand as well as penalty but upheld the penalty of Rs.1,10,000/- on Shri A. Ravindranath, Managing Partner under Rule 26 of Central Excise Rules. Further, I find that once the appeal of the firm has been allowed on merit, then the penalty on the Managing Partner cannot be imposed under Rule 26 of the Central Excise Rules. For this, I find support in the decisions relied upon by the appellant cited supra. Further, I find that in the decision relied upon by the appellant, it has been held that a joint appeal is permissible by the firm as well as the Partner because under Law a Partnership Firm is not a separate legal entity as in the case of Company under the Companies Act. In the case of Benu Ramesh Agarwal vs. CCE cited supra, the Hon’ble Bombay High Court in para 3 has observed as under:
“3. These facts have been undisputed throughout. The Tribunal seems to have taken a view that unless and until the partner independently files an appeal, he or she cannot impugn the directions of imposition of penalty against the partner. Therefore, the individual partner must impugn it. Though, the individual in this case has failed to file separate appeal, however, it is equally undisputed that he has signed memo of appeal of the firm as a partner. He has affirmed its contents. In such circumstances, a hyper technical view and by insisting on the appellant to file separate appeal, should not have been taken. It is too well settled to require reiteration that unlike a company, a partnership firm cannot have independent existence without that of its partners. In the matters of penalty, it may be that an order is passed against a partner and not an artificial legal entity, yet, insisting in every matter on the partner filing an appeal would not be just, fair and proper. The Tribunal ought to hear the parties both, on the point of duty demanded as also the penalty. It can segregate the issues and so far as the penalty is concerned, it can allow the parties to make submissions as to why imposition of penalty is unjustified or otherwise. That could be done even without the partner filing independent appeal and in the given facts and circumstances. ..”
Similarly, in the case of Universal Automobile & Ancillary Ltd. vs. CCE cited supra, the Division Bench of the Tribunal has observed in para 5 as under:
“5. After hearing both sides, we find that the cause of action remains the same which has given rise for the imposition of penalty on Shri S.K. Lakhani as a partner of the firm as well as on the firm M/s. Universal Automobile & Ancillary Ind. Penalties on both the partner and on the firm are adjudged by the single order. This Bench, in its Order No. 145/87 had gone into the question of entertaining the joint appeal by the Karta of the Hindu Undivided Family and the Hindu Undivided Family in the context of the CEGAT Procedure Rules and the Provisions of the Civil Procedure Code and had laid down the principle that where the order appealed against is not a multiple order and the penalties have been imposed on account of the same cause of action, joint appeal would be permitted….”
7. After going through the judgments relied upon by the appellant, I am of the considered view that the ratio of these judgments are squarely applicable in the facts and circumstances of this case, therefore, I allow the appeals of the appellant by setting aside the impugned order imposing the penalty on the Managing Partner under Rule 26 of the Central Excise Rules, 2002 merely on the ground that he has not filed a separate appeal.
(Operative portion of the Order was pronounced in Open Court on 25/04/2018)
