2010 (3) TMI 57 - HC - Central Excise

Delay payment of Duty Penalty- Brief facts of the case are that the Respondent-Assessee was required to pay excise duty for the month of August 2003 on or before 05.09.2003. The Respondent-Assessee partially deposited the duty before 05.09.2009 but the remaining amount of duty was deposited in three different installments. The Revenue issued Show Cause Notice proposing levy of penalty on account of delayed payment of duty. held that - The duty was not deposited on being pointed out by Department but they voluntarily deposited the duty. In the judgements cited by Counsel for the Respondent-Assessee we had already held that penalty cannot be imposed in the absence of mens rea and delay in payment of duty cannot be treated as non-payment of duty with mens rea. In the present case delay has occurred on account of seizure of record freezing of accounts by DRI and arrest of Directors of the Company. It is not the case of the Revenue that there was mens rea on the part of Respondent-Assessee in delayed payment of duty. It is not even the case of the Revenue that duty was deposited when it was pointed out by the Revenue. penalty not to be imposed.

Summary

Issues:
1. Whether penalty under Rule 26 of the Central Excise Rules, 2002 for late payment of duty can be set aside on the ground of requirement of mens rea?
2. Whether a case law on applicability of penalty under Rule 25 when mens rea is absent can be made applicable to penalty under Rule 26 whereby penalty is leviable irrespective of mens rea?

Analysis:
Issue 1: The appeal was filed by the Revenue under Section 35G of the Central Excise Act, 1944 challenging the order passed by the Customs, Excise and Service Tax Appellate Tribunal. The Tribunal had dismissed the Revenue's appeal on the question of penalty but partly allowed it on the question of interest. The Revenue contended that penalty under Rule 26 should be imposed regardless of mens rea for delayed payment of duty. The Respondent-Assessee had partially deposited the duty before the due date but the remaining amount was paid in installments. The Tribunal upheld the Commissioner (Appeals) order setting aside the penalty. The Court held that penalty cannot be imposed merely for delayed payment without mens rea, especially when the delay was due to external factors like seizure of records and arrest of directors. The Court referred to previous judgments where it was established that penalty should not be imposed in the absence of mens rea.

Issue 2: The Counsel for the Respondent-Assessee argued that previous judgments of the Court supported their stance that penalty cannot be imposed without mens rea. They highlighted cases where delay in payment was not considered as non-payment with mens rea. The Court agreed with the Respondent-Assessee's argument, emphasizing that in the present case, the delay was due to external circumstances and not willful non-compliance. The Court found no merit in the Revenue's appeal and dismissed it, ruling in favor of the Respondent-Assessee. The judgment reaffirmed the principle that penalty under Rule 26 cannot be levied solely based on delayed payment without establishing mens rea.

In conclusion, the High Court dismissed the Revenue's appeal, holding that penalty under Rule 26 of the Central Excise Rules cannot be imposed without establishing mens rea, especially when the delay in payment was due to external factors beyond the Assessee's control. The judgment reiterated the importance of considering mens rea in penalty imposition for delayed payment of duty, as established in previous Court decisions.