CESTAT Mumbai: Section 11A Proceedings Maintainable Only Against Person Liable to Pay Duty; Demands Against Non-Proprietors Set Aside

December 4, 2025 : The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has reiterated that recovery proceedings under Section 11A of the Central Excise Act, 1944 can be initiated only against the person chargeable with duty, and not against individuals who bear no statutory liability.

In a detailed ruling, the Bench comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) allowed appeals filed by Prashant Rajnikant Mehta and Deepak Rajnikant Mehta, while dismissing the Revenue’s appeal seeking penalty against the proprietor of the exporting firm.

Background

The dispute arose from an investigation into exports made by M/s Baranala International, which had claimed duty drawback benefits. The Department alleged that the drawback was fraudulently obtained as no actual exports had taken place, and initiated proceedings to recover the rebate along with interest and penalties.

Notably, in an earlier round of litigation, the Tribunal had remanded the matter citing violation of principles of natural justice and observing that the invocation of Section 11A did not appear to be legally sustainable.

Following remand, the adjudicating authority once again confirmed the demands against the appellants, leading to the present appeals.

Tribunal’s Findings

The Tribunal emphasised that Section 11A expressly permits issuance of notice only to “the person chargeable with duty.” Interpreting this requirement strictly, the Bench held that proceedings cannot be extended to individuals who are not liable to pay excise duty under the statute.

It was noted that M/s Baranala International was a proprietorship concern owned by Ravinder Choudhary. Therefore, any recovery of allegedly erroneous rebate could only be pursued against the proprietor and not against third parties such as the present appellants, who had no duty liability.

On this basis, the Tribunal held that the confirmation of demand against the appellants was legally unsustainable and liable to be set aside.

Penalty Issue Under Rule 209A

The Revenue had also challenged the non-imposition of penalty on Ravinder Choudhary under Rule 209A of the erstwhile Central Excise Rules, 1944.

Rejecting this contention, the Tribunal clarified that confiscation of goods is a necessary precondition for invoking penalty under Rule 209A. Since there was neither any proposal for confiscation nor actual confiscation of goods in the present case, the penalty provision could not be triggered.

Accordingly, the Tribunal upheld the adjudicating authority’s decision to drop the penalty proceedings.

Outcome

The Tribunal:

• Allowed the appeals filed by Prashant Rajnikant Mehta and Deepak Rajnikant Mehta;
• Set aside the demand confirmed against them; and
• Dismissed the Revenue’s appeal seeking imposition of penalty.

Significance

The ruling reinforces a strict interpretation of Section 11A, limiting recovery actions to persons legally liable for duty. It also clarifies the conditional nature of penalty under Rule 209A, underscoring that confiscation of goods is a sine qua non for its invocation.