2011 (7) TMI 19 - HC - Central Excise

Penalty u/s 11AC - Demand - Held that - It is patent that the present case does not fall under Section 11AC of the Act which provides for minimum penalty. The penalty has been reduced by the Tribunal after recording a finding that on account of pilferage, some goods became substandard which does not show any deliberate mis-statement or concealment by the assessee - Decided in the favour of assessee

Summary

Issues:
1. Interpretation of penalty limit under Section 11AC of the Central Excise Act, 1944.
2. Reduction of penalty by the Tribunal based on specific circumstances.
3. Justification for the levy of penalty under Rule 173Q of the Central Excise Rules, 1944.

Analysis:

Issue 1: Interpretation of penalty limit under Section 11AC of the Central Excise Act, 1944
The appeal was filed by the revenue under Section 35G of the Act against the order of the Customs, Excise & Service Tax Appellate Tribunal. The main question raised was whether the penalty limit under Section 11AC of the Act is maximum, and if the Tribunal has the discretion to set aside or reduce the penalty. The Department initiated proceedings for levy of duty and imposed a penalty along with the duty demand. The Commissioner (Appeals) upheld the penalty, but the Tribunal reduced it. The Tribunal noted that the appellant had paid duty on the spot when a shortage of inputs was pointed out and explained that some goods became substandard due to pilferage. The Tribunal reduced the penalty to Rs. 25,000 based on the circumstances of the case. The Court observed that the penalty was reduced by the Tribunal as there was no deliberate mis-statement or concealment by the assessee, and the case did not fall under Section 11AC of the Act, which provides for a minimum penalty.

Issue 2: Reduction of penalty by the Tribunal based on specific circumstances
The Tribunal reduced the penalty after considering the appellant's explanation regarding the shortage of inputs and the disposal of substandard goods due to pilferage. The Tribunal found no deliberate mis-statement or concealment by the assessee and reduced the penalty to Rs. 25,000 based on the facts and circumstances of the case. The Court agreed with the Tribunal's decision to reduce the penalty, as it was justified by the specific circumstances of the case.

Issue 3: Justification for the levy of penalty under Rule 173Q of the Central Excise Rules, 1944
The counsel for the respondent argued that the penalty in the present case could be levied under Rule 173Q of the Central Excise Rules, 1944, which does not specify a minimum penalty, rather than under Section 11AC of the Act. The Court acknowledged that the case did not fall under Section 11AC of the Act, which mandates a minimum penalty. The penalty imposed was considered justified under Rule 173Q, as there was no deliberate mis-statement or concealment by the assessee. Therefore, the Court dismissed the appeal, finding no grounds for interference in the Tribunal's decision to reduce the penalty.

In conclusion, the Court upheld the Tribunal's decision to reduce the penalty based on the specific circumstances of the case and dismissed the appeal filed by the revenue.