2007 (1) TMI 308 - AT - Central Excise

Summary

Issues:
- Imposition of penalty under Sec. 11AC when duty paid before show cause notice
- Interpretation of conflicting decisions by different High Courts

Analysis:
1. Imposition of penalty under Sec. 11AC when duty paid before show cause notice:
The judgment revolves around the issue of whether penalty under Sec. 11AC can be imposed when the duty has been paid before the issuance of a show cause notice. The Commissioner of Central Excise (Appeals) accepted the contention of the assesses/respondents that no penalty should be imposed in such cases, citing a Larger Bench decision in the case of CCE v. Machino Montell. However, the Hon'ble Punjab & Haryana High Court set aside this decision and remanded the case for further consideration. The Madhya Pradesh High Court, in the case of Sai Machine Tools Pvt. Ltd. v. CCE, Indore, held that Sec. 11AC is applicable even if duty is paid before the show cause notice. Despite these conflicting decisions, the Tribunal, being under the jurisdiction of the Bombay High Court, followed the Bombay High Court's decision in Gaurav Mercantiles Ltd., which dismissed the appeal of the Revenue and held that no penalty under Sec. 11AC is warranted when duty is paid prior to the show cause notice. Consequently, the Tribunal upheld the impugned order and dismissed the appeal, setting aside the penalty on the respondents.

2. Interpretation of conflicting decisions by different High Courts:
The judgment also delves into the interpretation of conflicting decisions by various High Courts on the application of Sec. 11AC in cases where duty has been paid before the issuance of a show cause notice. The Tribunal highlighted the distinctions between the decisions of the Bombay High Court in Gaurav Mercantiles Ltd., the Karnataka High Court in Shree Krishna Pipe Industries, and the Madhya Pradesh High Court in Sai Machine Tools Pvt. Ltd. The Tribunal emphasized that the decisions of the High Court within its jurisdiction, i.e., the Bombay High Court, are binding and must be followed. Therefore, based on the precedent set by the Bombay High Court, the Tribunal upheld the decision to set aside the penalty on the respondents, aligning with the interpretation that no penalty under Sec. 11AC should be imposed when duty has been paid before the show cause notice. This analysis underscores the importance of adhering to the decisions of the relevant High Court within the jurisdiction for consistent application of legal principles.