2009 (10) TMI 324 - AT - Central Excise

Penalty- suppression of insurance claim- The appellant was engaged in the manufacture of excisable goods during the material period. Some time in July/August, 2005, machinery and materials in their factory suffered heavy damage due to floods of the monsoon. The appellant made an insurance claim and also intimated the above incident to the department. Later on, department issued a show-cause notice alleging inter alia that the appellant had suppressed the insurance claim and short-paid duty on their finished goods which were removed from their factory after the aforesaid incident. The original authority confirmed the demand of duty against the assessee to the extent of Rs. 6,75,126/-and imposed on them equal amount of penalty under Section 11AC. Against the order of adjudication, the assessee preferred appeal to the Commissioner (Appeals), who only sustained the decision of the lower authority. Hence the present appeal of the assessee. Held that- the department wanted to penalise the appellant under Rule 25. The authorities below, however, -chose to venture into the domain of Section 11AC, which was not warranted in this case. In this view of the matter, I should set aside the penalty imposed on the appellant. It is ordered accordingly. The appeal is allowed.

Summary

Issues:
Challenge against penalty imposed on the appellant by the original authority and sustained by the appellate authority.

Analysis:
The appellant, engaged in manufacturing excisable goods, faced heavy damage due to floods in their factory. Despite making an insurance claim and informing the department, they were issued a show-cause notice alleging suppression of the insurance claim and short-payment of duty on finished goods. The original authority confirmed a duty demand of Rs. 6,75,126 and imposed an equal penalty under Section 11AC. The Commissioner (Appeals) upheld this decision, leading to the present appeal.

The main issue revolved around the imposition of penalty under Section 11AC of the Central Excise Act. While there was no dispute over the duty liability being paid, the question remained whether a penalty was justified. The penal provision invoked in the show-cause notice was Rule 25 of the Central Excise Rules, 2002 read with Section 11AC. However, the original authority and the appellate authority solely relied on Section 11AC for imposing the penalty.

The argument presented by the learned DR suggested that the power to impose a penalty under Section 11AC is inherent in Rule 25. However, the Tribunal disagreed, emphasizing that Section 11AC is a self-contained penal provision specifying grounds and quantum of penalty. Rule 25, on the other hand, provides for penalties on different grounds and quantums. The Tribunal clarified that invoking Rule 25 alongside Section 11AC in the show-cause notice was a misconception, indicating a lack of training among departmental officers.

Ultimately, the Tribunal concluded that the penalty imposed on the appellant was unwarranted as the department intended to penalize under Rule 25, not Section 11AC. Therefore, the penalty was set aside, and the appeal was allowed, highlighting the importance of correctly applying penal provisions in such cases.