2007 (3) TMI 176 - HC - Central Excise

Penalty equal to demand of duty and penalty on director were set aside by Tribunal Deposition of duty before issue of SCN Penalty equal to demand can only be imposed in case of mens rea Intention to evade duty not proved by Dept. Tribunal s order is sustainable and legal

Summary

Issues:
1. Imposition of penalty under Section 11AC of Central Excise Act, 1944 when disputed duty amount is deposited prior to the issue of show cause notice.

Analysis:
The case involved an appeal under Section 35G of the Central Excise Act, 1944 against an order by the Custom Excise and Service Tax Appellate Tribunal, New Delhi. The dispute arose from the detection of shortages of chemicals and polyester film, resulting in alleged evasion of central excise duty. The Adjudicating Officer raised a demand for duty and imposed penalties under Rule 25 of the Central Excise Rules, 2002, along with penalties on the Director of the company. The Commissioner upheld this decision, leading to the appeal. The Tribunal ruled in favor of the manufacturer, stating that since the duty amount was paid before the show cause notice, no penalty was justified. The revenue challenged this decision, arguing a substantive question of law.

Upon hearing the arguments, the High Court examined the provisions of Section 11AC of the Act, emphasizing the requirement to establish intent to evade duty. The court noted that neither the Adjudicating Officer nor the final order contained any finding of such intent. Additionally, the duty had been paid before the issuance of the show cause notice, which the Tribunal considered as evidence of no intent to evade duty. Consequently, the court found no legal infirmity in the Tribunal's decision and dismissed the revenue's appeal. The court concluded that the appeal lacked merit and upheld the Tribunal's ruling.

In summary, the High Court's judgment focused on the interpretation of Section 11AC of the Central Excise Act, 1944 concerning the imposition of penalties for duty evasion. The court emphasized the necessity to prove intent to evade duty, which was not established in this case. The timely payment of duty before the show cause notice was a crucial factor in determining the absence of intent to evade duty, leading to the dismissal of the revenue's appeal.