2014 (5) TMI 792 - HC - Central Excise

Interest u/s 11AB - Penalty u/s 11AC - whether the assessee would be absolved from the liability to pay 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 wilful mis-statement 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 - CESTAT was not correct in their finding that payment of differential duty before issuance of show cause notice would put an end to the penalty proceedings initiated against the assessee. Therefore, the said finding is liable to be set aside - However penalty reduced to 25% - Decided partly in favour of Revenue.

Summary

Issues:
1. Liability to pay penalty when duty amount paid before issuance of show cause notice.

Analysis:
The case involved a dispute regarding the liability to pay penalty under Section 11AC of the Central Excise Act and Rule 173Q of Central Excise Rules. The assessee, a detergent manufacturer, had incorrectly availed credit of duty on certain items of capital goods. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) accepted the valuation done by the assessee but allowed the appeal, stating that the duty difference had been paid before the issuance of the show cause notice, thus questioning the imposition of penalty by the Revenue. The Revenue contended that the assessee should still be liable to pay the penalty despite the early payment of the differential duty.

The core issue revolved around whether the assessee could be absolved from the penalty liability due to the payment of differential duty before the issuance of the show cause notice. The provisions of Section 11AB and Section 11AC were analyzed, which stipulate that penalty is applicable in cases of short-levy or non-levy of duty due to various reasons, including fraud or suppression of facts. The CESTAT's decision was based on the premise that early payment of differential duty negated the liability for penalty.

The Supreme Court's interpretation in Union of India v. Rajasthan Spinning and Weaving Mills highlighted that the mere payment of differential duty, whether before or after the show cause notice, does not absolve the assessee from penalty if the conditions specified in Section 11AC are met. The Court emphasized that penalty under Section 11AC is a punishment for deliberate deception to evade duty. Referring to earlier judgments, the Court clarified that once the section is applicable, the authority has no discretion in quantifying the penalty amount, which must be equal to the duty determined.

In light of the Supreme Court's ruling, the High Court held that the CESTAT erred in concluding that early payment of differential duty before the show cause notice would halt penalty proceedings. Consequently, the High Court ruled in favor of the Revenue, overturning the CESTAT's decision. The High Court directed the assessee to pay a penalty of 25% of the differential duty determined by the Original Authority, emphasizing the strict application of Section 11AC. The original Authority's penalty determination was modified to align with the statutory provisions, and the CESTAT's order was set aside.

In conclusion, the High Court allowed the Civil Miscellaneous Appeal in favor of the Revenue, reducing the penalty amount to 25% of the differential duty as determined by the Original Authority. No costs were awarded in the matter.