2015 (2) TMI 87 - HC - Central Excise

Penalty u/s 11AC - Held that - Issue stands covered by the decision of the Supreme Court in Union of India - Vs - Dharamendra Textile Processors (2008 (9) TMI 52 - SUPREME COURT) and Union of India- Vs - Rajasthan Spinning and Weaving Mills (2009 (5) TMI 15 - SUPREME COURT OF INDIA). - Decided in favour of Revenue.

Summary

Issues:
1) Reduction of penalty by the Tribunal under Section 11-AC of the Central Excise Act.
2) Authority of the Tribunal to reduce penalty without reducing duty amount.
3) Correctness of Tribunal's action in reducing penalty equivalent to duty amount.

Issue 1: Reduction of Penalty under Section 11-AC:
The case involved an appeal by the Revenue against the Tribunal's decision to reduce the penalty imposed on the assessee. The Tribunal had lowered the penalty amount, equivalent to the duty under Section 11-AC of the Central Excise Act, from the original amount to a mere Rs. 20,000. The Revenue contested this reduction, arguing that the penalty was mandatory under the statute, as clarified by the Supreme Court's decisions in Union of India v. Dharamendra Textile Processors and Union of India v. Rajasthan Spinning and Weaving Mills. The Court held that the Tribunal had no discretion in quantifying the penalty once Section 11-AC applied, and the penalty must be equal to the duty determined under the Act. Therefore, the Tribunal's reduction of the penalty was deemed unjustified, and the Court ruled in favor of the Revenue.

Issue 2: Authority of Tribunal to Reduce Penalty without Duty Reduction:
The Tribunal's decision to reduce the penalty without altering the duty amount was also questioned. The Court emphasized that the Tribunal's discretion in penalty imposition was limited once Section 11-AC was applicable. The Court cited the Supreme Court's rulings to support the position that the penalty should match the duty determined under the Act. Therefore, the Tribunal's action in lowering the penalty without addressing the duty amount was deemed incorrect and not in line with the statutory mandate.

Issue 3: Correctness of Tribunal's Action in Reducing Penalty Equivalent to Duty:
The Tribunal's decision to reduce the penalty, equivalent to the duty amount demanded, was scrutinized for its correctness. The Tribunal had justified the penalty reduction by deeming the original penalty amount too harsh. However, the Revenue argued that such leniency was not permissible under the law, citing the Supreme Court's judgments. The Court agreed with the Revenue, emphasizing that the penalty must align with the duty determined under Section 11-AC. Consequently, the Tribunal's action in reducing the penalty equivalent to the duty amount was found to be incorrect, leading to the Court setting aside the Tribunal's order and ruling in favor of the Revenue.

In conclusion, the High Court of Madras overturned the Tribunal's decision to reduce the penalty imposed on the assessee, emphasizing the mandatory nature of penalties under Section 11-AC of the Central Excise Act. The Court's judgment aligned with the Supreme Court's interpretations of the law, ensuring that penalties are commensurate with the duty determined, without discretionary leniency.