2010 (9) TMI 1066 - HC - Central Excise

Whether CEGAT was right in reducing the penalty imposed under section 11AC of the Act, which otherwise is mandatory and should be equal to the amount of duty short levied and confirmed? Held that - in view of judgment of the Hon ble Supreme Court in Union of India v. Rajasthan Spinning and Weaving Mills, 2009 (5) TMI 15 - SUPREME COURT OF INDIA and plain language of Section 11AC of the Act, penalty equal to the amount of duty evaded is mandatory - Since the effect of judgment relied upon and mandate of the statutory provision has not been gone into by the Tribunal, the order of the Tribunal will require re-consideration - petition allowed by way of remand.

Summary

Issues:
Reduction of penalty under section 11AC of the Central Excise Act, 1944 by CEGAT.

Analysis:
The petition was filed under section 35H(1) of the Central Excise Act, 1944, questioning whether CEGAT was correct in reducing the penalty imposed under section 11AC of the Act, which is supposed to be equal to the amount of duty short levied and confirmed. The respondent-assessee was accused of illegally availing MODVAT credit on inputs and clandestinely removing goods, leading to duty evasion. The department issued a show cause notice based on findings during a visit to the factory premises, resulting in a demand for duty and penalty imposition. The Tribunal upheld the demand and findings of clandestine removal and wrongful MODVAT credit availment but reduced the penalty amount.

During the hearing, the petitioner's counsel highlighted the Supreme Court's judgment in Union of India v. Rajasthan Spinning and Weaving Mills, 2009, and the clear language of Section 11AC, stating that a penalty equal to the evaded duty amount is mandatory. The Court acknowledged the merit in the submission but decided not to direct the Tribunal to make a reference. Instead, they considered the question as referred and answered it in favor of the revenue and against the assessee. Since the Tribunal did not delve into the implications of the Supreme Court judgment and the statutory provision, the Court remanded the matter back to the Tribunal for reconsideration and decision in accordance with the law.

In conclusion, the Court disposed of the petition by remanding the matter to the Tribunal for further consideration in light of the Supreme Court judgment and the statutory provision, emphasizing the mandatory nature of penalty equal to the evaded duty amount under Section 11AC of the Central Excise Act, 1944.