2014 (2) TMI 214 - HC - Central Excise

Penalty u/s 11AC - Denial of CENVAT Credit - Tribunal reduced penalty - Held that - Plea raised on behalf of the Revenue that there is no element of discretion even in absence of conditions mentioned under Section 11AC, cannot be accepted. In the present case, there is no finding or plea that the conditions mentioned in Section 11AC exist or that there is any mens rea on the part of the assessee. Thus, it is a case where there is delay in payment simplicitor for which penalty is leviable, in addition to the interest liability. In such circumstances, levy of minimum penalty cannot be held to be mandatory. Element of discretion is certainly available to be exercised on the principle of proportionality. The penalty has to be commensurate to the circumstances of default. Reduction of penalty to ₹ 1,00,000/- cannot be held to be arbitrary or perverse - Decided against Revenue.

Summary

Issues:
1. Calculation of interest liability.
2. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.

Issue 1: Calculation of interest liability

The appeal under Section 35G of the Central Excise Act, 1944 raised questions regarding the recovery of duty, interest liability, and the validity of the Ld. CESTAT's order. The appellant, a manufacturer of Mild Steel Ingots under the Compounded Levy Scheme, failed to pay due duty for a specific period. The Deputy Commissioner confirmed the duty demand with interest and penalty. On appeal, the duty and penalty amounts were reduced, and the Tribunal further adjusted the penalty and interest. The Tribunal directed interest to be calculated from the date of the Supreme Court's order in a specific case. The Revenue argued that interest should be calculated from the due date, not the Supreme Court's order. The Revenue's stance was accepted, and interest was to be calculated accordingly.

Issue 2: Imposition of penalty under Section 11AC

Regarding the imposition of penalty, the Revenue contended that the judgment in Union of India v. Dharamendra Textiles Processors mandated a fixed penalty under Section 11AC without discretion. However, the assessee argued that subsequent judgments clarified that Section 11AC did not apply universally without considering specific conditions. The Court found that in the absence of evidence of mens rea or specific conditions under Section 11AC, the penalty could not be mandatory. The Court emphasized the need for proportionality in penalty imposition, considering the circumstances of the default. As there was no finding of mens rea, the penalty was not mandatory, and discretion was available. The penalty was reduced to Rs. 1,00,000, deemed proportionate to the default. Consequently, the appeal was partly allowed in favor of the assessee.

This judgment clarifies the calculation of interest liability and the imposition of penalties under Section 11AC of the Central Excise Act, 1944. It highlights the importance of considering specific conditions and the principle of proportionality in penalty imposition, emphasizing discretion in penalty determination based on the circumstances of default.