Case Law Details
Vishal Jain Vs C.C.E. (CESTAT Ahmedabad)
CESTAT Ahmedabad held that penalty under rule 26 of Central Excise Rules rightly imposed on the Chartered Accountant who issued false performance certificate to fraudulent parties based on which fraudulent advance license were obtained.
Facts- The company M/s. Iqbal Synthetics Pvt. Ltd. have cleared the goods from their EOU clandestinely under the guise of removal of the goods against advance license without payment of duty. For the purpose of advance license, the appellant who is a Chartered Accountant had issued performance certificate to M/s. Thejavathu Chandrakala, M/s. Eastern Products, M/s. Devashree processors and M/s. Amba Expofab without verifying their credentials and on that basis the DGFT had issued advance license to the said parties which were subsequently, misutilized leading to evasion of Government revenue to the tune of rupees more than Rs. 10 Crores of excise duty therefore, the appellant was imposed penalty of Rs. 5 lacs under Rule 26 of Central Excise Rules, 2002.
Conclusion- We find that the appellant have admittedly issued false performance certificate to fraudulent parties who, on the basis of the said certificates obtained the advance license and such advance licenses were used for evasion of huge excise duty on the clearance of goods clandestinely from the EOUs. Without the performance certificate, the fraudulent advance license could not have been issued and huge revenue loss could not have occurred to the government exchequer. Therefore, for the entire offence the appellant’s role is key role.
Held that the appellant has been rightly imposed with a penalty under Rule 26 of Central Excise Rules. Accordingly, we do not find any infirmity in the impugned order to the extent of penalty of Rs. 5 lacs was imposed upon appellant under Rule 26. Therefore, the penalty is upheld. Appeal is dismissed.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The brief facts of the case are that the company M/s. Iqbal Synthetics Pvt. Ltd. have cleared the goods from their EOU clandestinely under the guise of removal of the goods against advance license without payment of duty. For the purpose of advance license, the appellant who is a Chartered Accountant had issued performance certificate to M/s. Thejavathu Chandrakala, M/s. Eastern Products, M/s. Devashree processors and M/s. Amba Expofab without verifying their credentials and on that basis the DGFT had issued advance license to the said parties which were subsequently, misutilized leading to evasion of Government revenue to the tune of rupees more than Rs. 10 Crores of excise duty therefore, the appellant was imposed penalty of Rs. 5 lacs under Rule 26 of Central Excise Rules, 2002.
02. Shri R. Subramanya, learned Counsel appearing on behalf of the appellant submits that the appellant have acted as a professional under bona fide belief. He submits that the appellant has charged nominal fees of Rs. 1500/- for certificate and he was not aware of any misuse of the certificate therefore, he should not be penalized under Rule 26. He further submits that the appellant have not dealt with any goods which is liable for confiscation. Moreover, there is no charge of confiscation of goods in the show cause notice as well as in the order therefore, without charge for confiscation of goods, the penalty under Rule 26 cannot be imposed.
03. Shri G. Kirupanandan, learned Assistant Commissioner (AR) appearing on behalf of the revenue reiterates the finding of the impugned order. He pointed out from the records that the appellant have not admitted the offence moreover, he has admitted that if he would have known such gravity of the revenue involved, he would have charged more as against the Rs. 1500/- per certificate. This clearly shows mala fide of the appellant. He submits that for the identical offence the High Court of Bombay as well as this tribunal has confirmed the penalty in the following judgments:-
- SHYAM CHAGANLAL AGARWAL Vs. COMMISSIONER OF CUSTOMS (IMPORTS)-2008 (226) ELT 176 (Bom.)
- KARNAL AGARWAL Vs. COMMISSIONER OF CUSTOMS (IMPORTS), NHAVA SHEVA- 2010 (249) ELT 374 (Tri.-Mumbai)
- MAHESH P. PATEL Vs. COMMISISONER OF CUSTOMS (EP), MUMBAI-2019 (370) ELT 712 (Tri.-Mumbai)
04. We have carefully considered the submissions made by both the sides and perused the records. We find that the appellant have admittedly issued false performance certificate to fraudulent parties who, on the basis of the said certificates obtained the advance license and such advance licenses were used for evasion of huge excise duty on the clearance of goods clandestinely from the EOUs. Without the performance certificate, the fraudulent advance license could not have been issued and huge revenue loss could not have occurred to the government exchequer. Therefore, for the entire offence the appellant’s role is key role. The appellant has also not verified any credentials of their so-called clients. It is also a fact on record that the appellant have categorically admitted in his statement that if he would have known that so huge revenue involvement is there, he could have charged heavy amount of fees as compared to Rs.1500 per certificate. With this statement, the mala fide of the appellant is clearly established. This tribunal dealing with the similar fact maintained the penalty imposed on the Chartered Accountant for issue of Solvency/Export performance certificate in the case of Mahesh P. Patel(supra) The relevant order is reproduced below:-
4. We have carefully considered the submissions made by both the sides. We find that as regards the appeal of Shri Mahesh P. Patel, in the impugned order, the adjudicating authority has recorded the finding as under: –
”33. (i) Shri Mahesh Purushottambhai Patel, Chartered Accountant of M/s. Spectrum Fabrics, in his statement recorded by the DRI under Section 108 of the Customs Act, 1962 on 12-6-2003 accepted that he issued Certificates in the name of M/s. Spectrum Fabrics, Surat, under his seal showing details of Export Performance for obtaining advance Licenses in the name of M/s. Spectrum Fabrics; that he had verified the Books of Account and seen Balance Sheet signed in original of both the Solvency Certificates, but they were not signed by any Chartered Accountant; that he had not verified their authenticity and he failed to verify the authenticity of the same. It was also stated by him that he never visited the factory premises of M/s. Spectrum Fabrics.
(ii) On behalf of Shri Mahesh Patel, the consultant Mr. Mithil Dave had made submissions as detailed at para 18** in this order. The contentions are broadly that Shri Mahesh Patel is a qualified Chartered Accountant and is having his practice since 1996 in Surat, he is not directly or indirectly concerned in any way with M/s. Spectrum Fabrics or any of the notice and their firms, that Shri Patel is qualified to issue Solvency Certificate and/or Export Performance Certificate and whatever he has done has been done in his professional capacity and after proper verification of the documents produced before him by Shri Yogesh Chalthanwala. It was also claimed that in the statement dated 12-6-2003 of Shri Mahesh P. Patel under Section 108 of the Customs Act, 1962, “Certificates were issued without verifying the correctness of books of revenue” was written by the officers in place of “certificates were issued after proper verification of documents and records”. I find that vide submissions made through letter dated 21-3-2007, the noticee is trying to retract his statement made in the year 2003. For four long years, Shri Mahesh Patel had not retracted the content of his statement which stands as admitted facts. I therefore, consider the retraction after 4 years an afterthought.
(iii) It was further claimed by Shri Mithil Dave that the advance licenses were issued in the name of M/s. Spectrum Fabrics and not in the name of Shri Mahesh Patel and therefore, it is the company which is accountable. They have quoted various judgments to support the claim. I consider each one of them –
(a) In the case of M/s. Pactil Electronics Pvt. Ltd. v. Collector of Central Excise, Bombay-II cited in1987 (28) E.L.T. 315 (Tribunal), it was held that for irregularities and illegalities committed by the Directors, the firm (which acts through its Directors) is liable for the omissions and commissions of the Directors, hence imposition of penalty on firm is justified. I find this matter has no relevance whatsoever to the subject case and more specifically in deciding the role of the Chartered Accountant Shri Mahesh Patel.
(b) In the case of M/s. Kandla Clearing Agency Pvt. Ltd. v. Commissioner of Customs, Kandla cited in2003 (158) E.L.T. 86 (Tri.-Del.), dated 17-9-2003, it was held that imposition of penalty on Customs House Agent is proper for filing documents knowingly on behalf of non-existent firm or using wrong name of client, while receiving payments from and making delivery to real importer. The quantum of penalty was however reduced because it was held that CHA had played an active but only secondary role in perpetuation of fraud. This case would not further the submissions of Shri Patel. In fact it only goes on to support the contention that the Chartered Accountant having prepared documents leading to issue of fraudulent advance licenses has played a secondary role and therefore is liable for penalty.
(c) In the case of M/s. Premier Packaging Limited v. Collector of Central Excise, New Delhi cited in1986 (26) E.L.T. 333 (Tribunal), dated 22-7-1986, it was held that Demand/Show cause notice only alleging short accountal of raw material is not tenable due to lack of evidence of clandestine manufacture or surreptitious removal of manufactured goods. This case doesn‘t apply to the subject matter before me because as far as the role of Shri Mahesh Patel in the whole fraud of M/s. Spectrum Fabrics is considered, it is limited to issue of certificates without proper verification of the documents (fabricated by other noticee) leading to issue of advance licenses resulting in fraud. The proposed penal action is not based on suspicion but the statement of Shri Patel himself in which he has accepted the fact of issuing the certificates to M/s. Spectrum Fabrics by not verifying the correctness of books of revenue. Another citation1988 (37) E.L.T. 269, dated 4-7-1988 was also referred which was on identical issue as the one discussed above, therefore the facts and circumstances being different, the case has been quoted out of context.
(d) Regarding imposition of penalty or otherwise on Shri Mahesh Patel, other cases cited were M/s. M.M. Raikhanna[2005 (186) E.L.T. 322], CCE v. Shal Dalitchand Kapoor Chand & Co. [1989 (41) E.L.T. 167], Shri Kaigaontar & Ors. v. Gold Control Adm. [1986 (23) E.L.T. 523 (Tribunal)], Smt. Vidyawati v. State [1988 (37) E.L.T. 341 (Del.)] and Laxmi Packaging (P) Ltd. [1998 (98) E.L.T. 91 (T)]. I find that in the case of M.M. Raikhanna it was held by the Hon‘ble tribunal that penalty on a person is not sustainable in the wake of no evidence produced to show that the advance licence would not be used in the manufacture of export goods. The ratio of this case is not applicable in the present case because herein there is an „admitted‘ evidence of Shri Mahesh Patel that he had not verified the documents before giving the export performance certificates. Thus, the allegation of „no evidence‘ by the noticee doesn‘t survive. I also find that the rest of the cases are either not relevant to the subject case or deals with cases wherein there is penalty and confiscation ordered in cases of lack of evidence against the appellants. As discussed herein above, the ratio of these cases are not applicable since the subject case matter.
(iv) After considering the charges in the Show Cause Notice and the evidences discussed hereinabove, I find that Shri Mahesh Patel, Chartered Accountant has issued false certificates which resulted in grant of advance licenses which would not have been otherwise issued and no duty free imports defrauding Government‘s revenue would have taken place but for such false certificates. The noticee, admittedly, having not verified any of the records could not take up a plea of not having played in role of fraud. I find that the subject matter is squarely covered by Hon‘ble High Court of Bombay‘s order dated 1-2-2006 in the case of Shri Shyam Chaganlal Agarwal v. Commissioner of Customs (Import) cited in2008 (226) E.L.T. 176 wherein it was held accordingly. I therefore, hold Shri Mahesh Patel liable for penalty under Section 112(a) of the Customs Act, 1962.”
4.1 From the above detailed finding of the Learned Commissioner, it is seen that the appellant Shri Mahesh P. Patel has issued the solvency certificate on the basis of balance sheet which was not signed by the Chartered Accountant. Therefore, he was not supposed to issue any certificate which is not based on the audit of books [of] account. Accordingly, on the basis of the certificate issued by the Chartered Accountant, Shri Mahesh P. Patel, M/s. Spectrum Fabrics obtained the advance licence fraudulently which resulted in huge revenue loss of Rs. 1.46 crores customs duty to the Government exchequer. As per the role described by the adjudicating authority, it is clear that the appellant Shri Mahesh P. Patel was knowingly involved in facilitating M/s. Spectrum Fabrics for entire fraud. Therefore, we do not see any reason to take any lenient view. Hence the penalty of Rs. 5 lakhs imposed on Shri Mahesh P. Patel is justified and no interference is required. Accordingly, we uphold the penalty imposed under Section 112(a) on Shri Mahesh P. Patel.
4.2 Similarly, as regards the penalty imposed on Shri Sudesh D. Nanaware, we find that he is a consultant for obtaining the advance licence from DGFT. As per his advice, the entire fraud was committed. The adjudicating authority has given a detailed finding in the impugned order as regards the role of Shri Sudesh Nanaware, which is extracted below :-
”32. (i) Shri Sudesh Dagadoba Nanaware, Proprietor of M/s. Tejal international, in his statement recorded by the DRI under Section 108 of the Customs Act, 1962 on 20-9-2004 stated that it was pre-decided by him and Shri Jatinbhai Pancholi that he (Shri Sudesh Nanaware) would do consultancy work for issue of Advance Licenses in the name of M/s. Spectrum Fabrics, Surat, and Shri Jatin Pancholi would import duty-free yarn and/or fabrics on the basis of the said Advance Licenses and then sell it in the open market without payment of appropriate Customs duties leviable thereon; that, he actively participated in all these activities and got issued Advance Licenses in the name of M/s. Spectrum Fabrics, Surat; that he had also done consultancy work for the issue of at least fifteen Advance Licenses in the name of M/s. Harihar Fiber, a company owned by Shri Jatin Pancholi.
(ii) I have considered the detailed submissions made by the consultant on behalf of Shri Nanaware mentioned in the para 16 above of this order. The submissions have nowhere denied that Shri Nanaware was aware of the whole modus which was (as per his admission in the statement dated 20-9-2004) planned by Shri Nanaware and Shri Jatin Pancholi. To quote the portion of statement “I (Nanaware) clarify that it was a pre-decided plan to make a duty theft, by way of making duty free import on the basis of advance licenses issued in the name of M/s. Tejal International and then to sell it in open market. It was also pre-decided that I will get issued Advance licenses in the name of M/s. Spectrum Fabrics, Surat and Shri Jatin Pancholi will import duty free yarns and/or fabrics on the basis of Advance licences issued in its name and then to make sale of it in the open market without payment of appropriate customs duties.”
(iii) Having admitted to a role in the whole fraud right from its inception stage and having never retracted these statements (facts), Shri Nanaware is trying to wash his hands off the whole act by stating now (after more than 3 years) that he was only looking after the consultant/liaisoning work for the issue of advance licences in the name of M/s. Spectrum Fabrics, Surat. This act, therefore, appears to be an after thought. All the case laws submitted by the consultant have been quoted out of context. In these cases, it was held that penalty was levied on brokers wherein their role was not established or arrived at by the adjudicator. In the subject case, it is clear that various documents were submitted to get advance licence issued in the name of M/s. Spectrum Fabrics were fabricated because it is now an established fact that there was no factory of M/s. Spectrum Fabrics nor any manufacturing activity was ever contemplated. Having executed his role in the whole plan (for fraud) of duty evasion, one cannot take shelter saying the he was not involved in taking it to the logical conclusion. The fact of the matter is that, had there been no role of Shri Nanaware in obtaining the advance licenses by fraudulent means, there would never have been any duty free import by M/s. Spectrum Fabrics nor any diversion of the goods. The fraud started by obtaining the advance licenses by way of fabricating false documents and Shri Nanaware performed his role to perfection by obtaining the advance licenses in the name of M/s. Spectrum Fabrics.”
4.3 From the above finding, it can be seen that the appellant Shri Sudesh Nanaware, being a consultant, has admitted the pre-decided plan for committing the fraud. Therefore, he was rightly imposed the penalty under Section 112(a). Accordingly, we uphold the said penalty.
5. As regards the Revenue‟s appeal, we find that the Revenue has sought to impose penalty under Section 114A for equal amount of the duty demand confirmed against M/s. Spectrum Fabrics. In this regard, we find that in the show cause notice, penalty under Section 114A was proposed. However, the adjudicating authority has neither discussed the issue of penalty under Section 114A nor any order was passed in the operative portion of the order. Therefore, the adjudicating authority has not decided the issue of penalty under Section 114A in the impugned order. Therefore, this issue first needs to be considered by the adjudicating authority. Accordingly, appeal of the Revenue is allowed by way of remand to the adjudicating authority. Appeals of Shri Mahesh P. Patel and Shri Sudesh D. Nanaware are dismissed.
Similar issue has been considered by the Hon’ble Bombay High Court in the case of SHYAM CHAGANLAL AGARWAL (supra) wherein, the Hon’ble court has passed the following order :-
Heard the learned Counsel for the parties. By this appeal, the Appellant is seeking to raise an issue with regard to Tribunal confirming the penalty imposed on the Appellant. The finding recorded by the CESTAT indicates that the Appellant who is a qualified Chartered Accountant, had issued false certificates. It is also clearly recorded by the Tribunal that based on the aforesaid false certificates issued by the Appellant (Chartered Accountant) advance licenses were granted for duty free imports of goods. The false certificates issued by the Appellant has resulted in grant of licenses which would not have been otherwise issued and no duty free imports defrauding the Government‘s revenue would have taken place, but for such false certificates. The Tribunal has also observed that the Appellant had deliberately issued false certificates, and that too different certificates for Income Tax and for DGFT/Customs, for the same period. Under those circumstances the Tribunal had refused to interfere with the order of the Commissioner of Customs penalising the Appellant for his role in abetting evasion of duty in respect of imported goods.
2. Shetty the learned Counsel for the Appellant has relied upon the judgment of the Hon‘ble Supreme Court in the case of Hiralal Harilal Bhagwati v. CBI, New Delhi,2003 (155) E.L.T. 433 (S.C.) and has submitted that his client has not violated any of the condition of a Notification No. 204 of 1992, and hence he was not liable to pay any penalty under Section 111(o) of the Customs Act.
3. It is an admitted position that the Appellant had issued false certificates without verifying any records, which is apparent from his statement which is annexed at Exhibit D to the petition. On the basis of the said false certificates the advance licenses were issued and on that basis the imports were allowed. Later, when it was discovered that the licenses were issued on the basis of these false certificates, the Commissioner of Customs imposed the penalty. The fact that the Commissioner of Customs of Calcutta exonerated the Appellant will not be of any assistance to the Appellant in this case. In fact, the certificates issued by the Appellant, read as under :
“I have examined the applicant firms actual imports and exports as given above and find them as correct.”
4. Admittedly, the Appellant had not verified any of the records. He being a qualified Chartered Accountant, could not have issued such false certificates which resulted in issuance of advance licences for‘ import and thereafter take up a plea that he was ignorant of the actual facts. We do not find any substance in this appeal. Appeal therefore stands dismissed.
05. From our above observation and on the undisputed fact and the judgments reproduced above, the appellant has been rightly imposed with a penalty under Rule 26 of Central Excise Rules. Accordingly, we do not find any infirmity in the impugned order to the extent of penalty of Rs. 5 lacs was imposed upon appellant under Rule 26. Therefore, the penalty is upheld. Appeal is dismissed.
(Pronounced in the open court on 24.03.2023 )
Author Bio
