2012 (12) TMI 222 - AT - Central Excise

Penalty whether mandatory - Section 11AC or Rule 25 - intention to evade payment of duty Held that - A mandatory penalty equal to the duty (neither more nor less), short paid or not paid or erroneously refunded is payable if such non-payment or short payment or erroneous refund was due to fraud, collusion, wilful misstatement or suppression of facts etc. under Section 11AC. - Rule 25(1) does not envisage mandatory penalty equal to duty, the rule only provides penalty upto duty payable on such contravening goods or Rs. 2,000/- whichever is higher. However, from the above it does not follow that provisions of Rule 25(1) would not apply in case the ingredients of fraud, wilful mis-statement or suppression etc. are not present. Otherwise the provisions of Rule 25(1) would be rendered otiose. Proposal in the show cause notice was for imposition of penalty for contravention of Rule 4 and Rule 8 ibid, under Section 11AC read with Rule 25(1) - there is no suppression of facts before the Department of wilful mis-statement or fraud or evasion of duty - this is not a case where the penal provisions can be upheld or that where the penalty can be imposed - provisions of Section 11AC are para-materia to the provisions of Rule 25(1)(d) so far as the contravention of any of the provisions of Rules with intent to evade payment of duty is concerned - penalty is not imposable under Rule 25 in favor of assessee

Issues Involved:
1. Whether penalty under Rule 25 of the Central Excise Rules, 2002 can be imposed independently of Section 11AC of the Central Excise Act, 1944.
2. Whether there was an intention to evade payment of duty by the respondent.
3. Quantum of penalty to be imposed under Rule 25 of the Central Excise Rules, 2002.

Issue-wise Detailed Analysis:

1. Whether penalty under Rule 25 of the Central Excise Rules, 2002 can be imposed independently of Section 11AC of the Central Excise Act, 1944:

The Revenue appealed against the order dropping the penalty imposed on the respondent, arguing that the adjudicating authority failed to discuss the reasons for not imposing a penalty under Rule 25 of the Central Excise Rules, 2002. The Revenue contended that the contravention of Rules 4 and 8 of the Central Excise Rules, 2002, with the intent to evade duty, justified the imposition of a penalty under Rule 25, irrespective of the absence of fraud, wilful misstatement, or suppression of facts.

The respondent argued that the Commissioner had correctly refrained from imposing a penalty, as there were no findings of fraud, wilful misstatement, suppression of facts, or intent to evade duty. They cited case law supporting the view that the provisions of Rule 25 are subject to Section 11AC, which requires such findings for a penalty to be imposed.

The Tribunal examined the provisions of Rule 25 and Section 11AC, noting that Rule 25 starts with "Subject to the provisions of Section 11AC of the Act," implying that the conditions for imposing penalties under Section 11AC must be met for Rule 25 to apply. The Tribunal referenced several judicial precedents, including the Hon'ble Apex Court's decision in Union of India v. Rajasthan Spinning and Weaving Mills, which emphasized the necessity of fraud, collusion, wilful misstatement, or suppression of facts for imposing penalties under Section 11AC.

2. Whether there was an intention to evade payment of duty by the respondent:

The Tribunal noted that the Commissioner had found no evidence of wilful misstatement, fraud, or suppression of facts by the respondent. The respondent had admitted their liability and paid the duty along with interest. The Tribunal emphasized that the Department had not challenged the Commissioner's findings on the absence of intent to evade duty.

The Revenue argued that the respondent had contravened the provisions of the relevant Notification and evaded payment of duty, justifying the imposition of a penalty under Rule 25. However, the Tribunal held that without evidence of intent to evade duty, as required under Section 11AC, a penalty under Rule 25 could not be imposed.

3. Quantum of penalty to be imposed under Rule 25 of the Central Excise Rules, 2002:

The Tribunal noted that the Commissioner had refrained from imposing a penalty due to the absence of findings of fraud, wilful misstatement, or suppression of facts. The Revenue's appeal sought the imposition of a penalty under Rule 25, arguing that the respondent's violation of Rules 4 and 8 with the intent to evade duty warranted such a penalty.

The Tribunal examined the facts and circumstances of the case, including the respondent's utilization of accumulated credit in their RG 23B Part II account, which was not permissible during the relevant period. The Tribunal found that the respondent had acted with the intent to evade payment of duty, as evidenced by their actions and the filing of a writ petition seeking to utilize the accumulated credit.

Separate Judgments Delivered by the Judges:

One member of the Tribunal dissented, arguing that Rule 25 could be applied independently of Section 11AC and that the respondent's actions demonstrated an intention to evade duty. This member proposed imposing a penalty of Rs. 35,00,000 under Rule 25.

However, the majority decision, supported by another member, held that without evidence of fraud, wilful misstatement, or suppression of facts, a penalty under Rule 25 could not be imposed. Consequently, the appeal filed by the Revenue was dismissed, and the impugned order was upheld.

Conclusion:

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Commissioner's order dropping the penalty. The Tribunal held that without evidence of fraud, wilful misstatement, or suppression of facts, a penalty under Rule 25 could not be imposed independently of Section 11AC. The majority decision emphasized the necessity of meeting the conditions outlined in Section 11AC for imposing penalties under Rule 25.

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