Order imposes penalty on a person not named in SCN - Tribunal sets aside penalty. Can a fresh SCN be issued now?

CESTAT Ahmedabad 21st October, 2014 : Skyron Overseas Industries Ltd (SOIL) & 3 Ors Vs Commissioner C&CE., Surat I

SOIL is a 100% EOU and therefore secured duty free raw materials/inputs both through import and local purchases. They were required to use the inputs to produce finished goods which are exported or alternatively supply under advance licences to other exporters.

It was alleged that they misused the EOU benefit and showed non-existent clearances of goods against fake advance license and advance release orders to  fictitious non-existing firms,  and then diverted the goods into the domestic market without complying the the EOU provisions and paying duty.

During the investigation statements were recorded and a show cause notice was issued to SOIL and others for the unpaid duty and interest along with penalties. All those named in the notice filed their defense replies except Mulchand Bhanvarlal Saran, who was not named in the notice. The Adjudicating Authority confirmed the demand and interest. He also imposed penalties on all those named in the notice and Mulchand Bhanvarlal Saran.

The various arguments by the Counsel for the appellants were dis-regared by the Tribunal.

However one point made by the appellants that no penalty can be imposed on Mulchand Bhanvarlal Saran, authorised signatory of the main appellant since no notice was issued to him was accepted. It was argued that though Saran's statements were relied upon in various places in the notice, nowhere he was named as a noticee. Hence penalty imposed on him needs to be set aside.

In response to this, the departmental representative argued :

"As regards the appeal filed by Shri Mulchand Bhanvarlal Saran, it is his submissions that once the show cause notice refers to the statements recorded of the appellant Shri Mulchand Bhanvarlal Saran, then there is no need to issue a separate show cause notice to him."


The Tribunal accepted the argument of Saran's Counsel saying :

"9. We find strong force in the contentions raised by the Ld Counsel that, Shri Mulchand Bhanvarlal Saran has not been issued any show cause notice and hence no penalty can be imposed. We find that the show cause notice at Paragraph 29 reads as under :

 “Further, Shri Anil Ganeshmal Maheshari, proprietor of M/s Skyron Overseas (100% EOU) Plot NO 5809 GIDC Sachin, at Shri Sunil Somani Shri Shyam Bihani Shri Hastimal Jeevraj Jain, Shi Tajender Singh Makkar@Billa and Shri Shankarlal Agarwal@R K Gupa are hereby called upon to show cause to the Commissioner, Central Excise ands Customs, Surat 1 having office at New Central Excise Building Opp Gandhi Baug Chowk, Surat as to why :

Penalty should no be imposed on each of them separately under Section 112 of Customs Act 1962 and Rule 209 A of central Excise Rules 1944.”

9.1 From the above reproduced portion of show cause notice, it can be seen that there is mention by name of every person, but does not indicate that the said show cause notice has been issued to Shri Mulchand Bhanvarlal Saran for imposition of penalty. In the absence of any show cause notice, we are of the view that the impugned order to the extent it impose penalty on Shri Mulchand Bhanvarlal Saran is in violation of the settled law and hence is liable to be set aside and we do so."

There are a few points which emerge from this decision :

  1. The authority issuing the notice in case of such serious allegations of fraudulent transactions, does not name Saran who actually prepares these documents. 
  2. However the adjudicating authority imposes a penalty on Saran even though his name is not specifically mentioned in the notice.
  3. During the appeal proceedings, the department takes a position that there is no need to name the party. In other words, even if no notice is issued to Saran he can still be penalised.
  4. If this is correct, then no one should have been specifically named. Why did the issuing authority name the others specifically and only leave one person out? Was this a genuine mistake of the notice issuing authority? Does it seem plausible that such mistakes in case of serious allegations of fraud happen.
  5. Isn't it true that there is no time limit for issuing notices to individuals for penalty? So in this case, can a notice for penalty be issued at this stage on Saran?
  6. If such a notice is issued, can Saran adopt a position that he has already issued with an order on the same issue and a fresh notice cannot be a double-jeopardy. Can he claim this inspite of the fact that his argument was no notice was issued and therefore the order passed without notice is illegal. So really, issuing  the notice  now would take care of the defect in the earlier approach? Would this be a valid argument?
  7. So what does the department really plan to do now?