2014 (12) TMI 654 - HC - Central Excise

Imposition of penalty - Section 11AC - non levy of penalty or levy of penalty below the minimum limit prescribed - Applicability of decision of Supreme Court in the case of Union of India and Others V. M/s Dharamendra Textile Processors and Others reported in 2008 (9) TMI 52 - SUPREME COURT - Held that - Decision was rendered by the Supreme Court on 29.9.2008. At the time of admission of these appeals, this Court did not have the benefit of this decision. Apparently, the Tribunal was also deciding the issue on the basis of law that was prevailing at that point of time and the various Tribunals took a view that the element of discretion was available while imposing penalty under Section 11AC of the Central Excise Act. Since that issue stands resolved by the Larger Bench of the Supreme Court, the first substantial question of law admitted by this Court does not bear any significance, since the levy of penalty under Section 11AC, has therefore become mandatory, nevertheless, the Tribunal has chosen to impose lesser amount of penalty, against which the Department has not filed any appeal. - Decided against the assessee. Levy of interest - Section 11AB - Held that - Appellant contended that Section 11AB could not be invoked for the period prior to the enactment of Finance Bill, 2001, to mean thereby, prior to 2001, Section 11AB was not applicable. The provisions of Section 11AB of the Central Excise Act came into effect from 28.9.1996 by Finance (No.2) Act, 1996. No doubt that in the year 2001, there is a change in the rate of interest from 11.5.2001 from 10% - 36% to 18% - 36% that is irrelevant. Therefore, the plea of the appellants that the Tribunal ought not to have been imposed interest under Section 11AB of the Central Excise Act is misconceived. - Decided against the assessee. once Penalty is imposed under Rule 173Q of the Central Excise Rules, no penalty could be imposed under Section 11AC of the Central Excise Act, when Section 11AC was introduced by Finance (No.2) Act, 1996 with effect from 28.9.1996, there is no bar in Section 11AC of the Central Excise Act to impose of penalty under Rule 173Q of the Central Excise Rules. Nevertheless, when Finance (No.2) Act 1996 brought in amendment by way of introduction of Section 11AC and other provisions, there was no corresponding amendment to Rule 173Q holding that if penalty is leviable under Section 11AC, no penalty could be levied under Rule 173Q of the Central Excise Rules. - The penalty under Rule 173Q of the Central Excise Rules is consequent to confiscation of goods, whereas penalty under Section 11AC of the Central Excise Act is equivalent to the duty determined. Therefore, there appears to be no mutual exclusion in relation to levy of penalty under Rule 173Q and Section 11AC. Accordingly, we answer the third substantial question of law in favour of the Revenue and against the assessee. - Decided against assessee.

Summary

Issues Involved:
1. Imposition of penalty under Section 11AC of the Central Excise Act.
2. Imposition of interest under Section 11AB of the Central Excise Act for the period prior to the enactment of the Finance Bill, 2001.
3. Imposition of penalties under Rule 173Q of the Central Excise Rules and Section 11AC of the Central Excise Act.

Detailed Analysis:

1. Imposition of Penalty under Section 11AC of the Central Excise Act:
The appellants contested the imposition of penalties under Section 11AC, arguing that the case involved the interpretation of notifications, which should exempt them from such penalties. The Tribunal, however, referred to the decision in Prem Pharmaceuticals Ltd. Vs. CCE, which held that penalties under Section 11AC are mandatory if the conditions specified are met. The Supreme Court's decision in Union of India and Others V. M/s Dharamendra Textile Processors and Others reinforced this, stating that the levy of penalty under Section 11AC is mandatory without discretion. Given this precedent, the court ruled that the imposition of penalties under Section 11AC was justified, answering the first substantial question of law against the appellants and in favor of the Revenue.

2. Imposition of Interest under Section 11AB:
The appellants argued that Section 11AB could not be invoked for the period prior to the enactment of the Finance Bill, 2001. However, the court clarified that Section 11AB came into effect from 28.9.1996 by Finance (No.2) Act, 1996, making the imposition of interest applicable from that date. The change in the rate of interest in 2001 was deemed irrelevant to the applicability of Section 11AB. Thus, the court found the appellants' argument to be misconceived and answered the second substantial question of law against the appellants and in favor of the Revenue.

3. Imposition of Penalties under Rule 173Q and Section 11AC:
The appellants contended that once a penalty is imposed under Rule 173Q, no penalty should be imposed under Section 11AC. The court noted that Section 11AC, introduced by Finance (No.2) Act, 1996, does not preclude the imposition of penalties under Rule 173Q. Citing the Supreme Court's decision in Zunjarrao Bhikaji Nagarkar Union of India & Ors, the court highlighted that penalties under Rule 173Q are consequent to the confiscation of goods, whereas penalties under Section 11AC are equivalent to the duty determined. Therefore, there is no mutual exclusion between the two provisions. Consequently, the court answered the third substantial question of law in favor of the Revenue and against the appellants.

Conclusion:
Both Civil Miscellaneous Appeals were dismissed, with the court ruling in favor of the Revenue on all three substantial questions of law. The penalties and interest imposed by the Tribunal were upheld, and the appellants' arguments were found to be without merit.