Rule 26 of CE Rules, 2002 – Penalty not sustainable where actual involvement of parties in clandestine removal of goods not established – HC

Brief of the Case

Delhi High Court held In the case of Rakesh Kumar Garg & others vs. CCE that the SCN which proposed the penalty would have to make out a case for how Rule 26 is attracted. In the present case, apart from merely stating that the three Appellants were in control of the affairs of the company engaged in manufacturing pan masala and gutka of ‘Rajdarbar’ brand, there is nothing in the SCN which points to how they were actually involved in the transporting, removing or clearing of excisable goods. Also considering that statements implicating the appellants were retracted, the CCE and the CESTAT should have produced other independent corroborative evidence. That clearly was not available in the present case. Hence, the requisite evidence necessary for levy of penalty under Rule 26 of the CE Rules 2002 was not brought on record by the Department and, therefore, the levy of penalty not sustainable.

Facts of the Case

M/s. Amar Jyoti Packers (‘AJP’), a sole proprietary firm of which Ms. Mahesh Kumar Gautam was sole proprietor, was engaged in manufacturing pan masala and gutka of ‘Rajdarbar’ brand. Mr. Devi Das Garg (the Appellant in CEAC No. 3 of 2011), was one of the two partners of M/s. Sonal Food Products (‘SFP’) which owns the ‘Rajdarbar’, ‘Rahat’, ‘Rustam’, and ‘Raj Tilak’ brands used to manufacture gutka and pan masala by AJP. One of his sons Mr. Santosh Kumar Garg (the Appellant in CEAC No. 2 of 2011) is the other partner in SFP. Mr. Rakesh Kumar Garg (the Appellant in CEAC No. 1 of 2011) is the other son of Mr. Devi Das Garg.

On 13th April 2000, AJP entered into a franchisee agreement with SFP for using the aforementioned brand names. Six months thereafter, i.e., on 20th October 2000, the department conducted searches in the premises of AJP and the suppliers of raw materials of AJP. They recorded the statements of Mr. Vinod Kumar Bansal, an Accountant as well as authorized signatory of AJP. They also recorded the statements of Mr. Manoj Bansal, the Manager of M/s. Surya Traders (‘ST’). Ultimately it was on 20th May 2004 that a show cause notice (‘SCN’) was issued raising a duty demand of Rs. 33,20,03,239 to M/s AJP, M/s. ST, the three Appellants herein and Mr. Vinod Bansal.

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