2009 (6) TMI 87 - HC - Central Excise

Penalty intention of evade duty / cenvat credit Modvat / Cenvat whether penalty is mandatory held that - It is, therefore, clear that not only there has to be fraud or willful misstatement or collusion or suppression of facts or contravention of any of the provisions of the Act or Rules, but that must be with an intent to evade the payment of duty. - only reason given has been that the respondent herein had not maintained proper accounts of raw materials and finished goods in statutory records. This would not meet or satisfy the predicates of Rule 57-I(4) of the Rules. In our opinion, therefore, the penalty imposed was really without jurisdiction and consequently we set aside the order of the Tribunal, Commissioner (Appeal) and A.O., to the extent of only penalty imposed under Rule 57-I(4).

Summary

Issues:
1. Reduction of mandatory penalty under Rule 57-I(4) by CESTAT.

Analysis:
The case involved a dispute regarding the imposition of a penalty under Rule 57-I(4) of the Central Excise Rules, 1944. The initial show cause notice was issued to the petitioner company for duty recovery and penalty imposition. The Assessing Officer confirmed the duty amount and imposed a penalty of Rs. 1,30,510 under Rule 57-I(4). The respondent appealed to the Commissioner (Appeals) who upheld the duty demand and penalty. Subsequently, the respondent appealed to CESTAT, which reduced the penalty to Rs. 25,000, stating that the penalty equivalent to duty made cannot be upheld without proper reasons for maintaining it at 100%. The High Court analyzed the language of Rule 57-I(4), emphasizing the mandatory nature of the penalty, which must be equal to the disallowed credit. The Court referred to a Supreme Court judgment to support the mandatory imposition of penalties under similar provisions. It criticized CESTAT for misdirecting itself in reducing the penalty and highlighted that the penalty should be based on available material, not the defense presented by the assessee.

Continuing the analysis, the Court discussed a subsequent Supreme Court case that emphasized the need for the Assessing Officer to record findings satisfying the requirements before imposing penalties under Section 11AC. Similarly, Rule 57-I(4) must be construed in a manner that addresses fraud, willful misstatement, collusion, or contravention of provisions with an intent to evade duty payment. The Court found that neither CESTAT nor the Commissioner (Appeals) addressed these crucial issues. Upon reviewing the A.O.'s order, the Court noted that the penalty was imposed solely based on improper account maintenance, which did not meet the requirements of Rule 57-I(4). Consequently, the Court set aside the penalties imposed by various authorities, emphasizing the necessity of fulfilling the specific conditions outlined in the rule for penalty imposition.

In conclusion, the High Court ruled in favor of the appellant, setting aside the penalty imposed under Rule 57-I(4) while confirming the rest of the orders. The judgment highlighted the mandatory nature of penalties under the rule, emphasizing the need for proper assessment and findings before imposing penalties related to duty evasion or contravention of provisions.