2009 (1) TMI 164 - AT - Central Excise

Reduction of penalty u/s 11AC to 25% - if the appellants desire to go in appeal and if the stay petition is allowed, the benefit of reduction of 25% would shift to the stage of appellate order and so on - therefore if the Tribunal has admitted the appeal without insisting on pre-deposit of the mandatory penalty and other liabilities, the appellant would be entitled to reduction of mandatory penalty under Section 11AC to 25% if he makes the payment within 30 days from the date of communication of the order

Summary

Issues: Illicit removal of raw materials procured without payment of duty by the appellants 100% EOU; Penalty under Section 11AC of Central Excise Act, 1944.

In this case, the main issue revolves around the illicit removal of raw materials procured without payment of duty by the appellants, who are a 100% Export-Oriented Unit (EOU). The contention arises regarding the penalty under Section 11AC of the Central Excise Act, 1944. The appellant's representative argues that there is no evidence of clandestine removal, and the duty demanded has already been paid before the issuance of the show cause notice. On the other hand, the respondent's representative asserts that there is a clear admission by the receiver of the goods that they were received without payment of duty. Reference is made to the Supreme Court decision in the case of M/s. Dharmendra Textile Processors, emphasizing that penalty under Section 11AC is mandatory unless duty, interest, and penalty have been paid before the issue of the adjudication order or within a month thereafter.

The tribunal delves into the interpretation of Section 11AC of the Central Excise Act, 1944, in light of various judicial precedents. Initially, the Tribunal held that no penalty could be imposed if the duty was paid before the issuance of the show cause notice, as seen in the case of M/s. Machino Montell (I) Ltd. However, this decision was overturned by the Hon'ble High Court of Punjab and Haryana. Subsequent decisions by the Hon'ble High Court of Delhi, such as in the cases of M/s. Malbro Appliances P. Ltd. and M/s. K.P. Pouches Ltd., indicated that if duty was paid before the show cause notice, the penalty could be limited to 25%. The tribunal emphasizes the need to harmoniously interpret Section 11AC and Section 35F of the Act to ensure that the provisions are not nullified. It is concluded that if the appellant makes the payment of penalty within 30 days of the communication of the order, the penalty under Section 11AC shall be reduced to 25% of the duty amount, provided the full duty amount and interest are also deposited along with the penalty. Failure to do so would result in a penalty of 100% of the duty amount.

In summary, the tribunal's decision clarifies the application of penalty under Section 11AC in cases of duty payment before the issuance of show cause notice. It highlights the importance of timely payment and the implications of non-compliance with the provisions of the Central Excise Act, 1944. The judgment underscores the need for a balanced interpretation of statutory provisions to ensure fairness and compliance within the excise law framework.