2010 (3) TMI 58 - HC - Central Excise

Delay payment of Duty Penalty- Whether the penalty imposed under Section 11AC of the Central Excise Act 1944 can be reduced in a case where it has been found that there was clandestine removal of the material? held that - Even if duty is deposited prior to the show cause notice the liability to the penalty cannot be wiped out under Section 11AC of the Central Excise Act 1944. It has further been held that once liability to pay duty is established then there is no discretion to the department to reduce the penalty under Section 11AC of the Central Excise Act 1944.

Summary

Issues: Reduction of penalty under Section 11AC of the Central Excise Act, 1944 in cases of clandestine removal.

Analysis:

The judgment by the High Court of PUNJAB & HARYANA pertains to a case where the Customs, Excise & Service Tax Appellate Tribunal had reduced the penalty imposed for clandestine removal of goods from Rs.6,58,851/- to Rs.2,00,000/-. The key issue before the Court was whether the penalty imposed under Section 11AC of the Central Excise Act, 1944 can be reduced in cases of clandestine removal.

The Court observed that the Tribunal had correctly found clandestine removal of goods, supported by shortages in raw materials and finished goods noticed by department officials. However, the Court relied on the precedent set by Union of India vs. Rajasthan Spinning & Weaving Mills, 2009(238) ELT 3(SC), which established that even if duty is paid before a show cause notice, the penalty under Section 11AC cannot be waived. The Court emphasized that once liability for duty is proven, the department has no discretion to reduce the penalty.

Consequently, the Court ruled in favor of the revenue and against the assessee, holding that in cases of clandestine removal, where liability for duty is established, the penalty under Section 11AC cannot be reduced. The Court set aside the Tribunal's order reducing the penalty and maintained the Commissioner's order. The judgment serves as a significant precedent reaffirming the strict application of penalties in cases of clandestine removal under the Central Excise Act, 1944.

The judgment underscores the importance of upholding penalties in cases of clandestine removal to deter such practices and ensure compliance with excise laws. It clarifies that once liability for duty is established, the department lacks discretion to reduce penalties under Section 11AC, emphasizing the stringent consequences for non-compliance with excise regulations. The decision provides clarity on the legal framework governing penalties in excise law and sets a precedent for consistent enforcement of penalties in similar cases.