2016 (12) TMI 1269 - HC - Central Excise

Imposition of penalty u/s 11AC - duty paid after detection by Department - Clandestine removal - short payment of duty - suppression of facts - reliance placed in the decision of the case of Dharmendra Textile 2008 (9) TMI 52 - SUPREME COURT and Rajasthan Spinning and Weaving Mills 2009 (5) TMI 15 - SUPREME COURT OF INDIA - in the case of Rajasthan Spinning, the tribunal had taken a view that there was no warrant for levy of penalty since the assessee had deposited the balance amount even before the show cause notice was issued. However, the Revenue contended that in the case of Dharmendra Textile, the Hon ble Supreme Court had taken a view that mere non payment or short payment of duty, without anything else would inevitably lead to imposition of penalty equal to the amount by which duty was short paid. Held that - After noting the facts at length, the arguments of both sides, the Hon ble Supreme Court of India concluded that The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of section 11AC - we see no reason to overturn or reverse the view taken by the tribunal. The view taken in its order passed and in the year 2005 cannot be said to be perverse or vitiated by any error of law apparent on the face of the record. Appeal dismissed - decided against appellant-Revenue.

Issues Involved:
1. Applicability of substantial questions of law based on higher court judgments.
2. Validity of the tribunal's decision regarding the imposition of penalty and interest.
3. Interpretation and applicability of Sections 11AB and 11AC of the Central Excise Act.
4. Consideration of the Supreme Court's judgment in Union of India vs. Dharamendra Textile Processors.

Detailed Analysis:

1. Applicability of Substantial Questions of Law Based on Higher Court Judgments:
The appeal was placed to determine if the substantial questions of law on which it was admitted are covered by any higher court judgment. The tribunal had followed a larger Bench decision in Commissioner of Central Excise, Delhi-III vs. Machino Montell (India) Ltd. The decision by the tribunal was challenged, and the High Court of Punjab and Haryana sent the matter back for a fresh decision on the issue of penalty.

2. Validity of the Tribunal's Decision Regarding the Imposition of Penalty and Interest:
The Revenue argued that the tribunal's findings could not be sustained in law, emphasizing that mandatory interest and penalty could not be waived due to the clear language of the statute. The tribunal had concluded that since the duty was paid and there was no willful misstatement or suppression of facts, interest and penalty were not recoverable. The show cause notice and the adjudication order were quashed by the tribunal.

3. Interpretation and Applicability of Sections 11AB and 11AC of the Central Excise Act:
The respondent argued that Sections 11AB and 11AC were not applicable to periods prior to their insertion. The common thread in these sections is the requirement of fraud, collusion, willful misstatement, or suppression of facts. The tribunal found that the assessee was not aware of the end use of the product at the time of clearance and had paid the differential duty after the actual sale for non-domestic purposes.

4. Consideration of the Supreme Court's Judgment in Union of India vs. Dharamendra Textile Processors:
The Supreme Court's judgment in Dharamendra Textile Processors concluded that the imposition of penalty under Section 11AC is mandatory and does not involve discretion. The tribunal's decision was based on the fact that the assessee had paid the duty before the issuance of the show cause notice, and there was no element of fraud or willful misstatement. The Supreme Court clarified that the penalty under Section 11AC is punishment for deliberate deception with the intent to evade duty.

Conclusion:
The High Court found no reason to overturn the tribunal's decision, as it was not perverse or vitiated by any error of law. The appeal was dismissed without any order as to costs, affirming the tribunal's view that the interest and penalty were not recoverable due to the absence of willful misstatement or suppression of facts by the assessee. The authoritative pronouncement by the Supreme Court in the case of Rajasthan Spinning and Weaving Mills further supported this conclusion.

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