2004 (4) TMI 101 - AT - Central Excise

Penalty and interest - Whether penalty u/s 11AC or interest u/s 11AB is applicable when duty is deposited before the issue of show cause notice - HELD THAT - In the light of the decision of the Karnataka High Court in CCE, Mangalore v. Shree Krishna Pipe Industries 2004 (1) TMI 82 - HIGH COURT OF KARNATAKA AT BANGALORE , which considered the very same issue placed before us, it may not be possible for us to take a different view as contended by the ld. Departmental representative. It is to be noted that the Karnataka High Court has referred to the fact that the Hon'ble Supreme Court has dismissed the appeal filed by the Revenue 2003 (5) TMI 509 - SC ORDER from the decision of this Tribunal in Rashtriya Ispat Nigam Ltd. v. CCE, Visakhapatnam 2002 (11) TMI 234 - CEGAT, BANGALORE where identical issue was considered. In these circumstances, we follow the ratio of the decision of the Karnataka High Court and hold that when the duty amount is paid by the assessee before issuance of show cause notice, no penalty can be imposed under Section 11A and interest demanded u/s 11AC. Since no other issue is raised in the appeal, at the instance of the Revenue, we dismiss the appeal.

Summary

Issues involved: Whether penalty under Section 11AC or interest under Section 11AB is applicable when duty is deposited before the issue of show cause notice.

Summary:
The Larger Bench of the Appellate Tribunal CESTAT, New Delhi considered conflicting decisions regarding the imposition of penalty under Section 11AC or interest under Section 11AB when duty is paid before the issuance of a show cause notice. The assessee argued that penalty under Section 11AC cannot be imposed if duty is deposited before the notice, citing relevant Tribunal decisions. The Revenue contended that penalty can be imposed regardless of duty payment timing in cases of fraud or suppression of facts. The matter was referred to the Larger Bench due to conflicting decisions by different Benches.

The Tribunal noted a decision of the Karnataka High Court rejecting a reference application by the Revenue, stating that penalty and interest are not leviable if duty is paid before the show cause notice. The Tribunal dismissed the Revenue's petition seeking a direction to refer questions of law to the Court, as the Tribunal's decision was reasoned based on duty payment before the notice, with no fraud or misrepresentation involved. The Tribunal upheld its decision, as the Supreme Court had rejected the appeal against the same.

The Departmental Representative argued that penalty under Section 11AC should apply for violations, regardless of duty payment timing. However, the Tribunal, in line with the Karnataka High Court decision, held that no penalty or interest can be imposed when duty is paid before the show cause notice. Following the Karnataka High Court's decision and the Supreme Court's dismissal of the Revenue's appeal, the Tribunal upheld that no penalty can be imposed under Section 11AC in such cases. The appeal was dismissed by the Tribunal.