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2014 (10) TMI 829 - HC - Central ExcisePenalty u/s 11AC - Mens rea - Whether penalty under Section 11AC of the Central Excise Act read with Rule 25 of the Central Excise Rules can be imposed when there is no finding of mens rea - Held that - penalty may only be imposed, if failure to deposit duty is occasioned by wilful misstatement, fraud and collusion, etc., i.e. mens rea. Thus, before an adjudicating authority proceeds to levy penalty it is required to record a finding, in terms of Section 11AC(1)(a) of the Act. - A perusal of the order passed by the Assessing Authority reveals that it has treated levy of penalty as an automatic consequence of failure to pay duty, thereby rendering its order illegal, insofar as it relates to imposition of penalty. The Appellate Authority and the Tribunal failed to discern this error. - Decision in the case of Union of India v. Rajasthan Spinning and Weaving Mills 2009 (5) TMI 15 - SUPREME COURT OF INDIA followed - Decided partly in favour of assessee.
Issues:
Challenge to levy of penalty under Section 11AC of the Central Excise Act, 1944. Analysis: 1. The appellant contested the imposition of penalty under Section 11AC of the Act, arguing that penalty can only be levied if fraud, collusion, wilful misstatement, or suppression of facts is proven, as per Section 11AC(1)(a) of the Act. The Additional Commissioner imposed the penalty without recording a finding as required by the Act, which was upheld by the Tribunal without considering the appellant's plea, leading to the appeal. 2. The respondent maintained that mens rea is inherent in violations of the Act and Rules, and the failure to deposit duty amounts to an attempt to evade duty by misstating facts, justifying the penalty. The Assessing Authority held that gum, wax, and fatty acids are dutiable products, contrary to the appellant's claim that they are waste products exempt from excise duty. 3. The Commissioner (Appeals) allowed the appeal, stating that the waste products are exempted from duty, setting aside the duty, penalty, and interest. However, the CESTAT reversed this decision, restoring the Assessing Authority's order, including the penalty, prompting the appellant to challenge the penalty imposition. 4. The appellant framed questions of law regarding the imposition of penalty without a proper finding, the necessity of mens rea for imposing penalty under Section 11AC, and the mistake in upholding the penalty without considering its legality. The Court analyzed Section 11AC(1)(a) of the Act, emphasizing that penalty can only be imposed in cases of fraud, collusion, wilful misstatement, or contravention of provisions with intent to evade duty. 5. Referring to the decision in Union of India v. Rajasthan Spinning and Weaving Mills, the Court clarified that penalty under Section 11AC is a punishment for deliberate deception to evade duty, requiring the existence of specific conditions for its application. The Court highlighted that penalty must be imposed equal to the duty determined under the Act in applicable cases, emphasizing the significance of mens rea for penalty imposition. 6. Consequently, the Court partly allowed the appeal, setting aside the penalty imposed by the Assessing Authority as an automatic consequence of duty non-payment, directing the matter to be restored to the CESTAT for reevaluation of the penalty's legality. The parties were instructed to appear before the CESTAT for further proceedings on the specified date.
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