2009 (1) TMI 288 - HC - Central Excise

Penalty - Wilful default - Held that - It is trite law that even when the statute provides for imposition of penalty when there is failure to pay duty within the statutorily prescribed period, such imposition of penalty should be preceded by a finding that there was a wilful default as such. In the present case, the deficit duty had been paid along with interest even before the issuance of the show cause notice. The appellate authority had also found absence of any intention to evade payment of duty. In these circumstances, we are in complete agreement with the reasoning and findings of the learned single Judge. The orders of penalty were clearly not sustainable and rightly interfered with by the learned single Judge.

Summary

Issues:
1. Imposition of penalty under Rule 173(GG) of the Central Excise Rules for short payment of excise duty.
2. Correct application of legal principles regarding penalty under fiscal statutes.
3. Interpretation of the requirement of wilful intention to evade payment of duty.
4. Appealability of orders and interference by the High Court.

Analysis:

1. The case involved the imposition of a penalty under Rule 173(GG) of the Central Excise Rules due to a short payment of excise duty by a pharmaceutical products manufacturer. The petitioner had availed a facility of monthly payment of excise duty and claimed a concessional rate of duty under notification No. 9/99. A clerical mistake led to an excess availing of concessional duty, resulting in a short payment of Rs. 4,318/-, which was later rectified by the petitioner. Despite the voluntary payment before the show cause notice, a penalty was imposed, leading to the writ petition challenging the penalty.

2. The learned single Judge found that the imposition of penalty without wilful intention to evade payment of duty was not in line with legal principles established by the Supreme Court. The Judge emphasized that penalty should not be imposed in the absence of a deliberate attempt to evade tax or duty. The appellate authority's decision to uphold the penalty solely based on the mandatory provision of Rule 173(GG) was deemed incorrect, leading to the quashing of the penalty orders.

3. The High Court, upon review, concurred with the single Judge's interpretation of the law regarding the imposition of penalties. It was highlighted that the payment of the deficit duty along with interest before the show cause notice and the absence of any intention to evade payment of duty were crucial factors. The Court reiterated that a wilful default must be established before imposing penalties, even if the statute provides for such penalties for delayed payments.

4. The appellants argued that the order was appealable under the statute, questioning the interference by the High Court. However, the Court noted that the writ petition was filed in 2002, and no such contention was raised during the initial proceedings. Therefore, the Court dismissed the appeal, finding no merit to interfere with the judgment of the single Judge, who correctly applied the legal principles regarding the imposition of penalties in fiscal matters.