2016 (9) TMI 934 - AT - Central Excise

Imposition or otherwise of penalty - Section 11AC of the Act - original adjudicating authority did not imposed the penalty under Section 11 AC on the appellant but in appeal to Commissioner (A), Comm. (A) imposed such penalty - Held that - the reasoning adopted by the Commissioner (Appeal) to reinstate Sec. 11AC penalty are flawed. He has not given convincing grounds as to how he concludes that the qualifying ingredients for attracting Sec. 11AC have been satisfied, at the same time ignoring the submissions of the appellant on absence of mensrea and not disproving the detailed findings of the original authority. It is also to be noted that on query from the Department only, the Controller-Legal Metrology, Government of Andhra Pradesh vide letter dated 04-03-2009, clarified that the supplies to APHB is covered by the definition of Institutional consumers; that the sale is not retail and that printing RSP was not required. By this time, the appellant had already paid up the duty liability of ₹ 2,79,330/- along with interest three months earlier, in December, 2008. Yet, the Show Cause Notice was issued only in 18-01-2012. It is also not disputed that there was evident doubt on the applicability of Notification 4/2006 CE. The Honourable Apex Court has consistently held, in a number of land mark judgments, that when all facts were in the knowledge of the Department, or when there was genuine confusion on the leviability per se etc., penal provisions of Sec. 11AC cannot be imposed. For example in Pahwa Chemicals Pvt Ltd V/s CCE 2005 (9) TMI 92 - SUPREME COURT OF INDIA . Even in the Rajasthan Spinning and Weaving Mills judgment 2009 (5) TMI 15 - SUPREME COURT OF INDIA , the Apex Court has laid down that penalty under Sec.11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the Section. Therefore, by respectfully following the ratio set out in the above judgments, I have no hesitation in holding that the impugned order as unsustainable and bad in law. - Decided in favour of appellant

Summary

Issues:
1. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.

Analysis:
The case involved the appellant, a manufacturer of Clinker and cement, who cleared certain quantities of cement to a corporation at a lower duty rate than prescribed by Notification No.4/2006. The appellant was asked to pay the differential duty, which was paid up. A Show Cause Notice was later issued proposing a demand of differential duty, interest, and penalty under Section 11AC of the Act or Rule 25 of Central Excise Rules. The original adjudicating authority confirmed the demand but refrained from imposing the mandatory penalty under Sec. 11AC. The Department appealed against this decision, and the Commissioner (Appeals) allowed the appeal, stating that the penalty under Section 11AC should have been imposed.

The main issue in the appeal was the imposability of the penalty under Section 11AC. The original adjudicating authority reasoned that the penalty was not imposable as the appellant had not committed any fraud or collusion. The authority emphasized that the appellant had promptly paid the short payment upon being notified by the department, demonstrating a genuine belief in the applicability of the concessional rate. The authority cited a Supreme Court ruling to support its decision, stating that penalty under Section 11AC is not imposable if there is no deliberate deception by the assessee to evade duty.

However, the Commissioner (Appeal) reinstated the penalty under Section 11AC, which the appellant contested. The appellant argued that there was no mensrea involved, and the department was aware of all facts. The appellant had paid the duty liability promptly, even before a clarification was received from the Controller-Legal Metrology. The appellant also highlighted the evident doubt on the applicability of Notification 4/2006 CE. Citing landmark judgments, including Pahwa Chemicals Pvt Ltd V/s CCE and Rajasthan Spinning and Weaving Mills, the appellant contended that when all facts were known to the department and there was genuine confusion, penal provisions of Sec.11AC cannot be imposed.

The Tribunal, after considering the arguments and legal precedents, allowed the appeal, stating that the impugned order was unsustainable and bad in law. The Tribunal emphasized that penalty under Sec.11AC is a punishment for deliberate deception by the assessee to evade duty, which was not the case here. The decision was in line with established legal principles and previous Tribunal decisions, granting the appellant consequential benefits as per law.