2010 (2) TMI 971 - HC - Central Excise

Whether the Tribunal is justified in reducing the penalty to 25% of the duty leviable on the respondent? Held that - Since the respondent-assessee was challenging the levy of penalty under Section 11AC of the Act up to Tribunal and for the first time the Tribunal had reduced the penalty under Section 11AC of the Act to the extent of 25% of the duty amount on the ground that the duty amount was paid by the respondent-assessee much before the issuance of show cause notice, we direct the adjudicating authority to call upon the respondent-assessee to pay the penalty as reduced by the Tribunal and also the interest amount, if any, under Section 11AB of the Act, within 30 days from the date of receipt of communication, failing which the respondent-assessee would be liable/to pay penalty under Section 11AC to the extent of 100% of the duty amount. In this view of the matter, no interference is called for in the order of the Tribunal.

Issues:
Reduction of mandatory penalty under Section 11AC of the Central Excise Act, 1944
Application of reduced penalty under proviso to Section 11AC
Obligation of adjudicating authority to set out the availability of reduced penalty
Validity of Tribunal's order in accordance with law

Analysis:
1. Reduction of Mandatory Penalty under Section 11AC: The Commissioner of Central Excise & Customs filed a tax appeal questioning the Tribunal's decision to reduce the penalty imposed under Section 11AC to 25% of the duty amount. The respondent had not paid the interest determined by the adjudicating authority along with the duty amount before the issuance of the show cause notice. The Tribunal's decision was challenged on the grounds that the respondent did not meet the preconditions for availing the benefit of reduced penalty. However, the High Court upheld the Tribunal's decision, citing previous judgments and settled propositions, stating that the penalty reduction was justified.

2. Application of Reduced Penalty under Proviso to Section 11AC: The appellant argued that the respondent did not comply with the preconditions for availing the benefit of reduced penalty under the proviso to Section 11AC. The High Court noted that the duty amount was paid by the respondent before the issuance of the show cause notice, but the interest and reduced penalty were not paid within the specified time frame. The Court highlighted that the adjudicating authority should explicitly mention the availability of reduced penalty in the order and give the option to the assessee to pay within 30 days. The Court directed the adjudicating authority to communicate the outstanding amounts to the respondent for compliance.

3. Obligation of Adjudicating Authority to Set Out Availability of Reduced Penalty: The High Court addressed the issue of the adjudicating authority's statutory obligation to mention the availability of reduced penalty in the order-in-original. Referring to a circular issued by the Central Excise Department, the Court emphasized the importance of including the provisions of Section 11AC in the order. The Court directed the adjudicating authority to provide a clear option to the assessee for payment within 30 days to avail the reduced penalty, failing which full penalty would be applicable.

4. Validity of Tribunal's Order in Accordance with Law: The Tribunal's order was challenged on the grounds of being non-speaking and non-reasoned. However, the High Court found the order to be reasoned and based on relevant legal precedents. The Court noted that the Tribunal consistently followed a certain approach in penalty matters under Section 11AC. The Court directed the adjudicating authority to ensure compliance with the provisions and communicate the outstanding amounts to the respondent for timely payment.

In conclusion, the High Court dismissed the Tax Appeal subject to the clarifications provided regarding compliance with the preconditions for reduced penalty under Section 11AC and the adjudicating authority's obligation to set out the availability of such benefit in the order.

← Previous Next →