Rule 209A of CER, 1944 can be Imposed only when there is Clandestine Removal: CESTAT [Read Order]

In M/s. Golden Tobacco Ltd. & Anr. vs. CGST, the Delhi Bench of the Customs Excise & Service Tax Appellate Tribunal (CESTAT) held that no penalty can be imposed under Rule 209A of the Central Excise Rules, 1944 when there is no clandestine removal. Referring to the decision of the Tribunal in Steel Tube of India Ltd. vs CCE, it further held that a corporate entity having no knowledge regarding the confiscated goods could not be made liable for imposition of penalty under the said rules.

The assessee and its franchises are engaged in manufacture and sale of cigarettes. A search was conducted at the factory and office premises of GTC’s franchises. The accounts of GTC were examined by the revenue. All the franchisee units were manufacturing cigarettes in the brand names owned by GTC which were sold to GTC directly or their distributors/other franchise units on the directions of GTC. The franchise units of GTC paid royalty to GTC. However, on verification of the said records, it was found that there were duplicate invoices and somewhere duplicate entries were also made in the books. The Department demanded the duty on all duplicate bills also and entries made. The Department has also imposed penalties. Aggrieved, appeals were filed before CESTAT.

The Chartered Accountant for the assessee argued that no evidence of any nature was found from the premises of GTC or the franchisee units to suggest any clandestine removal of the cigarettes as nothing has been mentioned in the show cause notice.  He contended that no purchases on the basis of those duplicate bills were ever recorded in the financial books of account of GTC as has been alleged in the show cause notice, whereas factually only one purchase on the basis of the original bill was recorded in the books of account. He also submitted that duplicate bills were merely accommodation bills and there was no actual physical movement of the goods. He concluded by stating that penalty under Rule 209A cannot be imposed if the person has not physically dealt with the goods liable for confiscation.

The bench comprising of President Justice Dr. Satish Chandra and Technical Member Bijay Kumar found that the department had not collected any evidence to adjudicate the clandestine removal of the goods which were transported and sold. They noted that that the duplicate bills were generated merely an accommodation bill and there was no actual physical movement of the goods. The members also observed that all the transactions of the bill discounting were duly recorded in the books of account of both the parties. However, the bench came to the conclusion that assessee-Appellants has committed a fraud with the Banks by raising the duplicate bills.

Regarding the penalty imposed the Tribunal relying on the decision of the Madras High Court in Sujana Metal Products vs. CESTAT opined that for charges like clandestine removal, strict evidence was required like supply of the raw-material, consumption of extra-electricity, transportation of the confiscated goods and sale of the finished goods. As the department had failed to collect such evidences, the Tribunal set aside the impugn order and dropped the penalties imposed on the assessee.