2015 (8) TMI 896 - HC - Central Excise

Penalty u/s 11AC - Evasion of duty - Duty on waste - Held that - Where non-payment of duty is not with an intent to evade of payment then there can be no occasion to impose penalty under Section 11AC of the Act. In the present facts, the impugned order has recorded a finding of fact that the non-payment of duty on the goods by the respondent-Assessee was on account of bonafide understanding that the said goods are not chargeable to excise duty. Thus, the condition precedent for invoking Section 11AC of the Act is not satisfied in the present facts. Consequently, in such cases the authority cannot impose a penalty under Rule 57U read with Section 11AC of the Act. In fact, it is pertinent to note that even under Rule 57U of the Rules penalty is imposable only when there has been an intent to evade payment of duty. The factual finding arrived at in the impugned order has not been shown to be arbitrary or perverse. - Decision in the case of Commissioner of Central Excise, Mumbai-V V/s. Guru Plastics Work reported in 2009 (9) TMI 830 - BOMBAY HIGH COURT and Rajasthan Spinning & Weaving Mills (2009 (5) TMI 15 - SUPREME COURT OF INDIA) followed - Decided against Revenue.

Summary

Issues:
Challenge to order under Section 35G of the Central Excise Act, 1944; Discretion to waive off penalty under Rule 57U(6) of the Central Excise Rule, 1944; Setting aside penalty if excise duty is paid before Show Cause Notice issuance.

Analysis:

1. Challenge to Order under Section 35G:
The judgment involves an appeal challenging an order passed by the Customs Excise & Service Tax Appellate Tribunal under Section 35G of the Central Excise Act, 1944. The appeal was admitted based on substantial questions of law related to the imposition of penalty and payment of excise duty.

2. Discretion to Waive Off Penalty:
The primary issue was whether authorities have the discretion to waive off penalty under Rule 57U(6) of the Central Excise Rule, 1944 read with Section 11AC of the Central Excise Act, 1944. The Revenue contended that once Section 11AC is invoked, there is no discretion to waive penalty, citing a Supreme Court decision. However, the respondent argued that if non-payment of duty was due to a bonafide belief, Section 11AC penalty does not apply, supported by another Supreme Court ruling.

3. Setting Aside Penalty for Pre-Payment of Duty:
The case also dealt with the question of whether penalty can be set aside if the evaded excise duty is paid before the issuance of the Show Cause Notice by the Department. The Tribunal held that if duty and interest are paid before the notice, and non-payment was due to a bonafide belief, then no penalty should be imposed. The High Court upheld this decision based on previous rulings and factual findings.

4. Judicial Precedents and Factual Findings:
The High Court referred to a Division Bench decision and Supreme Court rulings to determine that if non-payment of duty was not with an intent to evade payment, penalty under Section 11AC cannot be imposed. The factual finding that non-payment was due to a bonafide belief was crucial in deciding against the imposition of penalty.

5. Final Decision:
The Court answered the first question in favor of the respondent, stating that penalty cannot be imposed if non-payment was due to a bonafide understanding. Since the first question was resolved in favor of the respondent, the second question became academic and did not require an answer. Consequently, the appeal was dismissed based on the above findings.