2009 (7) TMI 244 - AT - Central Excise

Penalty for default in payment of duty cheque towards duty dishonored by bank for lack of funds - after receipt of the letter from the Excise authorities about the cheque having dishonoured by the bank, they immediately deposited the amount along with interest. Penalty imposed by treating the goods as clandestinely removed - It appears that it was a bona fide mistake on the part of the appellants. In view of the cheque being not honoured, there is removal without payment of duty as stipulated under Rule 8. However, this cannot be treated as attracting the provisions of Section 11AC with intent to evade payment of duty. At the same time, we find that there is failure on the part of the appellant in ensuring that the credit taken in PLA was supported by the genuine payment which resulted in removal without payment of duty due. This warrants some penalty to be imposed upon the appellants. - In view of the above, we modify the penalty of equal amount imposed under Section 11AC as a penalty of Rs, 5,000/- under Rule 27 of the Central Excise Rules.

Summary

Issues:
1. Appellant's liability for excise duty and penalty due to dishonored cheque.
2. Invocation of Section 11AC and Rule 25 of the Central Excise Rules.
3. Consideration of bona fide mistake and penalty imposition.

Issue 1: Appellant's liability for excise duty and penalty due to dishonored cheque

The appellants were required to pay excise duty and cess for a specific month. They deposited a cheque with the bank but it was dishonored due to insufficient funds. Upon notification from Excise authorities, the appellants deposited the amount with interest. Subsequently, a show cause notice was issued, and a penalty equal to the duty amount was imposed by the original authority and upheld by the Commissioner (Appeals). The consultant argued that the failure to pay duty was a bona fide mistake, rectified promptly upon discovery of the dishonored cheque.

Issue 2: Invocation of Section 11AC and Rule 25 of the Central Excise Rules

The Joint CDR supported the Commissioner's decision and mentioned the potential penalty under Rule 25 for violating Rule 8. The show cause notice invoked Rule 25 of the Central Excise Rules. The Tribunal observed that while there was a failure to ensure genuine payment supporting the credit in PLA, it was not a deliberate attempt to evade duty payment. Consequently, the Tribunal found the invocation of Section 11AC unwarranted but acknowledged the need for a penalty due to the removal without payment of due duty.

Issue 3: Consideration of bona fide mistake and penalty imposition

After careful consideration, the Tribunal recognized the appellants' error as a bona fide mistake. They modified the penalty imposed under Section 11AC to a lesser amount under Rule 27 of the Central Excise Rules, reflecting a penalty of Rs. 5,000. The Tribunal emphasized the importance of ensuring genuine payment supporting credits while acknowledging the need for a penalty due to the removal without payment of due duty. The appeal was disposed of accordingly, with the stay petition also being resolved.

This judgment highlights the significance of prompt rectification of errors, the distinction between inadvertent mistakes and deliberate evasion, and the Tribunal's authority to modify penalties based on the circumstances of each case.