2009 (9) TMI 53 - HC - Central Excise

Levy of Penalty Duty deposited voluntarily before detection section 11AC held that - Once a case is covered by the situation mentioned in the Section mere deposit prior to issuance of show cause notice under Section 11A of the Act will not necessarily negate the situation mentioned in the said Section. - where the assessee is guilty of taking an action which is not bona fide then penalty can be imposed - applicability of Section 11AC is not excluded merely on deposit of the amount after having been caught but before the issuance of show cause notice levy of penalty upheld

Summary

Issues:
Whether interest and penalty is imposable even if C.E duty has been deposited by the assessee before Show Cause Notice in case where the said duties deposited not voluntarily but on detection by the department.

Analysis:
The case involved the assessee, a company engaged in manufacturing, who had deposited the central excise and VAT duties after the Department detected a shortage in raw materials subject to duties. The Department concluded that raw materials had been removed clandestinely. The Assistant Commissioner demanded payment along with interest and imposed a penalty, which was challenged by the assessee. The main contention was that since the amount was deposited before the notice, no penalty should be imposed. The Commissioner (Appeals) set aside the penalty, but the Tribunal rejected the revenue's appeal based on a precedent that penalty cannot be imposed if the amount is deposited before the notice.

The issue revolved around the interpretation of Section 11AC of the Act, which provides for penalties in cases of duty evasion due to fraud, collusion, misstatement, or contravention of the Act. The provision states that even if duty and interest are paid within 30 days of the order, a penalty equal to the duty determined is applicable. The Supreme Court precedent in Sony India Ltd. v. Commissioner of Central Excise established that penalties can be imposed if the assessee's actions are not bona fide, aligning with the principle that those evading duty through mala fide methods should not escape penalties when discovered.

The court analyzed the statutory provisions and held that Section 11AC imposes penalties in specific situations, regardless of the timing of the duty deposit. The court emphasized that depositing the amount after detection but before the notice does not exclude the applicability of Section 11AC. Therefore, the court ruled in favor of the revenue, allowing the appeal and upholding the penalty. The judgment highlighted that penalties can be imposed even if duties are deposited post-detection but pre-notice, to deter mala fide actions aimed at evading duty obligations.