ORDER
S.S. Sekhon, Member (T)
1. This appeal has been filed by Revenue. This is a case of availing Modvat credit on seven forged Bills of Entry, under Rule 57A of the Central Excise Rules, 1944, alleged to have been an act committed during the period December, 1991 to May, 1992 by the active connivance and collusion of officers of the company. Enquiries were made and a show cause notice was issued for recovery of the Modvat credit availed and recovery thereof and for penal action against the company under Rule 173Q(1)(bb) and for penal action on the officers of the company viz. S/Shri M. Rambabu, Assistant Manager, R. Kondal Reddy, Vice-President, M.S. Sastry, Financial Controller and Dr. A.J. Prasad, Managing Director under Rule 209A and Section 9AA of the Central Excise Rules and the Act respectively.
2. On adjudication, the Commissioner disallowed the Modvat credit and imposed a penalty under Rule 173Q(1)(bb) of the Central Excise Rules, 1944 of Rs. 5,000/- on the respondent-company, under Rule 210 of the Central Excise Rules, 1944, a penalty of Rs. 1,000/- was imposed on Shri M. Rambabu and penalty proceedings initiated against Dr. A.J. Prasad, Shri Kondal Reddy and Shri M.S. Sastry were dropped.
3. Revenue, after examining the material has filed this appeal on the following grounds:
(i) This being a case of forgery of documents, penalties imposed were low and the dropping of the proceedings against Dr. A.J. Prasad, Shri Kondal Reddy and Shri M.S. Sastry were not called for and they were liable for penalties on the following facts, as furnished against the name of each individual person as follows :
“I. Dr. A.J. Prasad, Managing Director :
(1) As per the statements of Shri R. Venkatram, Shri A.J. Prasad was instrumental in concealing the fraud which was obviously perpetrated by him.
(2) Shri R. Venkatram had also stated that the fraud was known to Dr. A.J. Prasad in May/June, 1992 (six months before the officers visited the factory) when Shri R. Balasubrahmanyam, Group Manager called Shri Venkatram, Assistant Manager and warned him not to publicise the issue. Shri A.J. Prasad was also present. Hence, Dr. A.J. Prasad, Managing Director’s prime role in commission of offence with prior knowledge cannot be doubted.
(3) Further the statement of main perpetrator, Shri Rambabu unequivocally proves that Shri A.J. Prasad had in fact been instrumental in the commissioning of offence and mens rea cannot be said to have not been present in this case.
(4) Statement of Shri A.J. Prasad that he came to know of the fraud only when summons were issued to Shri Rambabu was false as proved by depositions of Shri Venkatram, Rambabu and Shri Adisheshu.
(5) Shri A.J. Prasad was implicated by Shri Rambabu and Shri Venkatram. II. Shri Kondal Reddy, Vice-President (Commercial); (1) As per statements of Shri Rambabu, it was Shri R. Kondal Reddy and Shri M.S. Sastry who instructed Shri Rambabu for preparing fake Bills of Entry (2) Shri R. Kondal Reddy had certified the entries in R.G. 23A Part II. (3) Shri Rambabu was working under him. (4) With regard to the reply to question Nos. 15 and 16, Shri Kondal Reddy had confessed of having availed credit on faked Bills of Entry which is supported by his initials in R.G. 23A Parts I and II. III. M.S. Sastry (Financial Controller): As per statements of Shri Rambabu, it was Shri M.S. Sastry and Shri R. Kondal Reddy who had instructed him to prepare the faked bills of entry and Shri M.S. Sastry had denied it.
For all the above substantial facts and evidences available on record the learned Commissioner in his findings had stated that the offence was alleged to have been committed with the consent of Shri A.J. Prasad but evidence on record does not support this charge, and hence the proceedings stood dropped.
In the case of Shri R. Kondal Reddy and Shri M.S. Sastry, the Commissioner had not imposed any penalty on the ground that sufficient evidence was not forthcoming, and only the statement of co-accused was available which could not be taken as corroborative evidence. When such reliable and authentic evidence by way of forged documents (i.e. Bills of Entry) and depositions of respective persons are available on record, the learned Commissioner appears to have erred in appreciating the facts, and in evaluating the roles of individuals in perpetration of the offences”.
4. After hearing both sides and considering the material on record, it is found :
(a) From the findings of the Commissioner in the impugned order, it is apparent that his findings to the effect –
“I am inclined to agree with the Company’s plea that the company was defrauded by means of forgery. It is significant to note that as per the records of the case, the officers of anti-evasion of the Collectorate have visited the factory on December 24, 2002 and recovered certain records. Immediately thereafter Sab Nife held a Board Meeting on January 7, 1993 and discussed the matter relating to the substantial misappropriation of funds of the Company through forgery as mentioned above. A copy of the minutes of the Meeting was presented during the course of personal hearing. This document indicates in clear, categorical and the most uncertain terms that no sooner the forgery surfaced through hush-hush talk of their employees, the Company had swung into action to identify the perpetrators of forgery, though it turned out to be a vain bid. The company’s investigation started much before the entry of the Anti-evasion Officers into the fray. The Company’s investigation revealed that a substantial sum had been advanced to a person in Madras. Subsequent efforts of Sab Nife to locate that person did not bear fruit. The said Minutes of the Meeting reveal the mind of Sab Nife and it throws enough light on the action initiated by them in getting at the root of the matter, and in tracking down the perpetrators of forgery, of course with an intention to recover the misappropriated money”.
are also not disputed in appeal. There is similarly no dispute as regards findings, arrived at in Para 23 of the impugned order, which are as follows :
“23. The above narration makes it abundantly clear that a wrong Modvat credit was availed and Sab Nife have offered to reverse the credit. The said amount is rightly recoverable under Rule 57-I of the Central Excise Rules, 1944 read with proviso to Sub-section (1) of Section 11A of the Central Excises and Salt Act, 1944”.
and the Commissioner, pursuant thereof, have ordered the disallowance of the amount.
(b) The Commissioner, coming to the complicity of Dr. A.J. Prasad, Shri Kondal Reddy, Shri M.S. Sastry and Shri Rambabu, has found as follows :
“Shri Ram Babu :
As could be seen from the records, Shri Ram Babu was Assistant Manager of Imports and Exports during the relevant time. It was he who was attending to the works of clearance of imported materials from the Customs. His statement was recorded by the Investigation Officers. In his statement dated 23-3-1993, he admitted that he –
(i) prepared the Bills of Entry to be produced to Central Excise Department in place of the genuine Bills of Entry;
(ii) prepared those Bills of Entry showing certain amounts as payments of duty and put the required signatures himself, in place of genuine signatures;
(iii) Shri Kondal Reddy, General Manager and Shri Sastry, Financial Controller asked to him to prepare those Bills of Entry;
(iv) The stamps of Madras Customs House were given to him by the said two persons;
(v) When he asked them the purpose of preparing the Bills of Entry in place of the genuine documents, they told him that they were only for internal adjustment; and
(vi) Since he was only an employee of the Company, he had to obey for his livelihood.
Shri Ram Babu was the key figure in keeping liaison with the C.H.A. and Customs and getting the imported goods cleared through Customs by filing the necessary documents. When he was asked to prepare forged documents, he ought to have known that forgery was serious criminal offence. His deposition that as an employee, he had to obey for his livelihood cannot be accepted. Even if it is accepted, his admission of committing forgery is enough to prove his criminal conduct in the whole affair. In my view, the Principal Actor in this play is Shri Rambabu, who actually committed forgery thereby instrumental in taking Modvat Credit by Sab Nife. The question comes whether he can be penalized under Rule 209A of the Central Excise Rules, 1944 read with Section 9AA of the Central Excises and Salt Act, 1944. In my view, Shri Ram Babu cannot be penalized either under Rule 209A or under Section 9AA of the Act. I proceed to set out the reason for such a view. Before doing so, Rule 209A ibid is reproduced below for proper appreciation.
Rule 209A; (Not extracted)
From a closer perusal of the said Rules, it is apparent that penal action is attracted on a person if he commits any one or more or all the under mentioned acts with reference to excisable goods which he knows or has reason to believe are liable to confiscation:
(a) possession; (b) transportation (c) removal (d) deposital (e) custody (f) concealment (g) sale (h) purchase (i) dealing them in any other manner. The main ingredients of Rule 209A are-- (i) the goods with reference to which penalty is imposable are 'excisable goods' only and no other; (ii) penalty is attracted only when a person commits acts as specified above; and (iii) penalty is imposable only when a person commits the said specified acts either known or has reason to believe that the excisable goods, with respect to which the offence is committed, are liable to confiscation.
Having stated thus, I proceed to examine whether penalty is imposable on Shri Rambabu, under Rule 209A ibid. As mentioned earlier, Shri Rambabu has admitted to have falsified the documents and committed forgery and thereby enabled Sab Nife to take Modvat credit on the strength of the forged Bills of Entry. It is significant to note that the goods involved were ‘imported goods’ and not ‘excisable goods’. The Modvat credit was taken with reference to the ‘imported goods’ on the strength of the documents prepared under the provisions of the Customs Law. No doubt, Modvat credit is permissible in respect of the ‘imported goods’ under the Central Excise Law. The said Law makes a special provision for recovery of the irregular Modvat credit. Provision is also made under Rule 173Q(1)(bb) to impose a penalty on any manufacturer or producer or registered person of a Warehouse who contravenes the provisions of the Modvat rules. An employee of the manufacturer cannot be considered as a person taking Modvat credit. Modvat credit is taken by manufacturer through his representative who acts of commission or omission are treated as the acts of the former. Therefore, the manufacturer is made liable for penal action for the acts of his employees. Rule 173A(1)(bb) adequately covers such situations. But penalty is not imposable on the employees of such manufacturer under Rule 173Q(1)(bb). Therefore, the Department has proposed penalty under Rule 209A ibid on Shri Rambabu. In my opinion, the scope of Rule 209A ibid, as mentioned above, does not cover the situation when irregular Modvat credit is taken in respect of ‘imported goods’ on the strength of Bills of Entry. Its scope is limited to the situations where excisable goods are involved.
Now, I turn to Section 9AA of the Central Excises and Salt Act, 1944 which is invoked in the said Show Cause Notice proposing penalty on Shri Rambabu. I reproduce the said section for ready reference.
Section 9AA (not extracted)
My interpretation is that the said section empowers the court of law to punish the concerned persons who commit the specified offences. It does not empower the Adjudicating authority to impose the penalty on the persons concerned with the offence under the Act and Rules. According to me, no other interpretation is possible if this section is read in conjunction with Sections 9, 9A to 9F ibid. I am, therefore, convinced that the Department has invoked a wrong Section and a wrong Rule.
The question is whether it is possible to impose penalty on Shri Rambabu under any other Rule under the Central Excise Rules, 1944. I do not find any other Rule except Rule 210 of the Central Excise Rules, 1944.
Rule 210 (not extracted)
It is clear that where no other penalty is imposed, recourse can be had to the said Rule. But the difficulty is that the Show Cause Notice does not involve this Rule. Shri Rambabu may argue that penalty under this Rule cannot be imposed on him under Rule 210 ibid. I have given my utmost consideration to his possible plea. This plea cannot be accepted for the reason that there is ample case law on this subject. The Courts have ruled in a number of cases that once the offence is established, invoking a wrong Rule cannot come to the rescue of the offender. Penalty is imposable on such a person under the appropriate Rule. That being the legal position, I do not consider improper to impose penalty on Shri Rambabu under Rule 210 ibid.
Shri R. Kondal Reddy and Shri M.S. Sastry :
As mentioned above in his statement dated 23-3-93, Shri Rambabu named Shri Kondat Reddy and Shri Sastry were the two persons who asked him to prepare the Bills of Entry to be produced to the Department in place of genuine Bills of Entry and both of them gave Shri Rambabu the stamps of Madras Customs House.
The only document that implicates Shri Reddy and Sastry is the statement dated 23-3-93 of Shri Rambabu. It should be noted at the outset, S/Shri Rambabu, Reddy and Sastry are the co-accused in the instant case. The statement of the co-accused has to be put to severest test. Effort has been made to look for corroborative evidence, but in vain. As far as Shri Reddy is concerned, the Department has noted the following corroborative evidence:
(i) He was aware that Nickel Cadmium Batteries were imported free of Customs duty;
(ii) Howsoever that Modvat credit was taken by Sab Nife on the imported materials on which CVD was shown as paid in the Bill of Entry;
(iii) He signed the RG 23A Part II in respect of credit for the month of February, 1992 certifying that the contents therein were correct.
From the above narration, the Department contends that Shri Reddy was aware of presenting of the forged Bills of Entry to the Central Excise Department, in which Sab Nife availed Modvat credit under his signature. Shri Reddy has denied to have over directed Shri Rambabu to prepare the forged Bills of Entry and he certified the entry in the RG 23A Part II based on the documents received in the Import and Export Section which was headed by Shri Sastry. It is observed that Shri Reddy was General Manager (Commercial) at the relevant time. We have to see whether Shri Reddy has any personal knowledge and involvement. A mere vicarious liability is not enough to impose penalty. Shri Reddy might have signed the concerned Register through which Modvat credit was taken. That would not automatically make him liable to penalty. What is required to be established is mens rea on the part of Shri Reddy. Except the statement of the co-accused there is no other evidence on record to point finger at him. The evidence sought to be adduced by the Department against Shri Reddy is based on surmises and inferences. In view thereof, I am of the opinion that sufficient evidence is not forthcoming to warrant imposition of penalty on Shri Reddy. There is no other course left for me than to drop the allegation levelled against him. Accordingly, I do so.
As far as Shri Sastry is concerned, it is observed that he vehemently denied the accusation levelled against him by Shri Rambabu. He was Financial Controller of Sab Nife during the material time. On careful consideration of the evidence on record, I am convinced that enough evidence is not available to impose penalty on him. In this regard, I adopt the same reasoning as done in respect of Shri Reddy.
Dr. A.J. Prasad, Managing Director:
Dr. Prasad is Managing Director of Sab Nife and was in the same position during the relevant period. The gravament of the charge against him is that the subject offence was committed with the consent of Dr. Prasad and he enabled Sab Nife to claim Modvat credit by fraudulent means. The evidence on records does not support this charge. As mentioned in para 22 supra, as soon as the forgery surfaced through hush-hush talk of their employees, the Company had swung into action to identify the perpetrators of forgery, though in vain. He summoned a Board Meeting of Sab Nife on January 7, 2003, to discuss about the fraud committed by some of the employees. The Board agreed to cooperate with the Department. Sab Nife have adduced a letter addressed to Collector of Central Excise in June, 1993 (much before the case was registered against them – the case was registered on 20-8-1993) assuring the Department to pay the appropriate amount in cash, on demand.
Dr. Prasad pleaded that he was ignorant of what was happening until he came to know through hearsay that some financial irregularities in the company had surfaced. I am inclined to accept his explanation for the simple reason that there is no evidence whatsoever to prove that he was either a party to the forgery or had any knowledge when it was committed. On the contrary, when the forgery surfaced, he summoned the Board Meeting to explore the ways and means to identify the purpose of forgery and also to recover the defrauded amounts. Moreover, the statements of S/Shri Rambabu, Sastry and Reddy do not implicate him at all. Therefore, I have no hesitation in coming to the inevitable conclusion that Dr. Prasad was not involved in the fraud. In view thereof, the charge levelled against him shall be held to be without any substance and consequently deserves to be dropped. Unhesitatingly, I do so”.
From the above extracts of the order, it is apparent that the Commissioner has very carefully and correctly not invoked the provisions of Rule 209A and/or Section 9AA of the Central Excise Law, to invoke the penalty provisions in the facts of this case. There is no ground taken in appeal before us, by the Revenue, that invocation of Rule 210, as arrived at by the Commissioner, was incorrect. In view of the same, and the fact that Rule 210 provides a maximum penalty of Rs. 1,000/- only and that penalty has been imposed on Shri Rambabu correctly, the same cannot be enhanced under Rule 210. The present appeals lead no grounds to come to a conclusion that this invocation of Rule 210 was incorrect. The penalty is confirmed.
5. As regards the exoneration of the other senior management personnel of the assessee-company, no material has been found to come to a conclusion that they would be liable for penalty under Rule 210 of the Central Excise Rules or the grounds as taken by Revenue in this appeal.
6. The learned consultant for the appellants brought to our notice that the said persons including the company have been prosecuted in the Court of Special Judge for Economic Offences, Hyderabad, and the learned judge had imposed a fine of Rs. 5,000/- each on these persons including the company. Aggrieved by this judgment, a criminal appeal was filed before the Hon’ble High Court of Andhra Pradesh by the Department for enhancement of the fine and the sentence of imprisonment. The Hon’ble High Court dismissed the appeal filed by the Department on technical grounds on 19-4-2001. On an appeal along with stay application for stay filed before the Supreme Court, against this dismissal by the Andhra Pradesh High Court vide its order dated 19-4-2001, the Supreme Court had on 12-2-2002 remanded the case to the High Court with directions to treat this as revision in the matter [2002 (142) E.L.T. 521 (S.C.)]. The High Court of Andhra Pradesh dismissed the matter finally vide its order on 12-11-2002. In this -view of the matter, the Judicial Application of mind into the aspects of the violation of the Central Excise Law has considered and upheld the fine of Rs. 5,000/-on the appellant-company and the respondents notices herein to be adequate, we, therefore, find force in the plea of the consultant that the present appeal is laconic in invoking Rules 173Q(1)(bb) and 209A for enhancement. The learned consultant points out that the Central Board of Excise and Customs (CBEC) has not dismissed the imposition of penalty under Rule 210 of the Central Excise Rules 1944. The appeal of the Department only mentions an invocation of the Rule 209A as appropriate. We find that there is no case for imposition of penalty in terms of Rule 209A of the Central Excise Rules, 1944 as found by the Commissioner on clear examination of the provisions of Rule 209A, and we find nothing amiss in the Commissioner’s finding thereon or and coming to a conclusion that Rule 173Q(1)(bb) adequately covers the situation as in this case. However, penalty could not be imposed on employees under that Rule 173Q(1)(bb) and Rule 209A did not cover the situation when irregular Modvat credit was taken in respect of ‘imported goods’ on the strength of Bill of Entry on ‘imported goods’ which by no stretch of interpretation could be considered to be ‘excisable goods’ relevant for Rule 209A. In this view, the appeal against Dr. A.J. Prasad, Shri R. Kondal Reddy and Shri M.S. Sastry for enhancement of penalties under Rule 209A cannot be entertained are therefore, required to be dismissed.
7. From the order of the learned special judge for economic offences for vide his order No. CL-77/97 passed in respect of prosecution launched by the Department in the same case and on the same facts vide para 56 of his order, it has been observed by the learned judges as follows :
“The above facts and circumstances shows in this case, that there is no evasion of payment of Central Excise Duty by the accused nor removal of excisable goods. Therefore, this case comes under Section 9(1)(b)(ii) of the Act in the category of “in any other case” as accused availed Modvat credit by submitting forged documents”.
This finding induces us, that there is no cause for enhancement of penalty on the respondent company in excess of Rule 173Q(1)(bb) for Rs. 5,000/- as imposed by the Commissioner, since there was no availment of Modvat credit or its utilization, and there is no evasion of duty proved or/and established. There is also no finding or plea made of overdrawal of the ineligible Modvat credit. Hence there is no case made out in the appeal filed against the respondents-company.
8. In view of our findings, the Revenues appeals are dismissed. Ordered accordingly.