2011 (2) TMI 472 - HC - Central Excise

Penalty levied under Section 11AC - duty and interest was paid before issuance of the show-cause notice - Revenue allegation is that the assessee had effected the clearances with an intention to evade payment of duty by fraudulently claiming benefit of the exemption Notification, the issuance of the show-cause notice on 26-12-2005 would be valid - The Tribunal, therefore, ought to have examined whether the Explanation 1 to sub-section (2B) of Section 11A is applicable in the present case The finding that the proposal made in the show cause notice was in breach of injunction contained in sub-section (2B) of Section 11A is erroneous and cannot be sustained - The Tribunal ought to have either confirmed the findings recorded by the Commissioner on the point of suppression/fraud and intention to evade the duty or examined the said question independently if the findings recorded by the Commissioner (Appeals), in the opinion of the Tribunal, were perverse - Accordingly, the decision of the Tribunal to the extent it holds that the show-cause notice was invalid in view of Section 11A(2B) of the Act cannot be sustained - Since the CESTAT has not given any finding , whether there was fraudulent intention to evade duty - Remand the matter.

Issues:
1. Justification of penalty deletion under Section 11AC by CESTAT.
2. Eligibility of exemption under Notification No. 8/2003-C.E.
3. Validity of penalty imposition under Section 11AC.
4. Interpretation of Section 11A(2B) regarding show-cause notice issuance.
5. Application of Explanation 1 to Section 11A(2B) in cases of fraud or suppression.
6. Examination of fraudulent intention to evade duty by the assessee.

Analysis:

1. The case involved the question of whether the CESTAT was justified in deleting the penalty levied under Section 11AC of the Central Excise Act. The respondent had availed exemption under Notification No. 8/2003-C.E. despite exceeding the prescribed limit of clearances in the preceding year. The Tribunal set aside the penalty, citing a violation of Section 11A(2B) due to duty payment before the show-cause notice issuance.

2. The eligibility of the assessee for exemption under Notification No. 8/2003-C.E. was challenged by the Revenue due to clearances exceeding the limit in the preceding year. The assessee had paid the duty with interest upon admission of wrongly availing the exemption. The Commissioner imposed the penalty, which was later set aside by the CESTAT.

3. The dispute also revolved around the validity of penalty imposition under Section 11AC. The Assessing Officer declined to impose the penalty, considering the duty and interest payment before the show-cause notice. However, the Commissioner of Central Excise (Appeals) held the penalty to be leviable.

4. The interpretation of Section 11A(2B) regarding the issuance of the show-cause notice was crucial. The Tribunal found the notice issued in violation of Section 11A(2B) due to duty payment before the notice, leading to the penalty deletion. The High Court disagreed, emphasizing the relevance of Explanation 1 to Section 11A(2B) in cases involving fraud or suppression.

5. The application of Explanation 1 to Section 11A(2B) was pivotal in determining the validity of the show-cause notice and penalty imposition. The High Court highlighted that fraud or suppression allegations by the Revenue from the beginning justified the notice issuance despite the duty payment. The Tribunal's failure to consider this aspect led to the decision's reversal.

6. The examination of fraudulent intention to evade duty by the assessee remained unresolved as the CESTAT did not provide a finding on this crucial aspect. The High Court set aside the CESTAT's order, directing a reconsideration of whether there was fraudulent intention to evade payment of duty, emphasizing the need for a comprehensive assessment in this regard.

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