2007 (7) TMI 22 - HC - Central Excise

Penalty - Appellant had made payment of duty before issuance of SCN and question arises weather penalty imposable u/s 11AC or Rule 25 - Held that penalty imposable under Rule 25 on the ground that there was willful suppression

Summary

Issues:
1. Imposition of penalty under Central Excise Act/Rules even after payment of non levy/short levy before the issuance of show cause notice.

Analysis:
The appeal raised a substantial question of law regarding the imposition of penalties under the Central Excise Act/Rules despite the payment of non levy/short levy before the issuance of a show cause notice. The show cause notice in question did not invoke the powers under Section 11AC of the Act but instead referred to imposing penalties under Rule 25 of the Central Excise Rules, 2002. The Assistant Solicitor General relied on a judgment by the Punjab and Haryana High Court, which held that the applicability of Section 11AC is not excluded merely because the amount was deposited before the show cause notice. However, the Bombay High Court took a different view, not following the Punjab and Haryana High Court's ratio.

In another case, the Tribunal at Bangalore held that if the duty was paid to the department before the show cause notice was issued, there was no justification for imposing penalties under Section 11AC or Rule 173Q. This view was upheld by the Supreme Court. Applying this analogy to penalties under Rule 25, following the Bombay High Court's view and the Tribunal's decision confirmed by the Supreme Court, it was concluded that there is no justification for imposing penalties under Rule 25 if the duty is paid before the issuance of the show cause notice.

Furthermore, a judgment by the Bombay High Court in Union of India v. Kirloskar Oil Engines Ltd. highlighted the discretion available to authorities under Rule 25 of the Central Excise Rules, 2000, in reducing the amount of penalties. The rule provides for discretion within prescribed limits, unlike Section 11AC, which does not provide any discretion. The upper limit for penalties under Rule 25 is either Rs. 10,000 or equal to the duty leviable, whichever is higher, with no lower limit specified.

In the case at hand, since Section 11AC was not invoked, and the penalty under Rule 25 was discretionary, the Commissioner of Appeals and CESTAT found no mala fide intention to evade payment of duty. The immediate rectification and payment by the appellant upon detection of the mistake in accounts were considered justifications for using discretion in favor of the assessee. The appeal was dismissed based on these findings and reasons discussed in the judgment.