2010 (10) TMI 114 - HC - Central Excise

Penalty - reduction in mandatory penalty - Held that - non-payment or short payment of duty, the penalty clause would automatically get attracted and the authority has no discretion in the matter - quantum of penalty specified under Section 11AC of the Central Excise Act, 1944 cannot be reduced by the authorizes and no discretion in this behalf is vested with the adjudicating authorities - assessee had taken a plea that non-payment was bona fide as the assessee was under the impression that the goods being not branded were not excisable - In these circumstances matter remit the case back to the CESTAT

Summary

Issues:
1. Appeal against Customs, Excise & Service Tax Appellate Tribunal orders
2. Penalty under Section 11AC less than duty payable under Section 11A(2) of Central Excise Act, 1944
3. Manufacture of goods under another person's brand name without Central Excise registration
4. Confiscation of seized goods and imposition of penalties
5. Reduction of mandatory penalty by CESTAT

Analysis:

Issue 1:
The Revenue appealed against the Customs, Excise & Service Tax Appellate Tribunal orders, raising the substantial question of law regarding the imposition of a penalty under Section 11AC which could be less than the duty determined to be payable under Section 11A(2) of the Central Excise Act, 1944.

Issue 2:
The case involved the manufacture of goods by a company under another person's brand name without Central Excise registration, leading to the imposition of penalties, confiscation of seized goods, and demand for duty payment.

Issue 3:
The adjudicating authorities confirmed the demand of duty, ordered confiscation of seized goods, and imposed penalties under Section 11AC and Rule 173 Q of the Central Excise Rules, 1944. The penalties were also imposed on the Director of the respondent.

Issue 4:
The Commissioner (Appeals) upheld the duty demand but ordered abatement of the duty proposed to be demanded. The Department filed an appeal against this aspect, while the respondent appealed against the imposition of penalties. CESTAT upheld the duty demand but reduced the mandatory penalty from Rs. 4,11,190 to Rs. 20,000 and set aside the penalty on the Director.

Issue 5:
The critical question was whether CESTAT had the authority to reduce the mandatory penalty specified under Section 11AC of the Act. The Supreme Court's judgments in Union of India Vs. Dharamendra Textile Processors and Union of India Vs. Rajasthan Spinning & Weaving Mills clarified that the penalty under Section 11AC cannot be less than the amount determined to be payable under Section 11A(2) of the Central Excise Act, 1944. The Tribunal's discretion to reduce the penalty was thus set aside.

In conclusion, the High Court held that the penalty imposed under Section 11AC cannot be less than the duty determined to be payable under Section 11A(2). The case was remitted back to CESTAT to determine if the conditions under Section 11AC were satisfied. The party was directed to appear before the Tribunal for further proceedings.