2008 (1) TMI 401 - HC - Central Excise

Whether the penalty under Section 11AC of Central Excise Act, 1944 read with Rule 173Q of erstwhile Central Excise Rules, 1944 is mandatory and equal to the duty demanded or the authority has discretion to impose lesser penalty? Held that - Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Moreover a perusal of the grounds of appeal in the present case would show that the Revenue has not at all challenged the finding of fact given by the Tribunal against the assessees. The question sought to be raised does not arise against the respondent/assessee in the facts and circumstances of the case. Thus, we find no infirmity in the orders of the Tribunal and therefore, the appeal is dismissed.

Summary

Issues:
- Interpretation of penalty under Section 11AC of Central Excise Act, 1944 read with Rule 173Q of erstwhile Central Excise Rules, 1944.

Analysis:
The case involved an appeal by the Commissioner of Central Excise Commissionerate against an order passed by the Customs, Excise & Service Tax Appellate Tribunal. The issue at hand was whether the penalty under Section 11AC of the Central Excise Act, 1944, along with Rule 173Q of the erstwhile Central Excise Rules, 1944, was mandatory and equal to the duty demanded, or if the authority had the discretion to impose a lesser penalty. The facts of the case revolved around M/s Aravali India Ltd., accused of wrongfully availing Modvat credit. The investigation revealed discrepancies in the transportation of goods, leading to allegations of causing losses to the exchequer. The adjudicating authority imposed various penalties on the company and individuals involved. Subsequent appeals were filed, resulting in the Tribunal dismissing one appeal, reducing penalties in another, and allowing the appeal filed by the respondent/assessee, thereby deleting a penalty imposed on him. The Tribunal's decision was based on the lack of evidence of mens rea against the respondent and the absence of findings related to fraud or willful misstatement. The Tribunal emphasized the necessity for penalties to be imposed judiciously, especially in quasi-criminal proceedings. The judgment highlighted that penalties should not be imposed solely because they are lawful, but rather as a result of deliberate defiance of the law or contumacious conduct.

The High Court, in its analysis, found that the question of law raised by the appellant was misconceived and did not apply to the respondent/assessee. The Court referred to a similar case pending before it and emphasized the absence of mens rea in the respondent's actions. The judgment cited precedents, including the case of Hindustan Steel Ltd. v. State of Orissa, to underscore the discretionary nature of imposing penalties. It was noted that penalties should not be imposed for technical or venial breaches, or when the offender acts based on a genuine belief contrary to statutory obligations. The Court observed that the Revenue had not challenged the Tribunal's findings against the assessees and concluded that the question raised did not apply to the respondent/assessee in the present circumstances. Consequently, the Court found no fault in the Tribunal's orders and dismissed the appeal filed by the Revenue.