2014 (9) TMI 222 - HC - Central Excise

Penalty u/s 11AC - Clearance of rough castings to Rice Mill Division without payment of duty - Held that - Under Section 11AC of the Act, it has been held by the Hon ble Supreme Court in the case of Dharamendra Textile Processors and Others reported in 2008 (9) TMI 52 - SUPREME COURT that it is mandatory and adjudicating authority has got no discretion to levy lesser penalty. There must be a factual finding rendered by stating that the act of the assessee attracts the conditions expressly contemplated under Section 11AC of the Act. From the reading of the order of the Tribunal, we could see no such finding of fact with regard to such an intention on the part of the assessee was rendered. Therefore, in the absence of any factual finding on that aspect, imposition of penalty cannot be sustained and therefore, the matter has to be remitted back to the Tribunal for rendering a factual finding as to whether there was any intention on the part of the assessee in not paying the duty in time. In fact the Tribunal had rejected the levy of penalty and interest only on the reason that assessee had paid the duty before issue of show cause notice. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 11AC of the Central Excise Act regarding the imposition of penalty.
2. Application of penalty under Section 11AC for non-payment of duty.
3. Imposition of interest under Section 11AB.

Issue 1: Interpretation of Section 11AC of the Central Excise Act regarding the imposition of penalty:
The case involved the interpretation of Section 11AC of the Central Excise Act concerning the imposition of penalties for non-payment of duty. The Hon'ble Supreme Court's decisions in the cases of Dharamendra Textile Processors and Others and Union of India v. Rajasthan Spinning and Weaving Mills clarified that the penalty under Section 11AC is mandatory and not subject to discretion. The court emphasized that once the section is applicable, the authority must impose a penalty equal to the duty determined. The judgment highlighted that the imposition of penalty must align with the conditions expressly stated in the section for its application.

Issue 2: Application of penalty under Section 11AC for non-payment of duty:
The assessee in this case had cleared rough castings to their Rice Mill Division without paying duty, leading to a show cause notice for duty recovery, interest, and penalties. The Original Authority demanded unpaid duty and imposed penalties under Section 11AC and Rule 173Q. Despite paying the duty before the show cause notice, the Commissioner modified the penalties. The Tribunal, however, ruled in favor of the assessee, stating that no penalty or interest was required since the duty was paid before the notice. The High Court emphasized the need for a factual finding on whether the assessee intended to evade duty before imposing penalties, remitting the matter back to the Tribunal for further consideration.

Issue 3: Imposition of interest under Section 11AB:
The case also addressed the imposition of interest under Section 11AB, which the Commissioner had modified. The High Court underscored the importance of factual findings regarding mens rea on the part of the assessee in not paying duty on time. Referring to relevant Supreme Court decisions, the court highlighted the necessity of aligning the imposition of penalties and interest with the conditions specified in the law. The High Court allowed the appeals, set aside the Tribunal's order, and remitted the matter back for a factual finding on the intention of the assessee in not paying duty promptly.

In conclusion, the High Court's judgment focused on the mandatory nature of penalties under Section 11AC, the requirement for factual findings on intention before imposing penalties, and the alignment of penalties and interest with the conditions specified in the law. The case highlighted the significance of legal interpretations and factual assessments in determining the imposition of penalties and interest in excise duty matters.