2009 (12) TMI 173 - HC - Central Excise

Compounded levy scheme- Feeling aggrieved by the aforesaid adjudication of the Tribunal, the revenue has approached this Court by claiming that the following questions of law would arise for determination of this Court - (i) Whether intimation of the date of closure of the furnace sent after three days due to intervening holidays can he considered as proper when the Trade Notice issued in this regard clearly provides to send the intimations in such cases through post/telegram? Held that- we are of the considered view that this question has to be answered against the revenue and in favour of the dealer-respondent. The Trade Notice No. 31/99 dated 10-8-1999 issued by the Commissioner of Central Excise, Chandigarh cannot be applied to the period of 24-1-1988 (Sic) to 9-2-1998 as such trade notice cannot have any retrospective effect. (ii) Whether penalty imposed under Rule 96ZO(3)(ii) upon a manufacturer of non-alloy steel ingots/billets falling under sub heading Nos. 7206.90 and 7207.90 of the Schedule of the Central Excise Tariff Act, 1985 (5 of 1986) and who opted to pay duty under Section 3A of the Central Excise Act, 1944 read with Induction Furnace Annual Capacity Determination Rules, 1997, but fails to pay the whole of the amount payable for any month by the 15th day or the last day of such month, as the case may be, is mandatory or discretionary in nature? (iii) Whether mandatory equal penalty imposed under Rule 96ZO 3)(ii) can be reduced? Held that- the provisions for imposing penalty under Rule 96ZO (3)(ii) of the Rules are held to be mandatory and there is no discretion vested in any authority to reduce the aforesaid amount of penalty on the ground that there was no intention of evading payment of duty or commission of fraud, misrepresentation etc. Accordingly, both the questions No. 2 and 3 are answered against the dealer-respondent and in favour of the appellant-revenue.

Summary

Issues Involved:
1. Validity of intimation of factory closure due to holidays.
2. Nature of penalty under Rule 96ZO(3)(ii) of the Central Excise Rules, 1944.
3. Discretionary reduction of mandatory penalty under Rule 96ZO(3)(ii).

Issue-Wise Detailed Analysis:

1. Validity of Intimation of Factory Closure Due to Holidays:
The first issue revolves around whether the intimation of the date of closure of the furnace, sent after three days due to intervening holidays, can be considered proper. The Tribunal had allowed the dealer-respondent's claim for abatement from 24-1-1998 to 26-1-1998, despite the intimation being received by the department on 27-1-1998 due to gazetted holidays. The Tribunal found that the intimation was sent on 24-1-1998 itself, and its delayed receipt was not the dealer's fault. The High Court upheld this view, stating that Trade Notice No. 31/99 dated 10-8-1999 could not be applied retrospectively to the period in question. Thus, the intimation was deemed proper, and the dealer-respondent was entitled to the abatement for the specified period.

2. Nature of Penalty under Rule 96ZO(3)(ii):
The second issue concerns whether the penalty imposed under Rule 96ZO(3)(ii) is mandatory or discretionary. The Supreme Court's judgment in Dharamendra Textiles Processors' case was pivotal. It held that Rule 96ZO does not contemplate discretion and that penalties under this rule are mandatory. The High Court reiterated that no intention to evade duty or fraudulent behavior needs to be proven for imposing penalties under Rule 96ZO. The Court emphasized that the compounded levy scheme is a composite contract, and the dealer must fulfill all obligations under the scheme without any discretion for reduction in penalties.

3. Discretionary Reduction of Mandatory Penalty:
The third issue is whether the mandatory penalty under Rule 96ZO(3)(ii) can be reduced. The Tribunal had reduced the penalty from an amount equivalent to the duty to Rs. 50,000, considering the facts and circumstances. However, the High Court, referencing the Supreme Court's judgments, concluded that the provisions for imposing penalties under Rule 96ZO(3)(ii) are mandatory. Therefore, no authority has the discretion to reduce the penalty amount based on the absence of intent to evade duty or other mitigating factors. The High Court thus answered this question against the dealer-respondent, affirming that the penalty must be equal to the amount of duty owed.

Conclusion:
In conclusion, the High Court upheld the Tribunal's decision regarding the validity of the intimation of closure due to holidays but reversed the Tribunal's reduction of the penalty. The Court affirmed that penalties under Rule 96ZO(3)(ii) are mandatory and non-discretionary, aligning with the Supreme Court's interpretation in Dharamendra Textiles Processors' case. All eight appeals were disposed of accordingly, with the penalty provisions being strictly enforced.