Ashokkumar H. Fulwadhya and Another and Daulat Kumar H. Fulwadhya vs Union of India (UOI) and Others

V.C. Daga, J.—Heard learned Counsel for the petitioners and learned Counsel for the respondents. Perused petitions.

Rule, returnable forthwith. The petitions are heard finally by consent of parties.

The facts:

These petitions are directed against the order dated August 4, 2009, by the Customs Excise and Service Tax Appellate Tribunal, West Zonal Bench, Mumbai ("CESTAT" for short) directing the petitioners Mr. Ashokkumar and Mr. Daulatkumar to pre-deposit 25 per cent, of the penalty imposed on each of them, they being the directors of M/s. Harisons Steel P. Ltd.

Submissions:

Learned Counsel for the petitioners, in short, submits that imposition of personal penalty on the director is not permissible under Rule 13(1) of the CENVAT Credit Rules, 2002 ("the CENVAT Rules" for short) as this rule contemplates penalty only on the person availing of credit. In the case in hand, person, who has availed of the cenvat credit, is a private limited company and not the directors of the company. The petitioners are the directors, who did not avail of this credit. In the submission of learned counsel, in spite of this clear legal position, the Tribunal erroneously without considering the contention raised in this behalf, has passed the impugned order directing the petitioners to pre-deposit 25 per cent, of the penalty imposed on each of them.

Per contra, Mr. Desai, learned senior counsel appearing for the respondents tried to counter the above submissions but could not take his submission to the logical end and found it difficult to support the impugned order.

Consideration:

In order to appreciate the submissions canvassed by learned Counsel appearing for the petitioners, it would be profitable to turn to Rule 13 of the CENVAT Credit Rules applicable to the facts of the case in hand:

Confiscation and penalty.--(1) If any person, takes CENVAT credit in respect of inputs or capital goods, wrongly or without taking reasonable steps to ensure that appropriate duty on the said inputs or capital goods has been paid as indicated in the document accompanying the inputs or capital goods specified in Rule 7, or contravenes any of the provisions of these rules in respect of any inputs or capital goods, then, all such goods shall be liable to confiscation and such person, shall be liable to be penalty not exceeding the duty on the excisable goods in respect of which any contravention has been committed, or ten thousand rupees, whichever is greater.

The aforesaid rule opens with the wording "if any person, takes CENVAT credit...." These words are indicative of the fact that the penalty is imposable on the person who takes Cenvat credit. In other words, the person who has availed of the Cenvat credit is the only person liable to be visited with the penalty. None of the petitioners has availed of Cenvat credit. It is availed of by the company alone; where the petitioners are directors. Therefore, the penalty under Rule 13(1) of the Cenvat Rules is imposable only on the person who has availed of the Cenvat credit, i.e., on the company, who is a manufacturer. The petitioners cannot be said to be manufacturers availing of the Cenvat credit. They are the directors of the private limited company as such they could not have been within the net of Rule 13 of the CENVAT Credit Rules.

In Union of India (UOI) and Others Vs. Rai Bahadur Shreeram Durga Prasad (P) Ltd. and Others, , the apex court ruled that a penal provision has to be construed strictly. Considered in this backdrop, in the absence of specific words, no person other than the person taking Cenvat credit can be inferred. The relevant provisions of the Central Excise Act, 1944 ("the Act" for short) show that wherever the Legislature desired to include any other person or agent, a specific language in that behalf is used. One of such readily referable provisions could be proviso to Sub-section (1) of Section 11A, which reads as under:

11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded.--(1) When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, whether or not such non-levy or non-payment, short-levy or short-payment or erroneous refund, as the case may be, was on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made thereunder, a Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:

Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, as if for the words ''one year'', the words ''five years'' were substituted;

Perusal of the aforesaid proviso would demonstrate that even the agent is brought within the purview of the legislative net. In contrast to the above, Rule 13 of the Cenvat Rules brings within its fold only that person who takes Cenvat credit and no other person.

On the above analysis of Rule 13 of the Cenvat Rules, we have no option but to quash and set aside the impugned order holding that no pre-deposit of personal penalty could be ordered against the petitioners. The Tribunal shall hear the appeal filed by the petitioners without there being pre-deposit by the petitioners.

In the result, both petitions are allowed. Rule is made absolute in terms of this order with no order as to costs.