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2015 (2) TMI 562 - HC - Central ExciseWrongful availment of Cenvat credit - penalty under Section 11AC of the Central Excise Act and Rule 173Q - Whether the CESTAT is correct in setting aside the penalty imposed under section 11AC of the Central Excise Act, 1944 and Rule 173Q of the Central Excise Rules, 1944 in the case of clandestine removal of goods contravening the provisions of the Central Excise Law - Held that - Section 11AC of the Central Excise Act was introduced by Finance (No.2) Act, 1996 with effect from 28.9.1996. Section 11AC of the Central Excise Act gets attracted 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 mis-statement 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. With regard to the issue that 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. 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. - following the decision of the Supreme Court 1999 (8) TMI 142 - SUPREME COURT OF INDIA and the decision of this Court 2014 (12) TMI 654 - MADRAS HIGH COURT - Decided in favour of Revenue.
Issues Involved:
1. Whether the CESTAT is correct in setting aside the penalty imposed under section 11AC of the Central Excise Act, 1944 and Rule 173Q of the Central Excise Rules, 1944 in the case of clandestine removal of goods contravening the provisions of the Central Excise Law? 2. Whether the CESTAT is correct in upholding the Commissioner (Appeals) Order No.124/2003 M-II dated 29/10/2003 relying on case laws dealing with irregular imposition of penalty under Section 11AC of the Central Excise Act, 1944 for demands made prior to its enactment, whereas in the present case occurrence and detection of clandestine removal itself is after the enactment of section 11AC of the Central Excise Act, 1944? 3. Whether the CESTAT is correct in not considering and restoring the observations of Member Technical made in the case of M/s.Sutham Nylocots - vs - CCE, Coimbatore (2003 (161) ELT 287 (Tri-Chennai) and remanding the case to original authority? Issue-wise Detailed Analysis: 1. Setting aside the penalty under Section 11AC and Rule 173Q: The High Court examined whether the CESTAT was correct in setting aside the penalty imposed under Section 11AC of the Central Excise Act, 1944, and Rule 173Q of the Central Excise Rules, 1944. The Court highlighted that Section 11AC, introduced by the Finance (No.2) Act, 1996, mandates a penalty where any duty of excise has not been levied, paid, short-levied, short-paid, or erroneously refunded due to fraud, collusion, wilful misstatement, suppression of facts, or contravention of provisions with intent to evade payment of duty. The Supreme Court in Union of India and Others V. M/s Dharamendra Textile Processors and Others (2008 (231) ELT 3 (SC)) clarified that the penalty under Section 11AC is mandatory without any discretion. The Court noted that the Tribunal's decision was based on the prevailing law before this Supreme Court ruling, which had allowed for discretion in imposing penalties. Consequently, the High Court found that the CESTAT's decision to set aside the penalty was incorrect. 2. Upholding Commissioner (Appeals) Order No.124/2003 M-II: The Court scrutinized whether the CESTAT correctly upheld the Commissioner (Appeals) Order No.124/2003 M-II dated 29/10/2003, which relied on case laws dealing with irregular imposition of penalty under Section 11AC for demands made prior to its enactment. The Court emphasized that Section 11AC applies to occurrences and detections of clandestine removal post-enactment. The Supreme Court's interpretation in the Dharamendra Textile case confirmed that the penalty under Section 11AC is mandatory for post-enactment violations. The High Court concluded that the CESTAT erred in relying on case laws pertaining to pre-enactment demands and upheld the Commissioner (Appeals) order incorrectly. 3. Not considering the observations in M/s.Sutham Nylocots case: The Court evaluated whether the CESTAT failed to consider and restore the observations of Member Technical in the M/s.Sutham Nylocots case and remanding the case to the original authority. The High Court noted that the penalty under Rule 173Q of the Central Excise Rules pertains to confiscation of goods, while the penalty under Section 11AC is equivalent to the duty determined. The Supreme Court in Zunjarrao Bhikaji Nagarkar Union of India & Ors (1999 (112) ELT 772) clarified that the penalty under Rule 173Q is obligatory and not discretionary, similar to Section 11AC. The High Court concluded that there is no mutual exclusion between penalties under Rule 173Q and Section 11AC. Hence, the third question became academic as the primary issues were resolved in favor of the Revenue. Conclusion: The High Court allowed the Civil Miscellaneous Appeals, answering the substantial questions of law in favor of the Revenue and against the assessee, and ruled that penalties under Section 11AC and Rule 173Q are mandatory and not mutually exclusive. The CESTAT's decision to set aside the penalties was found to be incorrect based on the Supreme Court's interpretations.
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