2011 (5) TMI 232 - AT - Central Excise

Penalty only under Rule 25 - Reduced penalty in 1st and 2nd proviso to section 11AC are applicable or not - The Commissioner (Appeals) in his order cannot go beyond the scope of the show cause notice and impose penalty under section 11AC - Just because the Commissioner (Appeals) refers to section 11AC also, the penalty imposed by the original adjudication authority does not become penalty under section 11AC - It is settled law, that show cause notice is the foundation of a case and the original adjudicating authority or the Appellate authority cannot travel beyond the show cause - the department cannot plead that the penalty imposed was u/s 11AC and its reduction is only subject to the condition prescribed in 1st and 2nd proviso of section 11AC - Since the penalty had been imposed under Rule 25 of Central Excise Rules where the quantum is discretionary, there is no informity in the impugned order reducing the penalty and as such the conditions for reduced penalty in 1st and 2nd proviso to section 11AC are not applicable to this case - The revenue s appeal is dismissed.

Issues:
1. Imposition of penalty under Rule 25 of Central Excise Rules.
2. Reduction of penalty on the respondent by Commissioner (Appeals).
3. Appeal by the Revenue against the reduction of penalty.
4. Interpretation of Section 11AC of Central Excise Rules.

Imposition of Penalty under Rule 25 of Central Excise Rules:
The case involved a show cause notice issued to a manufacturer of electrical contacts for confirming duty demand, appropriation of amount already paid, and imposition of penalties under Rule 25 and Rule 26 of Central Excise Rules. The Assistant Commissioner confirmed the duty demand, appropriated the amount deposited, and imposed penalties on both the respondent and a partner of the firm. The Commissioner (Appeals) upheld the duty demand but reduced the penalties imposed. The Revenue appealed against the reduction of penalties, arguing that the reduction was not valid as interest on duty had not been paid within the stipulated period. The respondent filed a cross-objection against the appeal by the Revenue.

Reduction of Penalty on the Respondent by Commissioner (Appeals):
The Revenue contended that the penalty reduction by the Commissioner (Appeals) was incorrect as neither the interest nor the reduced penalty had been paid within 30 days from the date of communication of the order, as required by the proviso to Section 11AC. The respondent's counsel argued that since Section 11AC was not invoked in the show cause notice and the penalty was imposed under Rule 25, the reduction by the Commissioner (Appeals) was appropriate. The Commissioner (Appeals) reduced the penalty based on the respondent's payment of duty before the show cause notice was issued.

Appeal by the Revenue Against the Reduction of Penalty:
The Revenue challenged the reduction of penalties by the Commissioner (Appeals) based on the non-payment of interest and reduced penalty within the specified timeframe. The Revenue relied on a circular stating that the benefit of reduced penalty under Section 11AC could only be granted if specific conditions were met, including timely payment of duty and penalties. The Revenue argued that since these conditions were not fulfilled, the penalty reduction was erroneous.

Interpretation of Section 11AC of Central Excise Rules:
The Tribunal analyzed the show cause notice, the adjudication order, and the Commissioner (Appeals)' decision. It was observed that the penalty was imposed under Rule 25 of Central Excise Rules, which grants discretionary authority for penalty imposition. The Tribunal emphasized that the Commissioner (Appeals) could not go beyond the scope of the show cause notice and impose penalties under Section 11AC when it was not invoked initially. The Tribunal dismissed the Revenue's appeal, stating that the penalty was rightfully reduced under Rule 25, and the conditions for reduced penalties under Section 11AC did not apply in this case. The Tribunal upheld that the penalty reduction was valid and in accordance with the law.

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