2012 (6) TMI 697 - HC - Central Excise

Whether Tribunal was justified in directing the assessee to pay 25% of the penalty levied u/s 11AC within 30 days from the date of communication of the order passed by the Tribunal - non-payment of penalty at 25% of the duty determined u/s 11A(2) within 30 days from the date of communication of the order of the Central Excise Officer determining duty payable u/s 11A(2) - Held that - Instead of paying 25% of the penalty within the stipulated time, the assessee has chosen to file an appeal against imposition of penalty u/s 11AC and the Tribunal has permitted the assessee to pay 25% penalty beyond the time prescribed under the proviso to Section 11AC which is not permissible in law. When the legislature specifically fixes the time limit within which the duty with interest and penalty at 25% is to be paid for availing the incentive, it would neither be open to the appellate authority nor any other authority to permit the assessee to pay 25% penalty at any time other than the time prescribed under Section 11AC. The incentive in Section 11AC is intended to encourage payment of tax due to the revenue at the earliest without resorting to unwarranted litigation and it is not an incentive for violating the provisions of law. Therefore, benefit of paying lesser penalty cannot be extended to the assessee - Decided in favor of Revenue.

Issues Involved:
1. Justification of CESTAT's direction for the assessee to pay 25% of the penalty under Section 11AC within 30 days from the Tribunal's order.
2. Interpretation and application of Section 11AC of the Central Excise Act, 1944.

Detailed Analysis:

Issue 1: Justification of CESTAT's Direction for Reduced Penalty Payment
Background:
The CESTAT directed the assessee to pay 25% of the penalty within 30 days from the Tribunal's order, following the Delhi High Court's decision in K.P. Pouches (P) Ltd. v. Union of India. The revenue challenged this direction, arguing that the benefit of reduced penalty under Section 11AC is only available if the duty, interest, and 25% penalty are paid within 30 days from the communication of the Central Excise Officer's order.

Court's Analysis:
The court held that Section 11AC mandates a penalty equal to 100% of the duty determined under Section 11A(2) when there is an intention to evade duty. The first and second provisos to Section 11AC provide an incentive to reduce the penalty to 25% if the duty, interest, and 25% penalty are paid within 30 days of the communication of the Central Excise Officer's order. The court emphasized that this incentive is conditional and must be strictly adhered to within the stipulated time frame. Therefore, the CESTAT's direction to allow the payment of 25% penalty beyond the prescribed period was not permissible.

Issue 2: Interpretation and Application of Section 11AC
Background:
The assessee argued that the excess credit was taken due to clerical error and was reversed before the issuance of the show cause notice. They contended that the penalty under Section 11AC should not apply, or alternatively, the reduced penalty should be available.

Court's Analysis:
The court reiterated that once Section 11AC is attracted, the penalty equal to 100% of the duty determined is mandatory. The court referred to the Supreme Court's rulings in Union of India v. Dharmendra Textile Processors and Union of India v. Rajasthan Spg. & Wvg. Mills, which clarified that the penalty under Section 11AC is not discretionary. The court also noted that the legislature's intent behind the provisos to Section 11AC was to encourage prompt payment of duty and interest by offering a reduced penalty. However, this benefit is strictly conditional upon compliance within the specified time frame.

The court further clarified that it is not the responsibility of the Central Excise Officer to determine or communicate the 25% penalty. The assessee must independently comply with the conditions to avail the reduced penalty. The court found no merit in the argument that the provisions of Section 11AC should be read liberally, as the section imposes a penalty for intentional evasion of duty, and the incentive is meant to encourage compliance, not to reward violations.

Conclusion:
The court concluded that the CESTAT's direction to allow the payment of 25% penalty beyond the time prescribed under Section 11AC was contrary to the statutory provisions. The substantial question of law was answered in favor of the revenue, holding that the assessee must pay the penalty at 100% as they failed to comply with the conditions for the reduced penalty within the stipulated time.

Disposition:
The appeal was disposed of in favor of the revenue, with no order as to costs. The court also acknowledged the valuable assistance provided by Mr. Patil as amicus curiae.

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