2017 (8) TMI 106 - HC - Central Excise

Penalty - Shortage of inputs - Jurisdiction - Whether the CESTAT was justified in imposing penalty u/s 11AC of the Act, ignoring the fact that the Appellant has voluntarily paid the amount of duty equivalent to cenvat credit availed on the shortage of inputs as such issuance of show cause notice itself is without jurisdiction in view Section 11A(2B) of the Central Excise Act, 1944? - Held that - the excise duty not levied or paid or short-levied or short-paid or which is erroneously refunded if deposited before the issuance of show cause notice under Sub-Section (1) of Section 11A of the Act, the Central Excise Officer on receiving information of the said deposit shall not issue any show-cause notice as contemplated by Sub-Section (1) of Section 11A of the Act. The use of the expressions in respect of the duty and in respect of the duty so paid in Sub-Section (2B) of Section 11A of the Act clearly establishes that it refers to the notice for the purposes of realisation of the excise duty and the payment thereof. This is also clear from the language of Sub-Section (1) of Section 11A of the Act which requires issuance of show cause notice in respect of the excise duty only - Section 11A of the Act has no application in respect of realisation of penalty if any imposed under Section 11AC of the Act - the imposition of penalty under Section 11AC of the Act is justified even though the duty of excise has been paid voluntarily by the assessee and the notice issued for imposing penalty was neither without jurisdiction or in violation of Section 11A(2B) of the Act which in fact was not applicable - decided against assessee. Quantum of penalty - Whether in the alternative, the CESTAT was justified in not considering that duty was paid much prior to the passing of the order by the adjudicating authority, as such there was no justification for imposing 100% penalty and at the most 25% penalty may have been imposed in view of the proviso to the Section 11AC of the CEA, 1944? - Held that - There is no provision under the Act which places any obligation upon the adjudicating authority to first determine the penalty equal to 25% of the excise duty not levied or short levied or erroneously refunded and in the event it is not paid within 30 days to proceed to levy penalty of 100% of the deficient excise duty - There is no dispute that the assessee had deposited the duty determined and the interest even prior to determination of it by the Central Excise Officer but 25% of the penalty amount was not deposited by it within 30 days of the order which means it disentitled itself from the benefit of the reduced penalty as per the second proviso to Section 11 AC of the Act. Section 11AC of the Act neither requires the Central Excise Officer to determine the quantum of penalty to be 25% of the duty nor it require the Central Excise Officer to communicate the option available to the assessee under Section 11AC of the Act with regard to payment of 25% of the penalty - The determination of duty and penalty by itself is sufficient on part of the Central Excise Officer. It is then upon the assessee to pay 25% of the penalty within the stipulated period of 30 days to avail the benefit of the reduced penalty or to pay the whole of it. The benefit of reduced penalty of 25% is available to the assessee only on depositing the deficiency in duty determined with interest but also 25% of the duty determined by way of penalty within the stipulated period - The assessee not having deposited the said amount of 25% of the duty by way of penalty within 30 days of the communication of the order determining the duty and penalty, the assessee dis-entitled itself from the benefit of the reduced penalty - decided against assessee. Appeal dismissed - decided against appellant-assessee.

Summary

Issues Involved:
1. Justification of penalty imposition under Section 11AC of the Central Excise Act, 1944 despite voluntary duty payment.
2. Quantum of penalty under Section 11AC of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Justification of Penalty Imposition under Section 11AC:

The assessee, engaged in manufacturing excisable goods, faced a discrepancy in stock during a factory inspection. Upon detection, the assessee voluntarily deposited an additional duty of ?3,29,192/- before the issuance of a show cause notice. Despite this, a show cause notice was issued, and a penalty equal to the duty amount was imposed under Section 11AC of the Central Excise Act, 1944.

The assessee argued that under Section 11A(2B) of the Act, since the duty was paid voluntarily before the notice, no penalty should be imposed. The court analyzed Section 11A(1) and 11A(2B), concluding that these provisions pertain solely to the recovery of duties and not penalties. The court emphasized that Section 11A does not apply to penalty imposition under Section 11AC, which addresses penalties for duty evasion through fraud or suppression of facts.

Thus, the court held that the imposition of penalty under Section 11AC was justified, even if the duty was paid voluntarily before the notice, as Section 11A(2B) does not preclude penalty imposition.

2. Quantum of Penalty:

The second issue concerned whether the penalty should be 25% or 100% of the duty amount. The assessee contended that only 25% of the duty should be imposed as a penalty, given the voluntary payment of duty and interest before the show cause notice.

Section 11AC mandates a penalty equal to the duty amount for evasion through fraud or suppression. The court cited the Supreme Court’s ruling in Union of India Vs. Rajasthan Spinning and Weaving Mills, emphasizing the mandatory nature of the penalty under Section 11AC.

The court further analyzed the provisos to Section 11AC, which offer a reduced penalty of 25% if the duty, interest, and 25% penalty are paid within 30 days of the order. The assessee had not paid 25% of the penalty within this period, thus disqualifying from the reduced penalty benefit.

The court referenced decisions from the Bombay High Court in Commissioner of Central Excise, Raigad Vs. Castrol India Ltd., and the Delhi High Court in Principal Commissioner of Service Tax, Delhi-II Vs. Tops Security Ltd., which clarified that the reduced penalty benefit requires timely payment of the duty, interest, and 25% penalty.

Conclusively, the court held that the assessee, having failed to pay 25% of the penalty within 30 days, was liable for the full 100% penalty under Section 11AC.

Conclusion:

The court dismissed the appeal, affirming the imposition of a 100% penalty under Section 11AC, as the assessee did not qualify for the reduced penalty due to non-compliance with the stipulated payment period.