2011 (6) TMI 540 - HC - Central Excise

Whether Tribunal has committed substantial error of law in confirming order of the Commissioner (Appeals) on erroneous interpretation of Section 11AC of the Central Excise Act, 1944, can be attracted only in the event of proved mala fide of assessee Held that - in the absence of mala fide on the part of the respondent, penalty actions were not to be attracted in the case of respondent. no ill-intention or mala fide or fraud could be imputed on the respondent, and therefore, there was no attraction of provision imposing the penalty. mere demand of duty and interest would not ipso facto lead to penalty on conclusion of mala fide. Tax Appeal is dismissed

Summary

Issues:
- Interpretation of Section 11AC of the Central Excise Act, 1944
- Application of penalty under Section 11AC of the Central Excise Act, 1944

Interpretation of Section 11AC of the Central Excise Act, 1944:
The case involved a challenge to the order of the Customs Excise & Service Tax Appellate Tribunal (CESTAT) under Section 35-G of the Central Excise Act. The substantial questions of law proposed for consideration included whether the Tribunal erred in confirming the Commissioner (Appeals) order on the interpretation of Section 11AC. The respondent, engaged in manufacturing copper rods, was found to have cleared a significant quantity without paying duty. A show cause notice was issued demanding duty and penalty under Section 11AC. The Order-in-Original held the respondent liable for penalty under Section 11AC. The Commissioner (Appeals) initially allowed the respondent's appeal, setting aside the penalty. However, the CESTAT remanded the matter back for fresh adjudication in light of a Supreme Court ruling. The Commissioner (Appeals) later confirmed the duty demand but set aside the penalty, which was upheld by the CESTAT. The Tribunal concluded that penalty could only be imposed if there was a proven mala fide intention to evade duty, which was absent in this case. The Court agreed that penalty should only be imposed if mala fide intent was established, not solely based on duty demand.

Application of penalty under Section 11AC of the Central Excise Act, 1944:
The Tribunal found that the respondent's failure to keep track of obtaining re-warehousing certificates did not amount to mala fide intent for penalty imposition. Relying on past Tribunal decisions and the Supreme Court ruling, the Tribunal held that penalty should not be imposed in the absence of mala fide intention. The Court concurred with the Tribunal's reasoning, emphasizing that penalty should only be imposed when there is clear evidence of mala fide intent in duty evasion. As the adjudicating authorities found no ill-intention, mala fide, or fraud on the respondent's part, the Court dismissed the appeal, stating that penalty should not be automatically imposed based solely on duty demand without proven mala fide intent.