2013 (10) TMI 1317 - HC - Central Excise

Penalty u/s 11AC - violation under Section 6(3) of the Cenvat Credit Rules - Held that - even though the assessee had raised an issue of bona fide belief, the Tribunal accepted the case of the assessee straight away holding that they had been submitting periodical returns and they were not told earlier to made their payment. Taking into account that the assessee had not disputed the duty and interest liability, the Tribunal simply cancelled the levy of penalty. Even though the Tribunal had not in principle adverted to the twin conditions laid down under Section 11AC, we do not think that we need to remand the matter once again for the simple reason that the show cause notice issued on 9-5-2006 makes no reference as to the satisfaction of the Adjudicating Authority as to the twin conditions being satisfied before imposing penalty under Section 11AC. Except for pointing out to the violation committed by the assessee resulting in the demand of duty and interest, as far as the levy of penalty is concerned, the show cause notice had called upon the assessee to reply as to why penalty could not be imposed under Section 11AC. Even though the first Appellate Authority stated that the Adjudicating Authority had found that the short levy had occurred on account of wilful suppression of material fact, we searched in vain of such an observation in the order of the Adjudicating Authority only to find that there is no discussion on this aspect. Thus, when facts are clear that there is no such allegation as to the wilfulness in the misstatement or suppression of facts with an intention to evade payment of duty, applying the decision of the Supreme Court 2009 (7) TMI 6 - SUPREME COURT , we had no hesitation in rejecting the Revenue s case - Decided against Revenue.

Summary

Issues:
1. Interpretation of Section 11AC of the Central Excise Act regarding the imposition of penalty.
2. Compliance with Cenvat Credit Rules and maintenance of separate accounts for dutiable and exempted goods.
3. Adjudication of penalty and interest on duty payment by the assessee.
4. Applicability of Supreme Court judgments on willful suppression of facts for penalty imposition under Section 11AC.

Issue 1: Interpretation of Section 11AC of the Central Excise Act
The main issue in this case was the interpretation of Section 11AC of the Central Excise Act regarding the imposition of penalty. The Tribunal had to determine whether the conditions expressly stated in the section were met for the imposition of penalty. The Supreme Court judgments highlighted that penalty under Section 11AC could only be levied if the Revenue established willful suppression with an intent to evade duty payment.

Issue 2: Compliance with Cenvat Credit Rules
The case involved violations under Section 6(3) of the Cenvat Credit Rules, which required maintaining separate accounts for dutiable and exempted goods. The assessee had not reversed a percentage of the total sale price of exempted goods and had not calculated the value of goods based on CAS-4 format. These violations led to the initiation of penalty proceedings under Section 11AC of the Central Excise Act.

Issue 3: Adjudication of Penalty and Interest
The Adjudicating Authority imposed a penalty under Section 11AC of the Central Excise Act and interest on duty payment by the assessee. The Commissioner of Central Excise (Appeals) upheld the penalty but reduced the amount considering the timely payment of duty by the assessee. The Tribunal later cancelled the penalty levy as the duty and interest liability had already been paid by the assessee.

Issue 4: Applicability of Supreme Court Judgments
The Tribunal's decision was influenced by Supreme Court judgments emphasizing willful suppression of facts for the imposition of penalties under Section 11AC. The Tribunal noted that the show cause notice did not satisfy the twin conditions required for imposing penalties under Section 11AC. The absence of evidence of willful suppression led to the dismissal of the Revenue's case, aligning with the Supreme Court's criteria for penalty imposition.

In conclusion, the judgment focused on the correct interpretation and application of Section 11AC of the Central Excise Act, ensuring compliance with Cenvat Credit Rules, and considering the Supreme Court's criteria for imposing penalties based on willful suppression of facts. The Tribunal's decision to cancel the penalty levy was upheld, emphasizing the importance of meeting statutory requirements and evidentiary standards for penalty imposition.