2011 (8) TMI 1002 - HC - Central Excise

Summary

Issues:
1. Whether penalty is leviable under Section 11AC of the Central Excise Act if duty is paid after detection of evasion but before the issue of show cause notice?
2. Whether penalty imposed under Section 11AC of Central Excise Act is a "combined penalty" and legal under the relevant provisions?

Analysis:

Issue 1:
The appeal concerns the levy of penalty under Section 11AC of the Central Excise Act, specifically focusing on the duty paid after the issuance of a show cause notice. The respondent availed the Modvat/Cenvat facility for spares before the notice and paid duty post-notice. The Original Authority and Commissioner imposed a penalty on the duty paid after the notice. However, the Tribunal, citing a Supreme Court judgment, set aside the penalty, emphasizing the need for bona fide conduct by the assessee to avoid penalty. The Tribunal's decision was based on the principle that penalty imposition is not automatic if the assessee demonstrates good faith post-detection of evasion.

Issue 2:
The show cause notice detailed willful suppression of facts by the assessee, leading to evasion of duty, and violations of various Central Excise Rules. The assessing authority rejected the demand for duty recovery and imposed a penalty based on lack of bona fide conduct by the assessee. The Commissioner reversed this decision, but the Tribunal, following an Apex Court judgment, upheld the penalty. However, in light of a subsequent Supreme Court ruling emphasizing the importance of bona fide conduct, the Tribunal's decision was overturned. The High Court held that if an assessee lacks bona fide conduct, the claim for refund based on duty paid after a show cause notice cannot be sustained. Consequently, the appeal was allowed in favor of the Revenue.

This judgment highlights the significance of demonstrating bona fide conduct by the assessee to avoid penalty under Section 11AC of the Central Excise Act. It underscores the need for genuine actions by the assessee post-detection of evasion to potentially avoid penalty imposition. The legal analysis provided by the High Court clarifies the application of relevant provisions and the impact of Supreme Court precedents on penalty imposition in excise duty cases.