The Hon’ble Supreme Court in the case of M/s Rimjhim Ispat Ltd. & Ors v. Union of India & Anr [Criminal Appeal No. 268 of 2017, order dated July 28, 2023] held that criminal prosecution under the Central Excise Act, 1944 can proceed independently even if departmental adjudication is set aside on procedural grounds, as long as the complaint is supported by investigative material beyond the quashed order.
Facts:
M/s Rimjhim Ispat Ltd., M/s Juhi Alloys Ltd., and Shri Yogesh Aggarwal (“the Appellants”) challenged the dismissal of their discharge application by the Trial Court and the High Court in ongoing criminal proceedings under Sections 9 and 9AA of the Central Excise Act, 1944.
Union of India & Another (“the Respondents”) initiated criminal prosecution against the Appellants based on findings of excise duty evasion.
The Appellants argued that the criminal complaint was unsustainable as it was based solely on an adjudication order dated 31.03.2011 that had already been set aside. They contended that the Commissioner of Central Excise, Kanpur, who initiated the prosecution, had suppressed the fact of remand by CESTAT in 2013. They also cited a subsequent High Court judgment that quashed a related adjudication order for procedural irregularities, and submitted that continuation of the criminal case violated Article 21 due to the absence of lawful foundation.
The Respondent contended that the prosecution was independently sustainable based on material from the investigation and not solely reliant on the quashed adjudication. They relied on Radheyshyam Kejriwal v. State of West Bengal and Air Customs Officer v. Pramod Kumar Dhamija, arguing that quashing adjudication on technical grounds does not bar criminal prosecution unless the accused is exonerated on merits.
The Appellants moved an application for discharge, which was dismissed by the Trial Court. Their revision before the High Court was also dismissed. A writ challenging the adjudication order was allowed, but only on procedural grounds. The subsequent adjudication order passed by the Commissioner of Central Excise at Lucknow dated March 31, 2017 was conditionally stayed by the High Court. The Appellants then approached the Supreme Court in the present appeal.
Issue:
Whether criminal prosecution under Sections 9 and 9AA of the Central Excise Act, 1944 can be sustained when the underlying adjudication order has been set aside or remanded on procedural grounds, and no finding on merits has been recorded?
Held:
The Hon’ble Supreme Court in Criminal Appeal No. 268 of 2017 held as under:
- Observed that, even assuming the Order dated March 31, 2011 was set aside, the Complaint did not rely solely on it. It was only referred to complete the factual sequence, and the investigation materials independently justified the complaint.
- Noted that, the summoning order passed by the Trial Court was based on the investigation report and factual irregularities revealed during the search, which continued to hold relevance despite procedural setbacks in adjudication.
- Held that, the conditional stay of the fresh adjudication order dated March 31, 2011 did not assist the Appellants, as it was passed on merits and was only stayed subject to payment and surety conditions.
- Referred to, Radheyshyam Kejriwal v. State of W.B. [(2011) 3 SCC 581], reaffirming that there is no bar on parallel adjudication and criminal proceedings under the CEA 1944, especially when exoneration has not occurred on merits. The court also relied on Pramod Kumar Dhamija, which held that quashing of adjudication on procedural grounds does not invalidate parallel criminal proceedings.
- Accordingly, dismissed the appeal and upheld the High Court’s order refusing to interfere with the ongoing prosecution.
Our Comments:
The Supreme Court’s reliance on Radheyshyam Kejriwal v. State of W.B., [(2011) 3 SCC 581], reinforces the settled position that parallel criminal and departmental adjudication proceedings can co-exist, provided the accused is not exonerated on merits. The Court had held that if the adjudication ends in the taxpayer’s favour on merits, criminal prosecution may be unsustainable, but not, if it is set aside on technicalities.
This principle was reaffirmed in Air Customs Officer v. Pramod Kumar Dhamija, [(2016) 4 SCC 153], which was cited with approval in the present case. The Court clarified that where the adjudication is remanded or quashed for procedural reasons without deciding the issue on merits, criminal prosecution can continue.
The Appellants’ argument, that the Complaint was entirely based on a quashed adjudication order was found incorrect. The Court noted that investigation records independently supported the allegations and that the complaint merely referred to the set-aside order for factual continuity.
Moreover, the High Court’s intervention in the adjudication proceedings was procedural. There was no conclusive exoneration, and the criminal case was not undermined by the administrative lapses found in the Kanpur adjudication process.
Therefore, the Court’s decision is in line with prior jurisprudence and preserves the principle that criminal liability under economic statutes must be adjudicated on the basis of facts and evidence, not merely the outcome of departmental proceedings unless such outcome is adjudicated on merits and conclusively absolves the accused.
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