2009 (4) TMI 72 - HC - Central Excise

After reading Section 11 AC, the Division Bench of the same Court in case of K.P.Pouches (P) Ltd concluded that according to the proviso only 25% of the duty of excise was payable - when the statutory authorities are acting illegally and contrary to the 1st proviso to S. 11 AC, assessee cannot be faulted to challenge the order passed by the Asst. Commissioner which fault was also repeated by the Commissioner (A) - agreeing with the view taken by Division Bench, Tribunal rightly concluded that the dealer- respondent was liable to pay penalty to the extent of 25% of the amount of duty determined by the officer concerned - it is necessary to observe that the Tribunal is required to take into account the correct rationale of law as per statutory provisions rather than following the judicially condemned approach revenue appeal fails

Issues Involved:
1. Applicability of reduced penalty under Section 11 AC of the Central Excise Act, 1944.
2. Interpretation of the second proviso to Section 11 AC regarding the payment of penalty within thirty days.
3. Applicability of the Supreme Court judgment in Union of India v. Dharmendra Textile Processors.

Issue-wise Detailed Analysis:

1. Applicability of Reduced Penalty under Section 11 AC of the Central Excise Act, 1944:
The core issue in the case was whether the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) was correct in allowing the benefit of a reduced penalty of 25% of the duty amount when the penalty was not paid within thirty days, as required by the second proviso to Section 11 AC of the Act. The dealer-respondent, engaged in manufacturing unprocessed woven fabrics, was found to have cleared goods without payment of duty. They admitted their default and paid the duty along with interest before the issuance of the show cause notice. The Adjudicating Authority confirmed the duty and imposed a penalty equivalent to the duty amount. However, the Tribunal reduced the penalty to 25% of the duty amount, relying on the judgment of the Delhi High Court in CCE v. Malbro Appliances Private Ltd.

2. Interpretation of the Second Proviso to Section 11 AC Regarding the Payment of Penalty within Thirty Days:
The second proviso to Section 11 AC stipulates that if the duty and interest are paid within thirty days from the date of communication of the order, the penalty would be 25% of the duty determined. The Tribunal's decision to reduce the penalty was based on this proviso. The dealer-respondent argued that they were deprived of the opportunity to pay the reduced penalty because the benefit of the proviso was not extended to them initially. The High Court agreed, stating that the Adjudicating Authority's order did not provide an opportunity for the dealer-respondent to deposit 25% of the duty amount as penalty, which was contrary to the express provisions of the second proviso.

3. Applicability of the Supreme Court Judgment in Union of India v. Dharmendra Textile Processors:
The revenue argued that the Supreme Court's judgment in Union of India v. Dharmendra Textile Processors mandated a penalty equal to the duty amount. However, the High Court found that the judgment did not consider the first and second provisos added in 2000, which allowed for a reduced penalty. The High Court concluded that the Tribunal's decision to impose a 25% penalty was correct, not because of judicial discretion, but due to the statutory provisions of the first and second provisos to Section 11 AC.

Conclusion:
The High Court dismissed the revenue's appeal, upholding the Tribunal's decision to reduce the penalty to 25% of the duty amount. The dealer-respondent was directed to deposit the penalty within thirty days from the receipt of the order. The High Court emphasized that the Tribunal should follow the correct statutory provisions rather than a judicially condemned approach.

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