2007 (8) TMI 252 - HC - Central Excise

Comm(A) converted penalty u/s. 11AC into penalty u/r 173Q & reduce it to an amount lesser than 100% or 25% of duty evaded Jt. Comm. in his OIO and Comm(A) in his order have recorded a finding indicating existence of circumstances as required by Section 11AC - once conditions required by Section 11AC are satisfied, the section doesn t leave any discretion with the authorities to impose lesser penalty than 100% duty short levied/short paid Order of comm.(A) is liable to set aside

Summary

Issues:
1. Conversion of penalty under Central Excise Act, 1944, into penalty under Rule 173Q of Central Excise Rules, 1944, and reducing it to an amount lesser than 100% / 25% of duty evaded.

Analysis:

Issue 1: Conversion of Penalty and Reduction in Amount
The case involved the question of whether authorities under the Central Excise Act, 1944, could convert the penalty under Section 11AC into a penalty under Rule 173Q of the Central Excise Rules, 1944, and reduce it to an amount lesser than 100% / 25% of the duty evaded. The facts revealed that the assessee had received dies/moulds on loan/returnable basis from a customer for manufacturing spares of motor vehicles without paying the full excise duty. The Joint Commissioner imposed a penalty under Section 11AC equal to 100% of the duty evaded. However, the Commissioner (Appeals) modified the penalty to Rs. 10,000 under Rule 173Q(a), effectively canceling the penalty under Section 11AC. The CESTAT upheld this decision, citing satisfactory reasons for the reduction. The High Court noted that Section 11AC applies in cases of fraud, collusion, or wilful misstatement to evade duty. The Commissioner (Appeals) had found suppression of material information, satisfying the requirements of Section 11AC. Therefore, the High Court held that the penalty should not have been converted and reduced without a finding against the existence of suppression.

Issue 2: Application of Section 11AC and Proviso to Section 11A(1)
The High Court compared Section 11AC and the proviso to Section 11A(1), noting that they both require mens rea or intention to evade duty through suppression of facts. The Commissioner (Appeals) had affirmed the existence of circumstances justifying Section 11AC. The High Court emphasized that the Commissioner (Appeals) could not take a contrary view in a hypothetical scenario. The Court found that the CESTAT had concurred without providing detailed reasons. Additionally, the High Court referred to a previous judgment emphasizing that Section 11AC allows no discretion to impose a penalty less than 100% unless the proviso applies. The High Court allowed the department's appeal, setting aside the decisions of the CESTAT and the Commissioner (Appeals), and restoring the original penalty imposed by the Joint Commissioner. However, it clarified that if the duty and interest were paid within 30 days, the penalty under Section 11AC would be reduced to 25% instead of 100%.

In conclusion, the High Court ruled in favor of the department, emphasizing the strict application of penalties under the Central Excise Act, 1944, and highlighting the importance of meeting the requirements of Section 11AC for imposing penalties related to duty evasion.