By TIOL News Service

MUMBAI, JUNE 02, 2015: THE applicant, at the relevant time, was working as Superintendent of Central Excise in a Range at Kalyan Division. During this period, one Shri Krishna Kumar Gupta floated five firms in different names and got registered these five firms (hereinafter referred to as Muni Group of Companies) with Central Excise department. These Muni Group of Companies were granted registration certificate by the applicant.

The applicant also gave certain reports about these firms/companies which were later on found to be factually incorrect. For example, that he has verified that the Muni Group of Companies exist and there is a factory building. Interestingly, this report was given even before the said firms/companies took that place on lease and later on, it was found that there was no factory. Further, these group of companies purportedly exported the goods through merchant exporters. They claimed huge CENVAT credit based upon certain documents without receiving any goods and later on, the said CENVAT credit was being encashed through export/ARE-1 procedure.

Investigation revealed active involvement and conspiracy of the applicant with the Muni Group of Companies and accordingly the applicant was made co-noticee in the show cause notice issued to the companies.

In the show cause notice, a demand of Rs.11,61,61,197/- was raised against the five companies besides interest and penalties. After adjudication, the said demands were confirmed along with penalties. A penalty of Rs.1,00,00,000/- was imposed on the applicant.

Before the CESTAT the applicant submits that principles of natural justice have been violated inasmuch as the documents have not been provided to the applicant. It was further informed that the applicant had written to the adjudicating authority about non-supply of relied upon documents whenever the personal hearing was fixed. Further, another investigation was being conducted by the Central Bureau of Investigation in respect of Apex Corporation which is also a firm of the same group and the CBI officials have taken sample signature of the applicant and he has been requesting the outcome of the said investigation which has not been provided. It is also submitted that there are no evidences in the investigation to suggest that the applicant was a part of the conspiracy. It was also submitted that only five sample signatures were sent to a private handwriting expert and all the signatures have not been verified and the signatures on all the other documents have not been verified by the Revenue before coming to any conclusion. Furthermore, it appeared that in large number of cases, somebody has forged his signature and he cannot be held responsible for the same, the applicant added. Another submission is that penalty under Rule 26 cannot be imposed as sub-rule (2) of Rule 26 has been introduced later on.

The AR strongly rebutted the submissions made by the applicant by mentioning the following -

+ All the points raised by the applicant are not part of the grounds of appeal or the stay petition but are being taken up for the first time.

+ A number of opportunities were provided by the Commissioner, but the applicant never presented himself or through his advocate before the adjudicating authority. It was the applicants' standard practice to send a letter seeking copies of the relied upon documents but in none of the letters, details of the documents which are required by the applicant were elaborated.

+ The reports given (by the applicant Superintendent) at the time of registration (of the companies) are factually incorrect.

+ The liberalised process announced by the Government did not imply the connivance of the officials to defraud the Government exchequer. Muni Group of Companies availed fraudulent credit of approximately Rs.11.61 crores only due to connivance of the applicant.

+ No rebate claim can be passed without verification from the range superintendent. The very fact that rebate claims were also processed after checking up from the range superintendent indicates the active involvement of the applicant; that if the departmental officials connive in this way, all the system will collapse and, therefore, the applicant does not deserve any leniency.

The Bench inter alia observed -

"Most of the arguments being advanced by the learned counsel for the applicant are neither part of the grounds of appeal nor part of the application for stay. We also note that a number of opportunities were given by the adjudicating authority and the applicant failed to avail these opportunities. The least that was expected was to attend one of such personal hearing and explain to the Commissioner the details of the documents required by him, which are not being given to him. In fact during the hearing, we asked the learned counsel for the applicant the details of the documents which have not been given to the applicant and their relevance. The learned counsel could not tell the details of the documents required by him for defending his case. Under the circumstances, prima facie we do not find that the principles of natural justice have been violated. We also note that the registration of Muni Group of Companies was done by the applicant and the reports submitted are misleading. It was found that the factories do not exist. It was also observed that huge transactions have been shown. We also note that for processing of the rebate claim, verification about the export as also the verification about the duty payment etc. is done by the range superintendent. We are not able to persuade ourselves that such fraud can be done relating to registration, availment of huge amount of credit and processing of the rebate claims without the tactical support of the range superintendent. There are large number of documents which will have to be gone through before taking a final view, but prima facie we feel that the applicant has not been able to make a case on merits."

As regards the submission of the applicant that penalty cannot be imposed u/r 26 of CER, 2002 and the case laws cited by both sides, the Bench took the following view -

"Prima facie we are of the view that since the applicant has processed the registration certificate, permitted the cenvat credit availment and also verified the duty payment particulars of the goods exported, the then Rule 26 will be applicable to the applicant. The learned counsel for the applicant has also submitted that the applicant has been out of job for number of years and has no means of earning and his financial position is very poor. It may be true that the applicant is out of job for some period. However, this cannot imply that the applicant has no means."

In fine, the CESTAT directed the applicant to make pre-deposit of an amount of Rs.5 lakhs and report compliance.

(See 2015-TIOL-1002-CESTAT-MUM)