2018 (8) TMI 320 - HC - Central Excise

Penalty under Rule 96ZP of the Rules - Compounding Scheme - Jurisdiction - power of Commissioner (Appeals) to impose penalty - Whether the CESTAT, New Delhi was justified in setting aside the order of the Commissioner (Appeals), Central Excise, Meerut and imposing maximum amount of penalty under Rule 96ZP of the Rules? - Held that - The law as regards imposition of penalty being settled by the Apex Court in the matter of Union of India vs. Dharamendra Textile processors 2008 (9) TMI 52 - SUPREME COURT , the Department is apparently justified in contending that the Commissioner (Appeals) does not have any its discretionary power to modify and reduce the quantum of penalty in comparison to the quantum of duty liability fixed by the lower authority. The records apparently disclose that the proceedings were initiated in terms of the provisions of law comprises under Rule 96 ZP of the said rules. Apart from the fact that the said rules nowhere provide any discretion to the authorities in the matter of quantum of penalty and the same clearly prescribe that the penalty should be equivalent to the amount of duty payable by the party in the facts and circumstances of the case, the Commissioner (Appeals) on assumption that there was no intention to evade payment of duty could not have reduced the quantum of penalty Decided in favor of assessee.

Summary

Issues:
1. Justification of setting aside the order of the Commissioner (Appeals) and imposing maximum penalty by CESTAT, New Delhi.
2. Liability for penalty when no duty outstanding as of a specific date.
3. Error of law in imposing maximum penalty when duty was already deposited before the show cause notice.
4. Permissibility of levying penalty without finding of intent to evade duty or mens rea.
5. Initiation and conclusion of proceedings after the repeal of certain rules without saving clause.

Analysis:
1. The appeal was filed under Section 35-G of the Central Excise Act against the Tribunal's order dated 27.10.2009. The questions raised included the justification of CESTAT, New Delhi in setting aside the Commissioner (Appeals) order and imposing the maximum penalty under Rule 96ZP of the Rules. The Tribunal held that the Commissioner (Appeals) lacked the discretionary power to modify the penalty amount, as the law mandated the penalty to be equivalent to the duty payable. The Tribunal cited the decision of the Apex Court in Union of India vs. Dharamendra Textile processors to support its decision.

2. The issue of liability for penalty when no duty was outstanding as of a specific date was also raised. The appellant argued that since the duty along with interest was deposited before the show cause notice, the penalty should not have been imposed. However, the Tribunal held that the compounding scheme did not allow for delays or late payments, leading to the imposition of the penalty.

3. The Tribunal addressed the error of law in imposing the maximum penalty despite the duty being deposited before the show cause notice. The Tribunal emphasized that the penalty amount should be equivalent to the duty payable, as per the rules, and the Commissioner (Appeals) could not reduce the penalty amount based on the absence of intent to evade duty.

4. The issue of permissibility of levying penalty without finding intent to evade duty or mens rea was discussed. The Tribunal highlighted that the law did not provide discretion to authorities regarding the quantum of penalty, and penalties should align with the duty liability. Without recording any act of mens rea, invoking penalty provisions was considered justified.

5. Lastly, the Tribunal deliberated on the initiation and conclusion of proceedings after the repeal of certain rules without a saving clause. The Tribunal concluded that the penalty order passed after the repeal of rules without a saving clause was not sustainable in law. The appeal was dismissed, and the questions were answered in favor of the department.

In summary, the Tribunal upheld the imposition of the penalty based on the duty payable, disregarding the appellant's arguments regarding the deposit of duty before the notice. The decision highlighted the strict application of penalty provisions in line with duty liabilities and legal precedents.