2010 (7) TMI 237 - HC - Central Excise

Penalty under section 11AC can not be reduced- Assessing authority imposed penalty under section 11AC- Mens rea was proved, however The Tribunal reduced the penalty, High court held that once mens rea is proved, penalty under section 11AC can not be reduced and remanded the case back to the tribunal.

Summary

Issues:
- Appeal by Revenue under Section 35(G) of the Central Excise Act, 1944 against the reduction of penalty under Section 11AC by the Customs, Excise & Service Tax Appellate Tribunal.
- Allegations of wrong availment of MODVAT Credit by M/s. Aravali India Ltd.
- Imposition of penalty on the stockist company and individuals.
- Argument of no mens rea and unjustified penalty.
- Tribunal's decision to reduce penalty based on the high amount.
- Conflict with judgments of the Hon'ble Supreme Court regarding reduction of penalty if mens rea is established.

Analysis:
1. The appeal before the High Court was filed by the Revenue challenging the reduction of penalty under Section 11AC of the Central Excise Act, 1944 by the Customs, Excise & Service Tax Appellate Tribunal. The case originated from a Show Cause Notice issued to M/s. Aravali India Ltd. for the wrongful availment of MODVAT Credit, alleging the preparation of false bills without actual receipt of goods. The Adjudicating Authority imposed duty demand and penalties on the stockist company, the Director of M/s S.K. Gupta & Co. Pvt. Ltd., and a partner of M/s Rohan Roadways.

2. The Tribunal, while upholding the penalty, considered the argument that there was no mens rea and the penalty was unjustified. The Tribunal found that although there was no proof of individual roles, the respondent could not be absolved of penalty liability. However, the penalty was reduced primarily due to the high amount imposed. The Tribunal emphasized that the appellants were involved in the wrongful act and were hand-in-glove in the modvat availment irregularities. The Tribunal clarified the interpretation of 'physically dealing' in the context of the organization rather than individual capacity.

3. The Revenue argued before the High Court that based on judgments of the Hon'ble Supreme Court, specifically Commissioner of Central Excise v. SKF India Ltd. and Union of India v. Rajasthan Spinning & Weaving Mills, the Tribunal had no jurisdiction to reduce the penalty if mens rea was established. The High Court, finding a conflict between the Tribunal's decision and the Supreme Court judgments, set aside the impugned order and remanded the matter back to the Tribunal for a fresh decision on merits in accordance with the law.

4. Consequently, the High Court directed the parties to appear before the Tribunal for further proceedings. The appeal was disposed of, highlighting the importance of establishing mens rea in cases involving penalty reduction and the need for decisions to align with established legal precedents set by higher courts for consistency and adherence to legal principles.