2014 (11) TMI 573 - HC - Central Excise

Jurisdiction of Tribunal - Penalty u/s 11AC - Whether the Appellate Tribunal is correct in reducing the penalty when holding that the respondent had an intention to evade payment of duty on the raw materials in question - Held that - it is not sufficient that the mere payment of duty either immediately prior to the show cause notice or immediately prior to the passing of the order of adjudication would absolve the assessee from the levy of penalty nor it could be treated as a mitigating circumstances for the purpose of reduction of penalty. It has been held that once the provisions of Section 11AC stands attracted and the authority recorded a clear finding that there is an intention to evade payment of duty then penalty equivalent, to the amount of duty becomes automatic. Tribunal while considering the case of the assessee concurred with the Original Authority as well as the first Appellate Authority that the conduct of the assessee was contumacious and their conduct was with an intent to evade payment of duty. Having recorded such a factual finding there was no jurisdiction for the Tribunal to reduce the penalty in terms of the language employed of Section 11AC - Decided in favour of Revenue.

Summary

Issues:
1. Whether the Appellate Tribunal has the power to reduce the mandatory penalty under Section 11AC of the Central Excise Act, 1944?
2. Whether the Appellate Tribunal is correct in reducing the penalty when holding that the respondent had an intention to evade payment of duty on the raw materials in question?

Analysis:

Issue 1:
The case involved an appeal by the Revenue against the Final order passed by the Customs, Excise and Service Tax Appellate Tribunal (Tribunal) regarding the reduction of penalty under Section 11AC of the Central Excise Act, 1944. The respondent had availed benefits under specific rules for procuring goods without payment of duty for export but was found to have diverted the goods into the local market. The Adjudicating Officer confirmed the duty demand and imposed penalties. The Commissioner of Central Excise (Appeals) upheld the decision, emphasizing that the conduct amounted to defrauding the Government. The Tribunal, while acknowledging the intentional evasion of duty by the respondent, reduced the penalty without providing reasons. The High Court referred to relevant Supreme Court decisions emphasizing the necessity of intent and contumacious conduct for penalty imposition. The Court held that once the authority finds an intent to evade duty, the penalty becomes automatic under Section 11AC, and the Tribunal had no jurisdiction to reduce it. Consequently, the Tribunal's decision to reduce the penalty was set aside, restoring the penalty imposed by the Adjudicating Authority.

Issue 2:
The Tribunal's reduction of the penalty was deemed unsustainable in law due to the established factual finding of the respondent's intent to evade payment of duty. The High Court emphasized that the mere payment of duty prior to the show cause notice or adjudication order does not absolve the assessee from penalty imposition, especially when there is a clear intent to evade duty. Referring to Supreme Court decisions, the Court reiterated the significance of intent and contumacious conduct in penalty imposition under Section 11AC. The Tribunal's act of reducing the penalty was considered beyond its jurisdiction, as the factual finding of intent to evade duty mandated the automatic imposition of penalty equivalent to the duty amount. Therefore, the High Court allowed the Civil Miscellaneous Appeal, setting aside the Tribunal's decision and restoring the penalty imposed by the Adjudicating Authority.

This detailed analysis of the judgment highlights the key legal issues, the factual background, the decisions of lower authorities, the Tribunal's ruling, relevant legal principles, and the High Court's final decision, providing a comprehensive understanding of the case.