Recovery Proceedings Can Be Initiated Only Against Persons Liable To Pay Excise Duty: CESTAT Mumbai

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 12 April held that proceedings under Section 11A of the Central Excise Act, 1944 cannot be initiated against persons who are not chargeable with duty.

Section 11A provides the statutory mechanism for recovery of unpaid or short-paid excise duty within one year in normal cases and within five years in cases involving fraud.

A Bench comprising Judicial Member S.K. Mohanty and Technical Member M.M. Parthiban set aside the demand confirmed against individuals who were not proprietors of the exporting firm, holding:

“...proceedings under Section 11A ibid can only be initiated against such person and not on the present appellants… since the said appellants were not liable for payment of central excise duty… 11A proceedings cannot be invoked… from the present appellants.”

The case arose from allegations that Baranala International had fraudulently claimed duty drawback without actual export of goods. Proceedings were initiated to recover the rebate along with interest and penalty from the appellants, Prashant Rajnikant Mehta and Deepak Rajnikant Mehta.

In an earlier round, the Tribunal had remanded the matter citing violation of principles of natural justice. However, in the de novo adjudication, the Department again confirmed the demands against the appellants. At the same time, the Revenue challenged the non-imposition of penalty on the proprietor, Ravinder Choudhary.

The Tribunal noted that it was undisputed that Baranala International was a proprietorship concern owned by Ravinder Choudhary, and therefore proceedings under Section 11A could only be initiated against him.

Holding that the appellants were neither liable for payment of duty nor beneficiaries of the refund, the Tribunal found the recovery proceedings against them legally unsustainable.

With respect to the Revenue's contention regarding non-imposition of penalty under Rule 209A on the proprietor, the Tribunal held that the penalty provision requires confiscation of goods as a pre-condition. Since there was no proposal or action for confiscation of goods, the Tribunal ruled that penalty under Rule 209A could not be invoked.

Accordingly, the Tribunal set aside the demand confirmed against the appellants. 

Apeparance for the Assessee: Shri Bharat Raichandani, Advocate

Appearance for the Revenue: Shri Shambhoo Nath, Special Counsel