2016 (8) TMI 1247 - HC - Central Excise

Whether the order passed by the Tribunal in imposing the penalty is correct in law when there is a bona fide belief when Section 3A read with Rule 96ZP3(ii) of the Central Excise Rules were ultra vires? - Held that - considering the judgment of Hon ble the Supreme Court in Shree Bhagwati Steel Rolling Mills s case 2015 (11) TMI 1172 - SUPREME COURT , wherein, the provisions of Rules 96ZO, 96ZP and 96ZQ of the Rules have been held to be ultra vires with reference to levy of interest and penalty only, in our view, interest and penalty levied on the appellant under the aforesaid provisions, cannot be sustained - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against order imposing penalty under Central Excise Rules; Validity of penalty under Section 3A and Rule 96ZP3(ii); Challenge to interest and penalty levied by Adjudicating Authority; Appellate Authority setting aside levy of interest and penalty; Tribunal allowing Department's appeal.

Analysis:
The appellant, a manufacturer of M.S. Bars, Shape, and Section, appealed against the order of the Customs, Excise & Service Tax Appellate Tribunal imposing a penalty under Rule 96ZP(3)(ii) of the Central Excise Rules. The substantial question of law considered was whether the Tribunal's penalty imposition was lawful when there was a bona fide belief that Section 3A and Rule 96ZP3(ii) were ultra vires. The appellant opted to pay duty under the compounded levy scheme of the Central Excise Act, and the Adjudicating Authority held the appellant liable for Excise Duty, interest, and penalty for specific periods.

The Adjudicating Authority levied interest and penalty on the appellant for alleged default in duty payment for different periods. However, the Commissioner (Appeals) set aside the levy of interest and penalty. Subsequently, the Department appealed before the Tribunal, which allowed the appeal in its order dated 3-7-2009. The appellant argued that the provisions of Rule 96ZP were challenged in a Supreme Court case, where certain provisions regarding interest and penalty were declared invalid.

The appellant contended that since the Supreme Court had invalidated the provisions under which interest and penalty were imposed, the impugned order should be set aside. On the other hand, the respondents did not dispute the Supreme Court's judgment but requested the liberty to initiate fresh proceedings against the appellant for levying interest and penalty due to the default in duty payment. After considering the Supreme Court's judgment in a similar case, the High Court concluded that the interest and penalty imposed on the appellant under the impugned provisions could not be sustained.

Therefore, the High Court allowed the appeal in favor of the appellant, answering the substantial question of law in favor of the assessee and against the Department. The judgment highlighted the importance of legal validity in imposing penalties and the impact of Supreme Court decisions on such cases.