2015 (3) TMI 737 - HC - Central Excise

Evasion of duty - Ignorance of law - Imposition of penalty u/s 11AC - Held that - There is a specific finding by the Commissioner that only due to ignorance of law, the assessee has not paid the duty. It is trite law that ignorance of law cannot be a ground to avoid tax liability and to allow the appeal. There is yet another factor involved in the present case, viz., IOC being a public sector undertaking, as has been admitted by the Tribunal, is under excise control for generations. IOC has supplied goods in bulk and, therefore, show cause notice has also been issued on them. Therefore, IOC should have been well aware of the change in circumstances. In such circumstances, it should be expected that the assessee was aware of the position through IOC. Further, the assessee having an unit at Bombay, would have been aware of the changes in the law and, therefore, it cannot come before this Court and seek indulgence on the ground of ignorance of law. IOC, which is a public sector undertaking and admittedly coming under the Excise Control for generations, as observed by the Tribunal, should have, at the time of supply of bulk goods, informed the assessee that on repacking, duty liability has to be discharged. In this case, correct information was not disclosed to escape payment of duty. - The statement recorded from the persons and the finding of the Commissioner in the earlier and later orders clearly show that it is a case where proviso to Section 11A could be invoked. Taking note of the specific provision of Section 11AC where there is a specific mandate that the assessee shall be liable to pay penalty, the mere payment of duty even after the show cause notice is not a ground to waive penalty. Hence, the Tribunal is not justified in deleting the penalty imposed under Section 11AC of the Central Excise Act. Such a mandate under the Statute cannot be given a go-by by the Tribunal. - penalty imposed under Section 11AC is justified. Since this Court has held that the duty demand and the penalty are justified due to suppression of materials by the assessee, the consequential payment of interest on delayed payment of duty stands attracted automatically and the Revenue is justified in invoking Section 11AB directing payment of interest. - Decided in favour of Revenue.

Summary

Issues Involved:
1. Validity of the Tribunal's decision to remand the case for re-quantification of duty based on the assessee's plea of ignorance of law.
2. Legitimacy of deleting the penalty under Section 11AC and ordering the payment of interest under Section 11AB.
3. Appropriateness of vacating the penalty and interest demand by observing the absence of ingredients to invoke the larger period while the assessee started paying duty only after the Department's investigation.

Issue-wise Detailed Analysis:

1. Validity of the Tribunal's Decision to Remand the Case:
The Tribunal had set aside the Commissioner's order and remanded the case for re-quantification of duty, accepting the assessee's plea of ignorance of law. The High Court found that ignorance of law cannot be a valid excuse to avoid tax liability. The Court emphasized that both the assessee and IOC, a public sector undertaking familiar with excise controls, should have been aware of the legislative changes. The Court cited precedents, including the Supreme Court's rulings in *Chemphar Drugs & Liniments* and *Pushpam Pharmaceuticals Company*, stressing that deliberate suppression of facts to evade duty is necessary to invoke the larger period under Section 11A. The High Court concluded that the Tribunal's acceptance of ignorance of law was incorrect and ruled in favor of the Revenue.

2. Legitimacy of Deleting the Penalty under Section 11AC and Ordering the Payment of Interest under Section 11AB:
The Tribunal had deleted the penalty under Section 11AC and ordered the payment of interest under Section 11AB, citing the absence of mens rea and the assessee's ignorance of the law. The High Court, however, referred to the Supreme Court's decisions in *Dharmendra Textile Processors* and *Rajasthan Spinning & Weaving Mills*, which clarified that once the conditions under Section 11AC are met, the penalty is mandatory without discretion. The High Court reiterated that the mere payment of duty after the show cause notice does not exempt the assessee from the penalty. Consequently, the High Court found the Tribunal's decision to delete the penalty unjustified and ruled in favor of the Revenue.

3. Appropriateness of Vacating the Penalty and Interest Demand:
The Tribunal had vacated the penalty and interest demand, observing that the ingredients to invoke the larger period were absent, as the assessee started paying duty only after the Department's investigation. The High Court disagreed, emphasizing that the element of mens rea and suppression of facts were evident in the case. The Court noted that the assessee's activities, which were undisclosed for seven months, indicated an intention to evade duty. The High Court held that the Tribunal's finding of no mens rea was without basis and that the invocation of the larger period and the imposition of penalty and interest were justified. The Court ruled in favor of the Revenue, setting aside the Tribunal's order.

Conclusion:
The High Court allowed the appeal, setting aside the Tribunal's order. The Court ruled that the plea of ignorance of law could not exempt the assessee from duty liability, penalty, and interest. The invocation of the larger period under Section 11A, the imposition of penalty under Section 11AC, and the demand for interest under Section 11AB were upheld as justified. The substantial questions of law were answered in favor of the Revenue and against the assessee.