2007 (7) TMI 183 - HC - Central Excise

Whether imposition of penalty is necessary even if evaded excise duty is paid by the assessee, before service of SCN - Assessing Officer, while confirming the notice, has recorded a finding that there was no suppression of facts - no penalty u/s 11AC is imposable in view of payment of duty before issuance of show cause notice and more so when finding recorded is against existence of any circumstances attracting Section 11AC appeal dismissed

Summary

Issues:
1. Imposition of penalty under Section 11-AC of the Central Excise Act, 1944 for evasion of excise duty.
2. Necessity of imposing penalty even if evaded excise duty is paid before the service of a show cause notice.

Analysis:
1. The case involved a situation where the respondent-assessee was found to have short paid duty, which was promptly rectified by the assessee before the issuance of a show cause notice. The Joint Commissioner confirmed the demand for short paid duty but discharged the penalty under Section 11AC, citing that there was no contravention or suppression of facts by the assessee. The Commissioner (Appeals) and CESTAT upheld this decision, emphasizing that penalty under Section 11AC was not applicable due to the payment of the duty before the show cause notice was issued. The key factor was that the short payment was due to a mistake in claiming CENVAT credit during the previous management's tenure.

2. The Assistant Solicitor General argued that payment of duty before the show cause notice does not automatically exempt the assessee from penalty, citing a judgment from Punjab and Haryana High Court. However, the amicus curiae relied on a decision by the Bangalore Tribunal, which supported the view that if duty is paid before the issuance of a show cause notice, there is no justification for imposing penalties under Section 11AC. The High Court followed the Bangalore Tribunal's decision, emphasizing that no penalty under Section 11AC was imposable in this case due to the payment of duty before the notice and the absence of circumstances warranting the application of Section 11AC.

3. Additionally, the High Court referred to a judgment by another Division Bench of the same court, which held that no substantial question of law arose when duty was paid before the issuance of a show cause notice. Despite the Assistant Solicitor General's argument regarding the allegation of suppression of material facts in the show cause notice, the court noted that the Assessing Officer had found no suppression of facts, reinforcing the position that penalty under Section 11AC was not warranted in this case.

4. Ultimately, the High Court dismissed the appeal, concluding that no penalty under Section 11AC was applicable given the payment of duty before the show cause notice and the absence of circumstances justifying the imposition of such penalty. The court emphasized the importance of following the precedent set by the Bombay High Court in similar cases, maintaining consistency in judicial decisions.