2014 (9) TMI 329 - HC - Central Excise

Discrepancy in RG1 Register - finished goods in excess as against its recorded balance in RG-I register - Whether the learned Appellate Tribunal was justified in holding vide para 4.2 of the impugned order with regard to the duty demand of 12.12 MT Pig Iron and 153.36 MT of CI scull whereas there is no notice for demand of duty for 12.12 MT of Pig Iron in the show cause notice dated 15-2-2001 and the same is also observed by the Commissioner (Appeals) Raipur in his order-in-appeal dated 29-1-2007 vide paragraph 9 and therefore held that no duty is payable under the present proceedings - Held that - No notice for payment of duty for shortage of 12.12 MT was issued and as such no duty was payable, is contrary to facts and the Commissioner (Appeals) had also not recorded the fact correctly. A show cause notice dated 15th February, 2001 was issued to the appellant. Additional Commissioner considered the facts and held that the stock of 56.424 MT of Pig Iron and 58.575 MT of C.I. Scull valued at Rs .3,55,471/- and ₹ 2,92,375/-, respectively, was held to be in excess of the adjusted recorded stock in form IV/RG.23 Part-I, was ordered to be confiscated under Rule 173Q(1) of the Rules, 1944 with option to be redeemed on redemption was passed. On the basis of shortage of 12.12 MT vis-a-vis excess stock of Pig Iron and C.I. Skull Scrap a notice was issued on 15th February, 2001 for confiscation of alleged excess stock under Rule 173Q(1) of Rules, 1944 and for imposition of penalty on them under the same Rule. The show cause notice includes the demand of notice and, as such, finding of the Commissioner (Appeals) was rightly not upheld by the CESTAT and the CESTAT was justified in holding that the payment in respect of shortage of 12.12 MT of cenvated Pig Iron and 153.36 MT of cenvated C.I. Skull Scrap must be re-determined after adjusting the shortage detected in respect of this item on 25th June, 1999. Penalty u/s 11AC - Mens rea - Held that - On bare reading of Section 11AC of the Act, 1944, it is crystal clear that where any duty of excise 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 misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of Section 11A, shall also be liable to pay a penalty equal to the duty so determined. Thus, it is necessary to examine and hold that the short-levy or short-payment are willful misstatement or contravention of provisions of the Act or the rules was done with intention to evade payment of duty and for this there has to be pleadings and issues raised by the appellant or the department before the assessing authority or the appellate authority. No finding has been recorded at any stage. Necessary ingredients for penalty under Section 11AC of the Act, 1944 is intention of the assessee to evade payment of duty. In the case on hand, as no determination in respect of the intention to evade payment of duty or on mens rea was done, penalty cannot be imposed. Imposition of penalty under Section 11AC of the Act, 1944 without determining the necessary ingredient of intention to evade payment of duty or mens rea is quashed. However, liberty is reserved to the Department to re-determine the question of imposition of penalty after affording an opportunity of hearing to the appellant and on recording finding on the issue of intention to evade payment of duty or mens rea on the part of the appellant. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Justification of duty demand for 12.12 MT Pig Iron and 153.36 MT of CI Scull.
2. Automatic imposition of penalty under Section 11AC of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Justification of Duty Demand for 12.12 MT Pig Iron and 153.36 MT of CI Scull:
The first issue concerns whether the Appellate Tribunal was justified in holding the duty demand for 12.12 MT Pig Iron and 153.36 MT of CI Scull, despite no notice for such demand in the show cause notice dated 15-2-2001. The Commissioner (Appeals) observed that no duty is payable under the present proceedings due to the absence of notice for the demand of 12.12 MT of Pig Iron. However, the CESTAT re-examined the issue and upheld the duty demand, stating that the payment in respect of the shortage of 12.12 MT of cenvated Pig Iron and 153.36 MT of cenvated C.I. Skull Scrap must be re-determined after adjusting the shortage detected on 25th June, 1999. The High Court affirmed this view, noting that the show cause notice dated 15th February, 2001, included the demand for the alleged excess stock under Rule 173Q(1) of the Rules, 1944, and for imposing a penalty. Therefore, the question was answered affirmatively, supporting the CESTAT's decision.

2. Automatic Imposition of Penalty under Section 11AC of the Central Excise Act, 1944:
The second issue revolves around whether the imposition of penalty under Section 11AC is automatic without considering the element of "mens rea" or criminal intent. The Supreme Court's decision in Commissioner of Central Excise, Chandigarh v. Pepsi Foods Ltd. established that "mens rea" is a necessary constituent for attracting the penalty provision under Section 11AC. The High Court noted that there was no discussion or plea regarding intention or mens rea raised by the appellants in the orders passed by the authorities below and the CESTAT. Section 11AC mandates that the short-levy or short-payment must be due to fraud, collusion, or any willful misstatement or suppression of facts with intent to evade payment of duty. The High Court cited the Supreme Court's observations in Union of India v. Rajasthan Spinning and Weaving Mills, which clarified that the application of Section 11AC depends on the existence of the conditions expressly mentioned in the section. The High Court concluded that in the absence of a determination regarding the intention to evade payment of duty or mens rea, the penalty under Section 11AC could not be imposed. The question was answered accordingly, and the imposition of penalty under Section 11AC was quashed. However, the Department was granted liberty to re-determine the question of imposition of penalty after affording an opportunity of hearing to the appellant and recording a finding on the issue of intention to evade payment of duty or mens rea.

Conclusion:
The High Court partly allowed the appeal, affirming the duty demand for 12.12 MT Pig Iron and 153.36 MT of CI Scull while quashing the automatic imposition of penalty under Section 11AC of the Central Excise Act, 1944, due to the lack of determination on the intention to evade payment of duty or mens rea. The Department was granted liberty to re-determine the penalty issue after proper examination. No order as to costs was made.