No Penalty under Rule 26 if goods liable to confiscation are not taken in Possession

By | November 1, 2015

Rule 26 of the Central Excise Rules, 2002

Facts of the case :-

 Three firms claimed rebate of Central Excise duty from office of Maritime Commissioner . Rebate was sanctioned and disbursed to them .During Course of post sanction verification of duty payment, it was alleged that rebate claims were filed by submitting false, fabricated and forged documents . However, it was found that appellant had not acquired, possessed or handled any excisable goods in any manner that was liable to confiscation .

Whether, condition precedent as prescribed under Rule 26 was not satisfied so as to impose penalty ?

 Held, yes


Haresh Garodia


Commissioner of Central Excise, Raigad


ORDER NOS. A/2208-2210/2015/SMB
APPEAL NOS. E/1644,1645 AND 1940/2010

DECEMBER  19, 2014

C.S. Biradar, V.N. Ansurkar and Ms. Kirti Udassen, Advs. for the Appellant. Ashuthosh Nath, Asstt. Commr. (AR) for the Respondent.


1. These appeals are directed against Order-in-Original No. 06/CSP (06) COMMR/RGD/10-11 dated 06.08.2010 passed by the Commissioner of Central Excise, Raigad.

2. The brief facts of the case are that M/s Uday Chemexpo, M/s Vighnesh Chemicals and M/s Yogendra Chemical Industries have claimed rebate of Central Excise duty from Office of Maritime Commissioner, Raigad under Rule 18 of Central Excise (No. 2) Rules, 2001 & Central Excise Rules, 2002 during the period August, 2002 to November, 2003 and the same have been sanctioned and paid to them during April, 2004 as under:

Sr. No. Name of the party No. of Rebate claims Amount of Rebate claim sanctioned (in Rs.) Cheque no. & Date by which the amount is paid
1. M/s Uday Chemexpo 8 36,95,552/- 886937/19.04.04
2. M/s Yogendra Chemical Industries 8 35,77,353/- 887116/19.04.04
3. M/s Vighnesh Chemicals 8 36,46,944/- 887066/19.04.04
TOTAL 1,09,19,849/-

3. The above three firms, had also claimed rebate of Central Excise duty from Office of Maritime Commissioner, Mumbai-I, which were also sanctioned and disbursed to them.

3.1 During the course of post sanction verification of duty payment, references were made by the Chief Accounts Officer, (CAO) Central Excise, Mumbai-I, to the CAO, Belgaum Commissionerate as per prescribed procedure. The Joint Commissioner (P & V), Belgaum Commissionerate vide letters dated 23.06.2005 & 04.07.2005, Additional Commissioner (P&V), Belgaum Commissionerate, vide letter dated 09.08.2005 and the CAO, Belgaum vide letter dated 08.12.2005 informed Maritime Commissioner, Mumbai-I that the above referred three firms were not in existence and their addresses were fictitious. It was also conveyed that Plot No. 67 of Kapanoor Industrial Area (where the factory of M/s Vignesh Chemicals was located) was previously allotted to one Shri Zameeruddin and was presently owned by M/s Gajanan Industries. Further, the Plot No. 256 (where the factory of M/s Yogendra Chemical Industries was located) and Plot No. 229A (where the factory of M/s Uday Chemexpo was located) were not allotted to any person since, as per the records, there are only 206 plots in the Industrial Area.

3.2 The rebate claims were filed by submitting false, fabricated and forged documents with an intention to fraudulently claim rebate of duty and to defraud the Government. The investigations were initiated in the matter by Maritime Commissioner, Mumbai-I.

4. During the investigation into the money trail and the financial transactions from the bank accounts of first three noticee firms, with HSBC Bank, led to the account of M/s Shreeji Traders held with Progressive Co-Op. Bank Ltd., Kalbadevi Branch wherein the amount of Rs. 8,22,290/- was deposited on the strength of pay order issued by HSBC Bank. On scrutiny of the documents submitted by the bank it was revealed that M/s Shreeji Traders was a proprietary firm engaged in the trading of Iron and Steel articles, whose proprietor was Shri Hemant Patel having office at Masjid (East), Mumbai-400 009. However, the records of the firm were kept in go down situated at Ghatkopar, Mumbai.

4.1 The statement of Shri Hemant Patel was recorded on 22.08.2007 wherein he inter-alia, stated that the said firm was closed in the year 2004 and all purchases were from traders, sales were also to traders, and the said firm was not a registered dealer under Central Excise. He further stated that the firm was started in the year 1997, had current account with Corporation Bank, Kalbadevi Branch. However, the same was closed and new account was opened in the month of June, 2003 in Progressive Co-op Bank Ltd., Kalbadevi Branch, which was also closed in April 2005 after the closer of the said firm. The bank account statement of the said account shows the transaction history of the said account for the period from 04.06.2003 to 06.04.2006 and on 23.09.2003 an amount of Rs. 8,22,290/- was shown deposited in the said account. He stated that the said amount was credited to the current account of M/s Shreeji Traders on account of sale of goods to M/s Ruby Engineering, M.I.D.C, Thane Belapur Road, Thane. However, he could not give the name of the person with whom he had interacted for the above business. As per his statement the said sales transaction was through Shri Haresh Gordia, having office at Masjid, Mumbai. He further stated that the details regarding the purchaser i.e. M/s Ruby Engineering in the said bill was written as required and ordered by Shri Gordia and he had handed over the prepared sale bills and delivery challan to Shri Gordia who subsequently returned the said acknowledged delivery challans to him and hence he was not aware of the whereabouts of the receiver. He did not have any corresponding purchase against the goods covered under sales bills issued to M/s Ruby Engineering and neither did he have any godown nor he maintained any physical inventory, as all of his purchases and sales were on transit basis. He admitted that he had issued sales bills to M/s Ruby Engineering without physical supply of the goods shown in the said bills, on request by Shri Gordia. He had taken demand draft of Rs. 8,22,290/- favouring M/s Shreeji Traders from Shri Rakesh and after deducting his commission, he had returned the balance amount in cash to him. He explained that the transactions recorded on 22nd September, 2003 indicated Rs. 8,22,290/- against Ruby engineering and correspondingly on the same date an amount of Rs. 8,07,899/- was recorded against the name of H.G. i.e. Shri Haresh Gordia/Rakesh. He further explained that the amount of Rs. 8,22,290/- was the demand draft received against the three fictitious sales bills issued to M/s Ruby Engineering whereas the amount of Rs. 8,07,899/- was the cash he has returned to ‘Rakesh’ after deducting his commission of Rs. 14,361/- for this paper transaction. Out of his said commission an amount of Rs. 4,111/- has been paid to Shri Haresh Gordia as his share of dalali (commission) which was also recorded in. the said diary. There was similar paper transaction in September, 2003 for Rs. 9,40,136/- in respect of sales of goods to M/s Encore Developers, S.T. Road, Khopoli for which he handed over cash of Rs. 9,23,683/-on 24.09.2003 to Shri Gordia after deducting his commission of Rs. 16,453/-.

4.2 The statement of Shri Hemant Patel was recorded on 28.07.2007, wherein he reiterated the contents of statement dated 22.08.2007. He further stated that on 22.09.2003 there was a debit of Rs. 8,23,112.19 from M/s Vignesh Chemicals. Said transaction was effected through broker Shri Haresh Gordia, who instructed him to hand over the cash amount to the person, who handed over the aforesaid pay order. Accordingly, he had taken the said pay order from the said person and handed over the cash to him after deducting his commission and this transaction was adjusted by issuing bogus sales bill in the name of M/s Ruby Engineering. Shri Patel further admitted that the amount of Rs. 9,40,136/- was received from M/s Yogendra Chem. Industries. The said transaction was also effected through Shri Haresh Gordia and the amount in cash were handed over to Shri Haresh Gordia and the said cash amount was adjusted by issuing bogus sales bill in the name of M/s Encore Developers, Khopoli. Thereafter, Shri Hemant Patel, Proprietor of M/s Shreeji Traders, vide his letter dated 31.08.2007 tendered two cheques bearing No. 726666 and 726667 both dated 23.08.2007 for Rs. 10,00,000/- each, drawn on the Bharat Co-op. Bank, Kandivali (W) Branch against his saving account No. 3906, towards the rebate claim fraud amount received into the account of M/s Shreeji Traders from the bank account of M/s Vignesh Chemicals and M/s Yogendra Chemical Industries. The said cheques were deposited into the Revenue account against the aforesaid erroneous rebate sanctioned.

5. Statement of Shri Haresh Tribhovandas Gordia, was recorded on 23.08.2007 wherein he inter alia stated that the nature of his business relation with M/s Shreeji Traders was that he procures brokerage business for M/s Shreeji Traders, for which he got a brokerage commission of 0.25% and he has been bringing such business for Shri Hemant Patel since the last five to six years. He admitted that he provided with the complete name and address of the company M/s Ruby Engineering in whose favour the fictitious sale bills were issued by M/s Shreeji Traders/Shri Hemant Patel. These details were provided to him by Shri Manohar Vasudev Date, who was also known as Sunil in the steel market, who was also a broker in the market, residing at B-21, Indrayani Complex, JK Sawant Marg, Dadar (W). He also admitted that the said sales bills were issued without any physical supply of any goods and were mere fictitious paper transactions only. He had introduced Shri Manohar (Sunil) Date to Shri Hemant Patel and Shri Date must have sent Rakesh to hand over the demand draft and collect the cash in return. The purchaser’s details in the three sales bills issued against the amount of Rs. 9,40,136/-, in favour of M/s Encore Developers, S.T. Road, Khopoli also were given to him by Shri Manohar (Sunil) Date.

6. Thereafter statement of Shri Manohar Vasudev Date was recorded on 23.08.2007, wherein he inter alia stated that he knew Shri Haresh Gordia since long and shared a common office premises and was engaged in individual brokerage business in Iron and Steel market. He stated that he was in complete agreement with the facts and contents of the statement dated 23.08.2007 tendered by Shri Haresh Gordia. He has never transacted with company by name M/s. Vignesh Chemicals, M/s Uday Chemexpo and M/s Yogendra Chemicals. Shri Date could not offer any cognet explanation on being querried about the person behind the firms M/s Ruby Engineering and M/s Encore Developers. However Shri Manohar Vasudev Date could not explain about Shri Rakesh.

7. Shri Hemant Patel, Shri Haresh Gordia and Shri Manohar Sunil Date, (the noticees at serial number 4, 5 and 6 respectively in show-cause notice) were required to show-cause as to why:

(a) Penalty should not be imposed on them under Rules 26 & 27 of Central Excise Rules, 2002.
(b) The amount of Rs. 20,00,000/- (Rs. Twenty Lakhs) recovered from Shri Hemant Patel of M/s Shreeji Traders, should not be appropriated against the dues demanded as above.

8.1 Learned Advocate appearing for Shri Hemant Patel referred to the defence in letter dated 12.08.2009 & their submission during personal hearing dated 23.03.2010 and further submitted that the noticee had issued invoices in September, 2003 without physically sending the goods and the show-cause notice issued is time-barred. Further, the invoices were issued for Rs. 17.02 lakhs and hence the amount of Rs. 20 lakhs deposited by the noticee be refunded to them. Also, in view of the judgment of Punjab & Haryana High Court in the case of CCE v. Hari Concast (P.) Ltd. [2010] 3 340 penalty is not imposable on the noticee.

8.2 He further argued that the appellant is not involved in siphoning of any amount of rebate, in as much as since he had received consideration by cheques on 24.09.2003 which was much prior to sanctioning of rebate claims to the exporters on 19.04.2004, as per para 2 of the show-cause notice. He further submitted that the appellant had not issued any Central Excise invoices based upon which the rebate claims could have been sanctioned to the exporter & therefore they can’t be penalised under Rule 26/27 of Central Excise Rules, 2002. He also argues that the invoices issued by the appellant have not been relied upon in the show-cause notice issued to them & there is no corroborative evidence in the form of statements of exporters which could hold them liable for penalty in the matter.

8.3 Learned Advocate appearing for Shri Haresh Gordia have pleaded that the appellant is only a broker and has worked only for a commission. He also filed a written submission dated 24.06.2010 supported by case laws and pleaded that penalty under Rule 26 & Rule 27 was not imposable on him.

8.4 Learned Advocate appearing for Shri Manohar V. Date had filed written reply dated 23.06.2010. He further submitted that like Shri Harish Gordia his client was also a broker who had introduced M/s Ruby Engg. to Shri Hemant Patel and whom Shri Patel had issued invoices. The appellants action did not attract penalty under Rule 26/Rule 27 of Central Excise Rules.

8.5 The learned Counsel for the appellant also submitted that the show-cause notice has been served on them beyond the period of limitation. They are also not registered with the Central Excise Department. It is also submitted that they are only the commission agents. It is also argued that there is no documentary evidence on record to substantiate that the appellants are involved in the fraudulent rebate claim. The case has been made only as the basis of statements.

9. The learned A.R. appearing on behalf of the Revenue reiterates the findings of the lower adjudicating authority.

10. Having considered the rival contentions, I find that none of the conditions precedent as prescribed under Rule 26 of Central Excise Rules are satisfied for imposition of penalty. The conditions precedent is—

(i) acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing selling or purchasing, or in any other manner deals with any excisable goods which he knows or has reason to believe are liable to confiscation.

Thus in absence of satisfaction of the condition precedent, I find that learned Commissioner is in error in imposing penalty under Rule 26 of Central Excise Rules. It have nowhere been found that the appellants have acquired possession or handled any excisable goods in any manner, rendering the goods liable to confiscation.

11. Thus, the appeals are allowed with consequential relief. The impugned order against these appellants is set aside. The amount deposited during investigation or pendency of appeal should be refunded forthwith, with interest as per Rules, within a period of 45 days from the date of receipt of a copy of this order.

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