2015 (2) TMI 89 - HC - Central Excise

Penalty u/s 11AC - Whether the CESTAT was right in reducing the penalty to ₹ 1,00,000/ contrary to the mandatory provision of Section 11AC of the Central Excise Act, 1944 and in view of the decision of the Supreme Court in the case of Sony India Ltd. - Vs - Commissioner of Central Excise, Delhi reported in 2004 (5) TMI 69 - SUPREME COURT OF INDIA - Held that - Following decision of The Commissioner of Central Excise Versus M/s. Mefco Engineers (P) Limited 2014 (12) TMI 863 - MADRAS HIGH COURT - and Union of India - Vs - Dharamendra Textile Processors (2008 (9) TMI 52 - SUPREME COURT) substantial question of law raised and admitted is answered in favour of the Revenue and against the assessee - Decided in favour of Revenue.

Summary

Issues:
1. Reduction of penalty under Section 11AC of the Central Excise Act by the Tribunal contrary to mandatory provisions.
2. Applicability of penalty under Section 11AC in cases of demand confirmed by invoking proviso to Section 11A.

Issue 1: Reduction of Penalty under Section 11AC by Tribunal
The case involves a dispute regarding the imposition of penalty under Section 11AC of the Central Excise Act on an assessee for adopting a lower value for clearing cotton yarn. The Original Authority confirmed duty payment with interest and a penalty of Rs. 2 Lakhs. The assessee appealed to the Commissioner (Appeals), who upheld the penalty. Subsequently, the Tribunal reduced the penalty to Rs. 1 Lakh, citing immediate discharge of duty liability upon receiving the show cause notice. The Revenue challenged this modification, arguing that the penalty reduction was unjustified. The Tribunal referred to conflicting decisions on penalty imposition based on the timing of duty payment. The Court analyzed the Supreme Court's decisions in Union of India v. Dharamendra Textile Processors and Union of India v. Rajasthan Spinning and Weaving Mills, emphasizing the mandatory nature of penalty under Section 11AC. The Court concluded that the Tribunal erred in waiving the penalty, as the Statute mandates penalty payment regardless of duty payment timing. The substantial question of law was answered in favor of the Revenue, setting aside the Tribunal's order.

Issue 2: Applicability of Penalty under Section 11AC
The core issue addressed was whether penalty under Section 11AC of the Central Excise Act becomes mandatory when demand is confirmed by invoking the proviso to Section 11A. The Court referred to previous cases and the Supreme Court decisions in Dharamendra Textile Processors and Rajasthan Spinning and Weaving Mills, which clarified the mandatory nature of penalty under Section 11AC. The Court highlighted that once Section 11AC applies, there is no discretion in quantifying the penalty, which must be equal to the duty determined under Section 11A(2). The Court emphasized that the mere payment of duty after receiving a show cause notice does not warrant waiving the penalty. Relying on the statutory provision of Section 11AC, the Court held that the Tribunal's deletion of the penalty was unjustified. The judgment favored upholding the mandatory penalty provision, reinforcing the legal obligation for penalty payment alongside duty liabilities.

This detailed analysis of the judgment from the Madras High Court highlights the key issues surrounding the reduction of penalty under Section 11AC and the mandatory nature of penalty imposition in cases of demand confirmed under Section 11A. The Court's thorough examination of relevant legal provisions and precedents underscores the importance of upholding statutory penalties to ensure compliance with Central Excise regulations.