2017 (2) TMI 566 - HC - Central Excise

Whether the CESTAT is empowered not to impose penalty u/r 173Q of CER 1944 read with Section 11AC of Central Excise Act 1944 on the assessee who evaded Central Excise Duty by suppression of facts and in contravention of Rules under Central Excise Law? Held that - on considering section 11AC of the Act 1944 and Rule 173Q of the Rules 1944 both operates in different fields and the penalty leviable under both the provisions are different. The penalty u/s 11AC of the Act 1944 is leviable on the person who is liable to pay duty as determined under subsection (2) of Section 11 of the Act 1944. However the penalty u/r 173Q of the Rules 1944 is imposable / leviable on the manufacturer producer registered person of a warehouse or a registered dealer. Therefore in a given case the penalty u/s 11AC of the Act 1944 as well as u/r 173Q of the Rules 1944 i.e. under both the provisions shall be leviable / imposable. In a case where a composite penalty is levied under both the provisions i.e. u/r 173Q of the Rules 1944 and section 11AC of the Act 1944 and if it is found that it is not possible to bifurcate the penalty imposable u/s 11AC of the Act 1944 and Rule 173Q of the Rules 1944 and/or it is not possible to apportion quantum of penalty imposable u/r 173Q of the Rules 1944 and/or section 11AC of the Act 1944 in such a case the matter may be remanded to the appropriate Adjudicating Authority to redetermine the quantum of penalty either u/r 173Q of the Rules 1944 and/or section 11AC of the Act 1944 as the case may be. However to set aside the penalty imposed on the ground that a composite penalty has been imposed under Rule 173Q of the Rules 1944 and section 11AC of the Act 1944 shall be giving a premium to the person who has committed the wrong and/or has evaded the duty and/or has contravened the Rules. The consequences in such a case would be that there shall not be any penalty imposed under any of the provisions i.e. either under Rule 173Q of the Rules 1944 or under Section 11AC of the Act 1944. The learned CESTAT has materially erred in quashing and setting aside the order of penalty imposed upon the assessee imposed u/r 173Q of the Rules 1944 and Section 11AC of the Act 1944 - appeal allowed - decided in favor of appellant-Revenue.

Summary

Issues Involved:
1. Whether the CESTAT is empowered not to impose penalty under Rule 173Q of Central Excise Rules, 1944 read with Section 11AC of Central Excise Act, 1944 on the assessee who evaded Central Excise Duty by suppression of facts and in contravention of Rules under Central Excise Law.

Issue-wise Detailed Analysis:

1. Empowerment of CESTAT to Not Impose Penalty:

Facts:
The respondent assessee, engaged in manufacturing man-made fabrics, was found to have illicitly removed goods and possessed excess stock that did not tally with records. A show cause notice was issued, and the Commissioner adjudicated, imposing penalties and demanding duty. The CESTAT upheld the duty demand, confiscation, and interest liability but set aside the penalty imposed under Rule 173Q(1) of the Central Excise Rules, 1944 read with Section 11AC of the Central Excise Act, 1944.

Arguments by Revenue:
The Revenue argued that the CESTAT erred in quashing the penalty as the assessee evaded duty by suppressing facts. They contended that penalties under both Rule 173Q and Section 11AC are distinct and can be imposed concurrently. The CESTAT's decision to set aside the penalty on the ground of composite levy was challenged, emphasizing that both provisions serve different purposes and fields.

Arguments by Respondent:
The respondent supported the CESTAT's decision, arguing that composite penalties under Rule 173Q and Section 11AC are impermissible. They relied on precedents to support the claim that such composite penalties should be set aside.

Court's Analysis:
The court examined the provisions of Section 11AC and Rule 173Q, noting that both operate in different fields. Section 11AC imposes penalties for short-levy or non-levy of duty due to fraud or suppression of facts, while Rule 173Q targets contraventions by manufacturers, producers, or dealers. The court emphasized that penalties under both provisions can be imposed concurrently if applicable.

The court found that the CESTAT erred in setting aside the penalty solely on the ground of composite levy. It highlighted that the proper remedy would be to remand the matter for redetermination of penalties under the respective provisions, rather than setting aside the penalty entirely, which would unjustly benefit the wrongdoer.

Conclusion:
The court concluded that the CESTAT's decision to quash the penalty was incorrect. It held that penalties under both Rule 173Q and Section 11AC are imposable concurrently, and the matter should be remanded to the Adjudicating Authority for redetermination of the penalty amount under the respective provisions. The appeal was allowed, and the CESTAT's order setting aside the penalty was quashed. The question of law was answered in favor of the Revenue.