Penalty on alleged Individual Conspirator does not Stand after Demand & Penalty against Main Firm quashed: CESTAT [Read Order]

The New Delhi bench of Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) held that once the demand and penalty against the main tobacco manufacturer were set aside, the penalty imposed on an alleged individual conspirator linked to the same allegations cannot survive.

The appellant, Basant Perumal Makhija filed an appeal before the appellate tribunal. He challenged the order passed by the Principal Commissioner, CGST & Central Excise, where a penalty was imposed on him under Rule 29 of the Central Excise Rules, 2017 read with Section 11AC of the Central Excise Act, 1944.

As per the submissions of the appellant, he is the brother of Ratan Makhija, who is the proprietor of M/s Ashish Enterprises, the entity alleged to have clandestinely manufactured tobacco products and evaded central excise duty.

The appellant submitted that, as per the impugned order, the Department had confirmed demand of central excise duty and NCCD aggregating about ₹5.49 crore against Ashish Enterprises, with interest and penalties.

The department also imposed a penalty on the appellant on the allegation that he was actively involved in a larger conspiracy, including receiving profit share in cash and through bank transactions.

However, the appellant denied the allegations. He asserted that there was no association by him with the business of Ashish Enterprises.

With regards to the statements recorded by the DGGI, the appellant submitted that it was recorded by the officers under duress and coercion. The same was retracted through an affidavit dated 12.11.2020 and also before the Additional Chief Metropolitan Magistrate, Ahmedabad on 09.12.2020, said the appellant.

It was argued that there was no independent evidence to connect him with the alleged clandestine activities or the excisable goods in question.

The tribunal heard the matter. The bench noted that the firm, M/s Ashish Enterprises had separately challenged the same Order before CESTAT in Excise Appeal No. 52020 of 2024. In that appeal, the Tribunal had already set aside the order, including the duty demand and penalties imposed on the manufacturer.

The bench of Justice Dilip Gupta (President) and Hemambika R. Priya (Technical member) observed that the penalty imposed on the appellant had to be set aside for this reason alone, since the very foundation of the case of clandestine manufacture/removal by Ashish Enterprises had been quashed.

The Tribunal held that the penalty under Section 11AC can be imposed only on a person who is liable to pay duty. Since no duty demand was confirmed against the appellant, the penalty under Section 11AC was not legally sustainable.

Additionally, with regards to the penalty under Section 29, the appellate tribunal said that “Penalty under rule 29 of the 2017 Rules can be imposed on a person who is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in an any other manner deals with any excisable goods which he knows or has reason to believe are liable to confiscation under the Central Excise Act.”

“The penal provisions have to be interpreted strictly and in the absence of any evidence on record to show involvement of the appellant in the activity of Ashish Enterprises, no penalty can also be imposed upon the appellant” , said the bench.

Accordingly, the order was set aside and the appeal was allowed.

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