2007 (3) TMI 519 - AT - Central Excise

Penalty and interest - State Government undertaking - entire duty deposited, even before the issuance of the show cause notice - HELD THAT - Admittedly, appellant is a local authority constituted under Mumbai Municipal Corporation Act, 1988, and as such it a State under Article 12 of the Constitution of India. As such, there could be no motive on their part to evade duty with an intention to defraud the Government. Further as contended by them, there could be a reasonable belief on their part to interpret the view that being a State and manufacturing goods for their own captive consumption, no duty is required to be paid by them, though the Commissioner in his impugned order has observed that the appellant was a declarant and was paying duty for some period in between. Nevertheless, no mala fide can be attributed to the appellant. It is further seen that the appellant deposited the entire amount of duty even before the issuance of the show cause notice. It is well-settled law that in case of conflict between two High Courts, the view of the High Court having jurisdiction over the assessee has to be applied. Thus, we are of the view that imposition of penalty and confirmation of interest against the appellant is not warranted. The same is accordingly set aside the appeal is allowed.

Summary

Issues:
Imposition of personal penalty and confirmation of interest on the appellant for non-payment of duty on manufactured goods used for maintenance of buses by the Municipal Corporation.

Analysis:
The dispute in the present appeal concerns the imposition of a personal penalty of Rs. 4,60,000/- on the appellant and the confirmation of interest due to non-payment of duty on goods manufactured by them for the maintenance of buses owned by the Municipal Corporation. The appellant, a local authority constituted under the Mumbai Municipal Corporation Act, 1988, manufactures goods for internal use and not for sale. The issue revolves around the demand of duty amounting to Rs. 48,28,550/- for the period 1996-2000, which the appellant had deposited before the issuance of the show cause notice. Therefore, the appellant argues that the penalty and interest under Sections 11AC and 11AB are not justified.

The appellant's advocate relied on Tribunal decisions to support the argument that when duty is paid before the show cause notice, Sections 11AC and 11AB are not applicable. Conversely, the Departmental Representative cited a Madhya Pradesh High Court decision to counter this argument. The Tribunal considered the facts, noting that the appellant, being a local authority, had no intention to evade duty to defraud the government. The appellant believed that as a "State" entity manufacturing goods for internal use, they were not liable to pay duty. Although the Commissioner observed that the appellant had paid duty for a period, no malice was attributed to the appellant. Notably, the appellant had paid the entire duty before the show cause notice was issued.

Referring to precedent, the appellant's advocate argued that based on the Tribunal's decision in Machino Montell (India) Ltd., the penalty and interest should be set aside. However, this decision was overturned by the Punjab and Haryana High Court, which was supported by the Bombay High Court in the case of Commissioner of Central Excise v. Gaurav Mercantiles Ltd. The Tribunal emphasized the principle of judicial discipline, requiring adherence to the decision of the High Court having jurisdiction over the assessee when conflicting views exist. As the appellant fell under the jurisdiction of the Bombay High Court, the Tribunal applied the decision in Gaurav Mercantiles Ltd. Additionally, the Tribunal cited a Karnataka High Court case to support the non-imposition of penalty when duty is paid before the show cause notice.

Ultimately, the Tribunal found no malice on the part of the appellant and noted that the entire duty had been paid before the show cause notice. Consequently, the Tribunal concluded that the imposition of penalty and confirmation of interest against the appellant was unwarranted and set aside the same, allowing the appeal in favor of the appellant.