Central Excise - Penalty of Rs. 50 Lakh on CA
A Commissioner of Central Excise imposed a penalty of Rs. 50 lakh on a Chartered Accountant for allegedly giving a false certificate in a case that the Commissioner was adjudicating.
Before the Tribunal, the Chartered Accountant pleaded:
1. that no certificate had been issued by him;
2. that in any case, the provisions of Rule 26 of Central Excise Rules, 2002, as the same existed during the period of dispute, are not attracted in his case, as he has neither dealt with any excisable goods nor is involved in acquiring possession of or sale, harbouring, concealment, transportation, etc of any excisable goods which he knew or had reason to believe were liable for confiscation;
3. that the Tribunal had set aside the penalty under Rule 26 of the Central Excise Rules, 2002 on the Company and its Directors observing that the allegation against them is basically of money laundering for which there are no provision in the Central Excise Act, 1994 or the rules made thereunder for imposition of penalty;
4. that Rule 26 of the Central Excise Rules, 1944 is attracted in respect of any person who is concerned in acquiring the possession of or the sale, concealing, transporting, etc of excisable goods in respect of which he knew or had reasonable belief that the same are liable for confiscation.
5. that the findings of the Tribunal in respect of the Company and its Directors would also apply in his case, even if the department's allegation that the appellant had issue the certificate, is accepted;
The Role of the CA and the allegations against him, as discussed in the Commissioner's order is that the Chartered Accountant, by his act of omission and Commission, committed criminal conspiracy and in connivance with others executed scheme of arrangement of providing fictitious and bogus entries in the books of account to facilitate the assessees to escape from the penal action against them for contravening the provisions of Central Excise Act, 1944 and the Rules made thereunder and, therefore, he is liable for penal action under the provisions of Rule 26 and 27 of the Central Excise Rule, 2002.
The CA's plea is that he had not issued any certificate and even if the department's allegation against him is accepted, it looks down to money laundering, i.e., fabricating documents to legalize the unaccounted income of the assessee. For this alleged activity, penalty was imposed on him under Rule 26 & 27 of the Central Excise Rules.
The tribunal observed,
Rule 26 of the Central Excise Rules, 2002 as the same stood during the period of dispute, provided for imposition of penalty not exceeding the duty involved on the goods or Rs. 2000/- whichever is greater, on a person who acquires possession of, or is in any way concerned in transporting, depositing, removing keeping, concealing, or in any other manner dealing with any excisable goods which he knew or had reason or liable for confiscation.
It is settled law that the expression in any other manner in Rule 26 has to be construed in ejusdem generis with the words appearing before this expression and therefore, penalty under this Rule is imposable on a person who has dealt with any excisable goods in the manners specified in this Rule while knowing or having reason to believe that the goods dealt with are liable for confiscation.
Abetment of duty evasion or of the activities enumerated in these rules is not covered. In the present case, the appellant has not dealt with any excisable goods inasmuch as he has neither acquired possession of any excisable goods nor he is in any way concerned in transporting, removing, keeping, depositing, concealing, selling, or in any other manner dealing with excisable goods which he knew or had reason to believe are liable for confiscation.
The Appellant's alleged activity would at the most amount to abetment of duty evasion which as discussed above is not covered by Rule 26. Therefore, the penal provisions of Rule 26 are not attracted in the case of the appellant for his alleged act of fabrication of documents to give legal cover to illicit income of the assessee.
Rule 27 provides for penalty up to the maximum limit of Rs. 5000/- for breach of the Central excisable goods where no other penalty is prescribed. For invoking Rule 27 there must be a breach of Central Excise Rules and in the present case, the department has not spelled out as to which the provision of Central Excise Rules has been contravened by the appellant by his action as mentioned above .
So, the Tribunal held that neither the Rule 26 nor Rule 27 of the Central Excise Rules, 2002 is applicable and set aside the penalty of Rs. 50 lakh imposed on the CA. ()
The Commissioner was aggrieved with this order of the Tribunal and took the matter in appeal to the High Court.
The Allahabad High Court recently upheld the order of the Tribunal and dismissed the appeal by the Commissioner.
The High Court, dismissing the appeal, observed,
The certificate appears to have been obtained at the time of the proceedings that were initiated for the purpose of imposition of penalty and taking action against the trader. This therefore could not be described as an act to attract penalty under Rule 26 and 27, even though this may give a separate cause of action on the ground of money laundering or providing incorrect evidence in order to extend any benefit to the trader or the assessee. The penalty under Rule 26 and 27 therefore would not be attracted in the said background and accordingly we do not find any substantial question of law so as to entertain this appeal.
Penalty even otherwise could not have been imposed as the original liability itself was made subject matter of remand by the Tribunal itself in relation to the decision taken in the appeal filed by the trader .
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