2014 (3) TMI 420 - HC - Central Excise

Penalty u/s 11AC - delayed payment of duty though return was filed in time - tribunal observed that the delay was caused on account of inability of the Bank to give correct password. - Tribunal reduced penalty - Whether on the facts and in the circumstances of the case the CESTAT, New Delhi has committed an error of law in reducing the penalty levied upon the Respondent from ₹ 11,97,798/- imposed under the provisions of Rule 25 read with Section 11AC to ₹ 5,000/- under Rule 27 of the Central Excise Rules, 2002 - Held that - as per Rule 25(d) of the Rules subject to the provisions of Section 11AC of the Act, if any producer, manufacturer, registered person of a warehouse or a registered dealer, contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty, he is liable to pay the penalty in terms of Rule 25 of the Rules. The Court further observed that a bare perusal of this Rule would suggest that evasion of payment of duty is not sufficient to impose penalty on a producer or manufacturer. There should be an element of intention to evade payment of duty. Unless the authorities come to the definite conclusion that there was an intention to evade the payment of duty, a penalty cannot be imposed. We have perused the order of the Assistant Commissioner and the Commissioner Central Excise (Appeals). No case of clause (a), (b), (c) or (d) of Rule 25 has been made out. No case of fraud, collusion or any wilful statement or suppression of fact, or contravention of any other provisions of the act or of the rules made therein with the intent to evade the payment of duty, has been made out, which made respondents liable to pay duty as determined under sub-section (2) of section 11AC and liable to pay penalty - No substantial question of law arises - Following decision of COMMISSIONER OF C. EX., GUNTUR Versus ANDHRA CEMENTS LIMITED 2007 (4) TMI 265 - HIGH COURT OF JUDICATURE FOR ANDHRA PRADESH AT HYD - Decided against Revenue.

Summary

Issues Involved:

1. Whether the Tribunal erred in reducing the penalty from Rs. 11,97,798/- to Rs. 5,000/-.
2. Applicability of Section 11AC and Rule 25 of the Central Excise Rules, 2002.
3. Interpretation of "intent to evade duty" under Rule 25 and Section 11AC.

Detailed Analysis:

1. Reduction of Penalty:

The appeal questions the Tribunal's decision to reduce the penalty imposed on the respondent from Rs. 11,97,798/- to Rs. 5,000/-. The Tribunal based its decision on the fact that the respondent had deposited the duty along with interest and attributed the delay to the bank's inability to provide the correct password. The Tribunal referenced a similar case, Saurashtra Cement Ltd. Vs. CEE, where it was held that Rule 27, which prescribes a maximum penalty of Rs. 5,000/-, should be invoked in such circumstances. This decision was affirmed by the Gujarat High Court and the Special Leave Petition against it was dismissed.

2. Applicability of Section 11AC and Rule 25:

The appellant argued that the respondent's failure to deposit the duty, despite declaring it in the returns, amounted to misrepresentation or concealment, justifying the invocation of Section 11AC and Rule 25. However, the respondent contended that Section 11AC could only be invoked in cases of misstatement or concealment with intent to evade duty, which was not the case here. The Tribunal and the Gujarat High Court in Saurashtra Cement Ltd. emphasized that Rule 25 could only be invoked subject to the provisions of Section 11AC, which requires proof of intent to evade duty.

3. Interpretation of "Intent to Evade Duty":

The Tribunal and various High Courts have consistently held that for penalties under Rule 25 and Section 11AC, there must be a clear intent to evade duty. The Andhra Pradesh High Court in Commissioner of C. Ex. Guntur Vs. Andhra Cements Limited and the Kerala High Court in Superintendent of Central Excise Vs. Sance Pharmaceuticals both ruled that penalties require a finding of intentional evasion. The Madhya Pradesh High Court in Supreme Industries Limited Vs. C.E.S.T.A.T. also supported this view, stating that penalties should be enforced only with strict proof of intent to evade duty.

The Supreme Court in Union of India Vs. Rajasthan Spinning & Weaving Mills clarified that Section 11AC's penalty provisions apply only after establishing that the non-payment of duty was due to deliberate deception by the assessee. The Court further noted that the term "subject to" in Rule 25 indicates that its applicability is limited by the conditions in Section 11AC.

Conclusion:

The High Court concluded that no substantial question of law arose from the Tribunal's order. It found no evidence of fraud, collusion, willful misstatement, or suppression of facts by the respondent, which are prerequisites for invoking Section 11AC and Rule 25. Consequently, the appeal was dismissed, upholding the Tribunal's decision to reduce the penalty to Rs. 5,000/- under Rule 27.