By TIOL News Service

NEW DELHI, APR 29, 2014 : M/S. Minda HUF Ltd. was engaged in the manufacture of automobile locksets and was availing the benefit of CENVAT credit of duty paid on various inputs and capital goods. Inquiries were conducted and it was found that the some of the firms, including the present applicants, were not having the facility to manufacture the inputs and were neither registered with Central Excise department. They were only issuing invoices, without supply of goods or inputs, on the basis of which M/s. MindaHUF was availing the credit. M/s. Minda HUF along with other three co-noticees approached the Settlement Commission and the Principal Bench vide order FO No.555/CE/07(PB) dated 5.07.2007 appropriated the entire amount of Rs.2,20,00,975/- paid by M/s. HUF along with payment of interest at the rate of 10%. Further, the said M/s. MindaHUF along with the other co-applicants were granted full immunity from fine, penalty and prosecution.

The present appellants during the course of adjudication pleaded before the Commissioner that inasmuch main appellant has not been imposed with any penalty and the other co-noticees placed upon the same platform, have also been granted immunity from fine and prosecution, the imposition of penalty upon them would be neither justified nor warranted. For the above proposition, they relied upon the Tribunal's decision in the case of SK Colombowala vs. CCE (2007-TIOL-1130-CESTAT-MUM). They also referred to various decision of the Tribunal wherein penalties imposed upon the co-noticees were set aside, where the dispute in respect of main noticee was settled by the Settlement Commission.

However, Commissioner did not accept the above contention of the appellant and imposed the following penalties -

++ Shri MukeshGarg- Rs.66,55,075/-

++ Ms. MamtaGarg- Rs.47,80,983/-

++ Shri Naveen Agarwal - Rs.13,33,321/-

++ Ms. Aruna Agarwal - Rs.2,09,760/-

The Member (Judicial) adverted to the decisions in SK Colombowala vs. CCE (2007-TIOL-1130-CESTAT-MUM) , Union of India vs. Onkar S Kanwar (2002-TIOL-924-SC-MISC), Pearl P olymers Ltd. vs. CCE, Raigad [2008-TIOL-737-CESTAT-MUM] Windoors (India) vs. CCE Mumbai (2009-TIOL-704-CESTAT-MUM), Shitala Prasad Sharma vs. CCE Mumbai (2005-TIOL-254-CESTAT-MUM) and observed -

“7. Inasmuch as the main appellants had admittedly settled the dispute before the Settlement Commission and has not been vested with any penal liability, imposition of penalties on the present appellants, who are only charged with colluding and abetting the main appellant, is neither justified nor warranted and would be against the settled proposition of law in the above referred matters.”

The Member(J) also found no merit in the argument of the Revenue representative that the decision in SK Colombowala decision could not be followed and the appellants' appeal should be decided on merits, after considering their role in the entire bogus transaction. It was observed that when the legal issues stand decided by the precedent decision of the Tribunal, and there being no contra decision, the same are required to be followed in view of Bombay High Court decision in the case of Tejus Proprietary Concern of TejusRohitkumarKapadia vs. Union of India (2011-TIOL-594-HC-MUM-CUS).

It was also observed that the stay order passed by the Tribunal directing the appellant to deposit 25% of the penalty was challenged before Delhi High Court by MukeshGarg [2011-TIOL-949-HC-DEL-CX] wherein the High Court had taken a serious note of the said directions and further taken into account the Tribunal's decision in the case of SK Colombowala, Shitala Prasad Sharma and Pearl Polymers and prima facie held that appellants have a case in their favour and they were entitled to waiver of pre-deposit.

Holding that the observations made by Delhi High Court while setting aside the stay order are carrying persuasive value, the Member (J) viewed that penalties imposed upon all the appellants are required to be set aside and ordered accordingly.

The Member (Technical) had a differing view.

He inter alia observed -

“20 . … in the present case relating to M/s Minda and other co-noticees (other than employees of M/s Minda as co-noticees before Settlement Commission) all manufacturers who issued paper invoices indulged in fraudulent preparations of invoices without actual manufacture and subsequent passing on the credit. All these suppliers incurred distinct liability by each of them having indulged fraudulent activities and were required to be before Settlement Commission separately. Following aforesaid principles of law relied upon by me, I am of considered view that decision of Tribunal in S.K. Colombowala was misplaced and per incuriam. It may be said that Tribunal in the case of K.I. International Vs. Commissioner of Customs, Chennai, reported in 2012 (282) ELT 67 (Tri.-Chennai), = (2012-TIOL-2032-CESTAT-MAD) has rightly held that immunity granted to some specific noticees by the Settlement Commission cannot operate as an immunity to other co-noticees and that order of Settlement Commission were not binding on Tribunal to grant relief to persons who were not before the Settlement Commission. To reach to such conclusion, the Tribunal relied upon the decision of the Apex Court in ChengalVarayanaiduVs. Jagannath as reported in AIR-1994-S.C.-853. Thus the decision in S.K- ColombowalaVs. Commissioner of Customs (Import), Mumbai 2007(220) E.L.T. 492 (Tri. Mum) does not hold the field of law when considering various decisions, Hon'ble Supreme Court in the case of M. Natarajan versus State by Inspector of Police, SPE, CBI, ACB, Chennai 2008 (226) E.L.T. 678 (S.C.).”

The Member(T), therefore, concluded that immunity cannot be extended to appellants who were not before Settlement Commission.

It was also viewed - As regards to imposition of penalty which is quasi criminal in nature considering the tax fraud engineered by the appellants they are no less than evaders causing serious threat to economy and also enriched at the cost of revenue, no imposition of penalty shall send a message to the society that evasion is rewarded with incentive .

And, therefore, the matter came to be referred to the Third Member.

(See 2014-TIOL-657-CESTAT-DEL)