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2013 (9) TMI 95 - HC - Central ExcisePenalty u/s 11AC Reversal of credit before issuance of SCN - Whether the Tribunal was correct in holding that demand of interest u/s 11 AB r.w. Rule 57 AH of the erstwhile Central Excise Rules 1944 /Rule 12 of the erstwhile Cenvat Credit Rules, 2001/Rule 12 of the Cenvat Credit Rules, 2002 was not payable if duty was paid before issue of Show Cause Notice notwithstanding delay in payment of Central Excise Duty Held that - The periodicity of such a default appeared to be more than once and in more than one case, the assessee had not observed the procedure prescribed and prevailed during the relevant period - Thus looking at the conduct of the assessee, the bona fides not thus established, the facts herein rightly called for levy of penalty - The Modvat credit irregularly availed was reversed prior to the show cause notice, does not afford a good defence of good faith and could not be sustained in law - CESTAT order to cancel the penalty could not be upheld - The assesse lacked bona fide, hardly any other material which the CESTAT considered to come to a different conclusion Decided in favour of Revenue.
Issues:
1. Interpretation of Section 11 AB of Central Excise Act, 1944 regarding interest payment. 2. Non-payment of appropriate duty on transferred inputs to sister concerns. 3. Imposition of penalty under Section 11 AC and interest under Section 11 AB. 4. Adjudication of penalty and lack of bona fide conduct by the assessee. 5. Reversal of Modvat credit prior to issuance of show cause notice. 6. Recurrence of non-payment of duty and imposition of penalty. 7. Lack of bona fide conduct and justification for penalty imposition. Issue 1 - Interpretation of Section 11 AB: The Revenue appealed against the cancellation of penalty under Section 11 AC by the Customs, Excise and Service Tax Appellate Tribunal. The substantial question of law raised was whether interest under Section 11 AB is payable if duty is paid before the issuance of a Show Cause Notice, despite a delay in duty payment. Issue 2 - Non-payment of appropriate duty: The assessee transferred inputs to sister concerns without paying the appropriate duty, claiming the goods were sent on a loan basis. Upon receiving a show cause notice, the assessee admitted non-payment due to inadvertence and paid the duty. The Revenue demanded duty, penalty, and interest, which the assessee contested. Issue 3 - Imposition of penalty and interest: The Assistant Commissioner upheld the penalty, stating lack of mens rea or wilful misconduct. The Adjudicating Authority confirmed the penalty, citing recurring non-compliance and mala fide intentions. The Commissioner of Customs and Central Excise also upheld the penalty, leading to an appeal by the assessee. Issue 4 - Adjudication of penalty: The High Court found that the assessee's conduct lacked bona fide, with recurring instances of non-compliance. Despite paying duty before the show cause notice, the imposition of penalty under Section 11 AC was deemed justified based on the conduct of the assessee. Issue 5 - Reversal of Modvat credit: The Tribunal allowed the assessee's appeal, citing the reversal of Modvat credit before the show cause notice as a reason not to levy the penalty. However, the High Court disagreed, stating that this reversal did not establish good faith and could not justify canceling the penalty. Issue 6 - Recurrence of non-payment and penalty imposition: The First Appellate Authority highlighted previous instances of non-payment by the assessee, leading to penalties. The High Court noted the recurrence of such instances and found it challenging to accept the Tribunal's decision to cancel the penalty based on mala fides. Issue 7 - Lack of bona fide conduct and penalty justification: The High Court set aside the Tribunal's decision, emphasizing the lack of bona fide conduct by the assessee. The Commissioner's finding of lacking bona fide was upheld, and the Tribunal's decision lacked substantial material. Consequently, the High Court restored the penalty, allowing the Civil Miscellaneous Appeal. In conclusion, the High Court upheld the imposition of the penalty under Section 11 AC, emphasizing the lack of bona fide conduct by the assessee despite the reversal of Modvat credit before the show cause notice.
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