2016 (1) TMI 832 - AT - Central Excise

Penalty imposed on demand not sustainable - clandestine removal of the goods which were in contravention of various Central Excise Rules - Held that - The show cause notice issued to the respondents clearly and unequivocally accepts the fact that demand of duty liability cannot be sustained as the demand for duty in show cause notice is beyond the period of 5 years. Provisions of section 11 A of the Central Excise act 1944 mandates the Department to recover duty within a period of 5 years from the date of issuance of the show cause notice. There re no provisions to demand any duty beyond the period of 5 years from the date of show cause notice. The adjudicating authority has correctly followed the law and has held that when the demand is not sustainable on the question of limitation penalties can be imposed on the assessee under the Central Excise Rules 1944. We do not find any merits in the arguments put forth by the learned departmental representative. The judgement of Hon ble Supreme Court in the case of HMM Ltd 1995 (1) TMI 70 - SUPREME COURT OF INDIA will be directly applicable wherein their Lordships have clearly settled the law that question of penalty would arise only if the Department is able to sustain its demand. - Decided in favour of assessee.

Summary

Issues:
- Imposition of penalty on respondent when demand is not sustainable beyond 5 years from show cause notice.

Analysis:
The appeal was filed by the revenue against an order-in-original, alleging clandestine removal of goods in contravention of Central Excise Rules. The revenue contended that penalties should be imposed as the demand was not raised due to the period exceeding 5 years from the show cause notice. The departmental representative argued that penalties should apply based on the degree of probability established, citing a Supreme Court case. However, the respondent's counsel pointed out that the demand was not sustainable beyond the 5-year limit from the notice, and the investigation was flawed, lacking material to support the charges.

The Tribunal analyzed the issue of whether penalties could be imposed when the demand itself was not sustainable. It noted that the show cause notice acknowledged the limitation period and that duty recovery must occur within 5 years from the notice as per the Central Excise Act. The adjudicating authority correctly applied the law by stating that penalties can be imposed even if the demand is not sustainable due to limitation. Citing the Supreme Court case of HMM Ltd, the Tribunal emphasized that penalties can only arise if the Department can support its demand. Referring to the Godrej Soaps case, the Tribunal reiterated that penal provisions cannot stand if the demand is dropped for any reason.

Ultimately, the Tribunal upheld the adjudicating authority's decision to drop the penalty proceedings against the respondent. It found no merit in the revenue's arguments and concluded that the impugned order was legal and correct, warranting no interference. The appeal was rejected, affirming the decision pronounced in court on a specific date.