2014 (5) TMI 527 - HC - Central Excise

Penalty u/s 11AC - whether the assessee would be absolved from the liability to pay interest and penalty in view of their payment of differential duty before the issuance of show cause notice - Held that - Section 11AB deals with interest on delayed payment of duty. Similarly Section 11AC deals with penalty for short-levy or non-levy of duty in certain cases. Both these provisions indicate that in case the duty has not been levied or paid or has been short levied or short paid or erroneously refunded by reasons of fraud, collusion or any willful misstatement or suppression of facts, or contravention of any of the provisions of the Central Excise Act or the Rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty shall also be liable to pay penalty equal to the duty so determined. The assessee is also liable to pay interest for the period in question. Inspection was conducted on 19th August, 2000. The assessee paid the differential duty on 22nd August, 2000. The show cause notice was issued only on 20th February, 2004. In spite of payment of the entire duty amount even before issuance of show cause notice, and in fact within three days of inspection, the Original Authority imposed penalty equal to the duty amount determined - When the assessee is having the benefit of payment of penalty at 25% of the duty determined, in case the duty is paid within a period of thirty days after the issuance of show cause notice, it is beyond logic as to why they should not be given the indulgence to pay penalty at 25%. The prompt payment of duty after pointing out suppression and before issuance of show cause notice cannot be taken as a negative factor against the assessee to claim penalty at 100%. In case, the penalty is paid even before issuance of show cause notice, necessarily, the assessee should be given the benefits of the first proviso to Section 11AC of the Act. - Penalty reduced to 25% - Decided partly in favour of Revenue.

Summary

Issues:
1. Challenge to order rejecting appeal on grounds of duty payment prior to show cause notice.
2. Interpretation of penalty and interest provisions under Central Excise Act.
3. Application of Supreme Court judgments on penalty imposition.
4. Justification of penalty amount in relation to duty determined.

Detailed Analysis:

1. The appeal challenges an order rejecting the Revenue's appeal due to the assessee paying duty before the show cause notice, absolving them from penalty under Section 11AC of the Central Excise Act. The assessee corrected under-valuation by paying differential duty post-inspection, leading to a show cause notice and subsequent penalty demand.

2. The core question revolves around the liability for interest and penalty under Sections 11AB and 11AC. The authorities differed on whether pre-show cause notice duty payment exempts penalty. The Act mandates penalty and interest for duty evasion due to fraud or misstatement, irrespective of duty payment timing.

3. The judgment cites the Supreme Court's stance in Union of India v. Rajasthan Spinning and Weaving Mills, emphasizing that mere duty payment pre or post show cause notice does not absolve penalty liability under Section 11AC. The penalty is a consequence of deliberate deception to evade duty, as per legal provisions.

4. The Original Authority imposed a penalty equal to the determined duty, contrary to the Act's provision allowing a 25% penalty if duty and interest are paid within 30 days of the officer's order. The court ruled in favor of the assessee, reducing the penalty to 25% of the differential duty, aligning with the Act's intent and the Supreme Court's interpretation.

In conclusion, the judgment clarifies the legal obligations regarding penalty and interest under the Central Excise Act, emphasizing the consequences of duty evasion and the applicability of penalties despite duty payment timing. It highlights the need for adherence to statutory provisions and precedent judgments to ensure fair and consistent enforcement of excise laws.