2017 (8) TMI 591 - HC - Central Excise

Reduction in the quantum of penalty - clandestine removal of goods - Whether the order of the Tribunal rejecting option to pay penalty which is granted as a matter of right under Section 11AC is valid in law? - interpretation of provisions of Section 11AC of the Central Excise Act, 1944 - Held that - a conjoint reading of the main provision with the first proviso would have us conclude that, in the ordinary course, where, duty has not been levied or paid, or has been short-levied and/or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act and the Rules made thereunder with the intent to evade the payment of duty, the Assessee is liable to pay penalty equivalent to 100% of the duty so determined. The first proviso, however, carves out an exception to the main section - perhaps, to maximise the revenue, by holding out to the Assessee that, if, it were to accelerate the payment of dues, (i.e., duty and interest), by paying the same within the outer limit of thirty (30) days of the communication of the order of the Central Excise Officer, the penalty imposed would get reduced to 25% of the duty so determined. It is incumbent on the part of the statutory authorities to bring to the notice of the Assessee that it is entitled to a statutory benefit under the first proviso to Section 11AC - the question is answered in favor of the Assessee and against the Revenue - appeal allowed - decided in favor of assessee.

Summary

Issues Involved:
1. Validity of the Tribunal's rejection of the option to pay a reduced penalty under Section 11AC.
2. Legitimacy of the Tribunal's decision to allow the Revenue's appeal in the absence of an appeal against the adjudicating authority's order reducing the penalty.

Issue-wise Detailed Analysis:

1. Validity of the Tribunal's Rejection of the Option to Pay Reduced Penalty under Section 11AC:

The Assessee, A.P. Steels, appealed against the Tribunal's judgment, which reversed the Commissioner (Appeals)'s decision to allow the Assessee to pay a reduced penalty of 25% of the duty within 30 days. The Tribunal based its decision on the Bombay High Court's judgment in Commissioner of Central Excise and Customs, Aurangabad Vs. V.V.Patil S.S.K. Limited, asserting that the Commissioner (Appeals) could not offer this option in cases of clandestine removal of goods.

The High Court examined Section 11AC of the Central Excise Act, 1944, which stipulates a penalty equal to the duty determined in cases of fraud, collusion, or suppression of facts. The first proviso to Section 11AC allows for a reduced penalty of 25% if the duty and interest are paid within 30 days of the order's communication. The Court emphasized that appellate proceedings are a continuation of the original proceedings, and thus, the Commissioner (Appeals) had the authority to offer the reduced penalty option. The Court found that the Tribunal misinterpreted the Bombay High Court's judgment, which did not address the issue at hand.

The Court also referenced the Delhi High Court's judgment in K.P.Pouchers (P) Ltd. V. Union of India, which supported the view that statutory authorities should inform the Assessee of their entitlement to a reduced penalty under the first proviso to Section 11AC. Consequently, the High Court concluded that the Commissioner (Appeals) acted within its rights in offering the reduced penalty option and set aside the Tribunal's order.

2. Legitimacy of the Tribunal's Decision to Allow the Revenue's Appeal in the Absence of an Appeal Against the Adjudicating Authority's Order Reducing the Penalty:

Given the High Court's conclusion on the first issue, the second issue was rendered redundant. The Court determined that the Tribunal's decision to allow the Revenue's appeal was unsustainable, as the Commissioner (Appeals) had the authority to offer the reduced penalty option.

Conclusion:

The High Court answered Question No.1 in favor of the Assessee, affirming the validity of the Commissioner (Appeals)'s decision to offer a reduced penalty. Question No.2 was deemed redundant. The impugned order of the Tribunal was set aside, and the Assessee's appeal was allowed without any order as to costs.