Z.U. ALVI Vs. COMMISSIONER OF C. EX.

JUDGEMENT

(1.) FOR a proper understanding of the facts and circumstances of this case we feel that some background history has to be stated. M/s. BHEL is a Government of India Undertaking. They are engaged in the manufacture of heavy and sophisticated electrical and electronic equipment and machinery. Virtually in all the contracts entered into between BHEL and the Customers a Clause is included indicating the liability to make goods by replacement or repair the goods that suffer loss or damage. This Clause is called Warranty Clause in the contract. This Clause is operational for a period of 12 months from the date of commissioning of the equipment or 18 months from the date of despatch whichever is earlier. In terms of the pricing policy a sum equal to 2.5% of the estimated factory cost are reserved for Warranty obligations. BHEL was paying duty on the contractual value of the machinery at the time of clearance. In other words duty was also paid on 2.5% set apart for warranty replacements, even though warranty replacements were not cleared at the time of the clearance of the equipment. When replacement items were cleared for complying with the terms of the contract, duty was not being paid on its value because of the earlier payment of duty. Show cause notices were issued demanding duty on the warranty replacements cleared during the period 1986 -87 to December 1990. As per the order of adjudication dated 6 -12 -1991 a sum of Rs. 1.48 Crores and odd was demanded as duty payable by BHEL. A token penalty of Rs. 251/ -was also imposed on BHEL. Subsequently, show cause notices were issued for realising duty on warranty replacements for the period from 1 -1 -1991 to 31 -12 -1997 and for subsequent period as well. All told there were 10 show cause notices covering the period from 1 -1 -1991 to 31 -12 -1997. The demands made in all those show cause notices were confirmed in adjudication. Orders passed by the Adjudicating Authority are pending in appeal either before this Tribunal or before the Supreme Court. While the matters stood as stated above, show cause notice dated 14 -10 -1998 was issued to the appellants herein Shri Z.U. Alvi, Dy. General Manager (E and T) of BHEL requiring him to show cause why personal penalty to the extend permissible under Rule 209A of Central Excise Rules, 1944 should not be imposed on him. He submitted his objections to the notice. After overruling all his contentions, Commissioner Mr. Subhash Chander, by Order -in -Original No. 10/CEX/COMMR./99, dated 31 -3 -1999 imposed a personal penalty of Rs. 50 Crores (Fifty Crores) under Rule 209A of the Rules. This order is under challenge.

(2.) APPELLANT has been proceeded against as an employee of BHEL. A reading of the impugned order would show that the appellant was responsible for effecting payment of Central Excise duties to the Government which was payable by BHEL. So the Commissioner appears to have proceeded against the appellant to impose penalty on account of his misfeasance and malfeasance as an employee of BHEL. Appellant as an employee could not have an existence independent of BHEL as far as Central Excise law is concerned. Appellant was only an employee of BHEL. He was not the person Incharge or was responsible for the conduct of the business of BHEL. Rightly the Commissioner has not proceeded against the appellant as a person who was Incharge and responsible for the conduct of the business at the time when BHEL committed default in paying the duties as adjudicated upon by the earlier orders. Commissioner proceeded against the appellant under Rule 209A, which can apply only to a person who dealt with the contraband article, not as manufacturer. Appellant had no dealings with the contraband article otherwise than in his official capacity as an employee of BHEL, the manufacturer. So, by no stretch of imagination can the appellant fall within the purview of Rule 209A of the Central Excise Rules. Therefore, the Commissioner was clearly in error in thinking that penalty contemplated by Rule 209A could be imposed on the appellant who was only an employee of the manufacturer, namely BHEL.

(3.) PARAGRAPH 14 of the impugned order is worth reading for a proper understanding of the working of the mind of the Commissioner, the Adjudicating Authority. We read that paragraph : -