Assistant Commissioner Central Excise vs. M/S Indian Magnetics

Held

The High Court held that the learned Trial Court erred in discharging the accused. It found that the Trial Court's reasoning, that there was insufficient evidence to prove the Managing Director was in charge of and responsible for the company's affairs, was a misinterpretation of Section 9-AA of the Central Excise Act. Citing Supreme Court judgments, the Court reiterated that for a Managing Director, it is not necessary to specifically aver and prove they were in charge and responsible for the company's affairs; this is assumed by their position, and the burden shifts to them to prove otherwise. The Court also rejected the argument that secondary evidence cannot be led in criminal proceedings, explaining that the Indian Evidence Act permits secondary evidence when primary evidence is lost or destroyed, and this does not deny the right of cross-examination. Therefore, the order of discharge was set aside. The Court directed the Trial Court to record a fresh finding on whether the offence under Section 9(1) of the Central Excise Act is attracted and to proceed accordingly. The observations were confined to the petition's disposal and had no bearing on the merits of the case.

Facts

The Assistant Commissioner, Central Excise (Petitioner) filed a revision petition challenging the order dated 18.09.2017 by the Judicial Magistrate First Class-VI (JMFC-VI), which discharged respondent No.2 (M/s Indian Magnetics and ors., represented by its Managing Director) from offences under Section 9(1) of the Central Excise Act and Sections 468 and 473 of the IPC. The complaint alleged that the company, engaged in manufacturing video magnetic tapes, cleared goods without accounting for them and evading excise duty. During an interception on 27.07.1992, a tempo was found carrying excess quantity of unrecorded magnetic tapes. Subsequent verification revealed suppressed production. A demand of ₹3,83,13,593.13 was confirmed, and penalties imposed. After appeals and remands, the JMFC discharged the accused, holding that there was insufficient evidence to prove the Managing Director was in charge of and responsible for the company's business. The petitioner contended that the JMFC misinterpreted Section 9-AA of the Central Excise Act.

Key Issues

1. Whether the learned Trial Court erred in discharging the accused (respondent No.2) by misinterpreting Section 9-AA of the Central Excise Act, 1944, and the principle of vicarious liability for the Managing Director of a company? (Question of law) Petitioner's arguments: The petitioner argued that the Managing Director is liable by virtue of their position and that there is no requirement to prove they were specifically in charge and responsible for the company's affairs. They relied on the Supreme Court judgments in *Mainuddin Abdul Sattar Shaikh v. Vijay D. Salvi* and *National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal*. The petitioner also contended that a statement by an employee, Rajinder Saroj, under Section 14 of the Central Excise Act, indicating that gate passes/invoices were issued on the directions of accused No.2, was not appreciated by the Trial Court, and that this evidence was sufficient for framing a charge. Respondent's arguments: Respondent No.2 argued that the Managing Director cannot be held liable merely by virtue of their position, as they may not have control over all employees and could be falsely implicated. They also raised concerns about the loss of original records and the denial of the right to cross-examine witnesses, relying on *Sunil Mehta versus State of Gujarat*. They further submitted that secondary evidence cannot be led in a criminal case.