2011 (9) TMI 902 - HC - Central Excise

Levy of interest and penalty u/s 11AC on differential duty - whether the assessee would be absolved from the liability to pay interest and penalty in view of their payment of differential duty before the issuance of show cause notice - Held that - Section 11AB deals with interest on delayed payment of duty. Similarly Section 11AC deals with penalty for short-levy or non-levy of duty in certain cases. Both these provisions indicate that in case the duty has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of the Central Excise Act or the Rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty shall also be liable to pay penalty equal to the duty so determined. The assessee is also liable to pay interest for the period in question. The Supreme Court in Union of India v. Rajasthan Spinning and Weaving Mills 2009 (5) TMI 15 - SUPREME COURT OF INDIA observed that mere payment of differential duty whether before or after the show cause notice would not alter the situation and they would be liable for penalty in case the conditions for imposing such penalty spelt out in Section 11AC of the Act is attracted. Decided in favour of Revenue.

Summary

Issues:
1. Whether interest and penalty are leviable on the amount of differential duty under Section 11AB and 11AC of the Central Excise Act if duty was paid voluntarily before issuance of show cause notice.

Analysis:
1. The case involved an assessee who had availed excess cenvat credit and voluntarily paid the differential duty upon detection by the Department. Despite the voluntary payment, the Department issued a show cause notice for levying interest and penalty. The Original Authority and the Appellate Authority upheld the liability for interest and penalty. However, the CESTAT allowed the appeal, stating that payment of duty before the show cause notice absolved the assessee from interest and penalty.

2. The key issue was whether the assessee could be absolved from the liability to pay interest and penalty for the payment of differential duty before the issuance of a show cause notice. Sections 11AB and 11AC of the Central Excise Act deal with interest and penalty, respectively, in cases of duty non-payment due to fraud, collusion, misstatement, or contravention of rules with intent to evade duty. The CESTAT's decision was based on previous rulings absolving the assessee from interest and penalty if duty was paid before the notice.

3. The Supreme Court's judgment in Union of India v. Rajasthan Spinning and Weaving Mills clarified that mere payment of differential duty, whether before or after a show cause notice, does not exempt the assessee from penalty if the conditions under Section 11AC are met. The Court emphasized that Section 11AC penalty is for deliberate deception to evade duty. The CESTAT's decision to absolve the assessee from interest and penalty was deemed incorrect in light of this ruling.

4. The judgment favored the Revenue, stating that the CESTAT erred in absolving the assessee from penalty proceedings based on early duty payment. The case was remanded to the CESTAT to reconsider the liability for interest and penalty in accordance with the Supreme Court's decision in Commissioner of Central Excise v. Bombay Dyeing & Manufacturing Co. Ltd., which highlighted the significance of reversing entries before credit utilization. The appeal was disposed of without costs, and the connected Miscellaneous petition was closed.