2007 (8) TMI 184 - HC - Central Excise

Duty deposited before issuance of SCN No finding has been recorded by authorities that assessee removed goods with intention to evade duty or with mens rea No merit in the appeal of revenue to apply Sec 11AC for imposition of penalty of equal amount and same is liable to be dismissed

Summary

Issues:
- Whether equal penalty under Section 11AC is liable to be imposed on the assessee if duty has been deposited before the show cause notice is issued?
- Whether the Tribunal was justified in waiving the penalty imposed on the Director of the party under Rule 26 of the Central Excise Rules when he admitted the shortage of goods?

Analysis:

1. The case involved an appeal by the appellant-revenue challenging an order passed by the Tribunal. The appellant raised questions regarding the imposition of penalties under Section 11AC of the Central Excise Act, 1944. The respondent, a company engaged in manufacturing steel pipes, had a shortage of stock detected by the Central Excise Prevention Staff. The Director of the company admitted the shortage and deposited the duty amount before the show cause notice was issued. Penalties were imposed on both the company and the Director.

2. The Commissioner (Appeals) set aside the penalties on appeal, upholding the duty payment made before the show cause notice. The Tribunal dismissed the appeal, citing a precedent where penalties were not applicable if duty was paid before the notice. The appellant argued that a Division Bench had overturned this view, emphasizing that payment of duty before the notice did not exempt from penalties under Section 11AC, provided the conditions of fraud or intent to evade duty were met.

3. The Court examined Section 11AC of the Act, emphasizing that penalties are imposed for non-levy or short levy of duty due to fraud or suppression of facts with intent to evade payment. The presence of mens rea is crucial for such penalties. The Adjudicating Authority's orders lacked findings on mens rea or intentional evasion of duty by the Director. The Director's statement did not conclusively prove intent to evade duty, and the Court could not substitute the Authority's findings.

4. The Court noted that a previous Tribunal decision was overturned by a Division Bench, clarifying that duty payment before the notice did not automatically exempt from penalties under Section 11AC if fraud or intent to evade duty was established. The reversal of the earlier decision did not impact the outcome of the current appeal. Consequently, the appeal was deemed meritless and dismissed.