2010 (1) TMI 518 - HC - Central Excise

Penalty u/s 11C - mandatory Penalty - assessee Paid the duty amount prior to the issuance of show cause notice - equivalent to 25% of the duty amount - Held that In the present case, the issue is with regard to levy of penalty equivalent to 25% of the duty amount. Since the respondent assessee has already paid the duty amount prior to the issuance of show-cause notice, there is no question of exercise of any option by the respondent - assessee and the assessee is straightway entitled to the benefit of the Proviso 1 & 2 to Section 11AC of the Act.

Summary

Issues:
Reduction of mandatory penalty under Section 11AC of the Central Excise Act, 1944 due to duty deposit before show cause notice issuance.

Analysis:
1. The Tax Appeal was filed by the Commissioner of Central Excise Customs, Surat under Section-35G of the Central Excise Act, 1944, raising the question of law regarding the reduction of mandatory penalty imposed under Section 11AC. The show cause notice proposed a duty levy on Polyester Texturized Yarn, and the duty was confirmed by the Joint Commissioner. The respondent deposited the duty before the notice issuance, leading to a penalty imposition under Section 11AC.

2. The Commissioner (Appeals) held that the penalty and interest were not sustainable as duty was paid before the notice issuance. The CEGAT confirmed a penalty of 25% of the duty amount, citing the first proviso to Section 11AC and a Delhi High Court judgment. The Revenue contended that the penalty reduction was erroneous as the duty payment was a result of departmental detection, not voluntary.

3. The Tribunal's decision to reduce the penalty to 25% was challenged by the Revenue, emphasizing that the respondent did not avail the provisos to Section 11AC. The legislative intent behind the provisos was to expedite recovery and reduce litigation, requiring penalty payment along with interest and duty within 30 days of the original order.

4. The High Court analyzed the authorities' orders and noted the lack of incriminating evidence against the respondent. Referring to precedents, including the Supreme Court's interpretation of Section 11AC, the Court highlighted the relevance of the provisos in penalty imposition. The Court upheld the Tribunal's decision to retain the 25% penalty, citing judgments from Delhi, Punjab & Haryana High Courts, and its own previous decisions.

5. Considering the duty payment before the notice issuance, the Court found the respondent entitled to benefit from the provisos to Section 11AC, dismissing the tax appeal due to the lack of substance in challenging the penalty reduction.

This detailed analysis of the judgment showcases the legal intricacies involved in the reduction of mandatory penalties under the Central Excise Act, 1944, and the application of relevant provisions and precedents in determining the outcome of the case.