2011 (2) TMI 1221 - HC - Central Excise

Whether the equivalent amount of penalty imposed under Section 11AC of the Central Excise Act, 1944 could be modified or altered by Custom Excise and Service Tax Appellate Tribunal (CESTAT) without finding any fault on the quantum of demand duty confirmed by the adjoining authority Held that - penalty has been reduced from Rs.31,516/- to Rs.15,000/- which is impermissible, penalty also has to be the same amount, Appeal is partly allowed and disposed of. Impugned order reducing penalty from Rs.31,516/- to Rs.15,000/- is quashed and set aside. Respondent shall make payment of Rs.31,516/- towards penalty

Summary

Issues:
1. Central Excise duty under-valuation and willful suppression.
2. Appeal against duty payment and penalty reduction.
3. Interpretation of Section 11AC of the Central Excise Act, 1944.
4. Applicability of Supreme Court judgment on penalty modification.

Analysis:
1. The respondent, a manufacturer of washing machines and dryers, availed CENVAT/MODVAT under Rule 57 A of the Central Excise Rules. A show cause notice was issued for under-valuation and willful suppression of facts, resulting in a short payment of central excise duty amounting to Rs.31,516. The respondent replied to the notice, leading to an order by the Joint Commissioner directing payment of the said amount.

2. The respondent appealed the order, which was upheld by the Appellate Authority. Subsequently, the Central Excise and Service Tax Appellate Tribunal (CESTAT) reduced the penalty to Rs.15,000 from Rs.31,516. The appellant challenged this reduction before the Bombay High Court, questioning the authority of CESTAT to modify the penalty without fault on the confirmed duty amount.

3. The High Court admitted the appeal based on the substantial question of law regarding the modification of penalty under Section 11AC of the Central Excise Act. Reference was made to a Supreme Court judgment in Union of India v/s Dharamendra Textile Processors, clarifying the provisions of Section 11AC. The Court noted that the duty amount was upheld, but the penalty reduction was impermissible.

4. After considering the Supreme Court judgment, the High Court held that the penalty reduction from Rs.31,516 to Rs.15,000 was not justified. The Court ruled that the penalty should be the same as the duty amount, quashing and setting aside the reduction. The respondent was directed to pay the original penalty of Rs.31,516 within 12 weeks from the judgment date.

This detailed analysis highlights the central issues of duty under-valuation, penalty reduction appeal, interpretation of Section 11AC, and the application of the Supreme Court judgment in the context of modifying penalties without fault on the confirmed duty amount.