2014 (9) TMI 291 - HC - Central Excise

Penalty under Section 11AC - Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in extending benefit of reduced penalty under Section 11AC of the Central Excise Act, 1944, when the 1st and 2nd proviso to Section 11AC specifically provide that the benefit of reduced penalty at 25% shall be available only if the duty determined under Section 11A(2), interest payable thereon under Section 11AB and penalty at 25% of the duty determined under Section 11A(2) has been paid within thirty days from the date of communication of the order of the Central Excise officer determining duty payable under Section 11A(2) of the 1944 Act - Held that - provision of a statute when interpreted in a true spirit, it does contemplate payment of duty and interest as well as penalty within 30 days from the communication of the order passed by the adjudicating authority along with 25% of the penalty amount to avail the benefit of 25% reduced penalty. It also culls out from proviso (4) to Section 11AC of the Act that wherever duty amount is increased at an appellate stage, for availing the benefit of 25% reduced penalty, the assessee needs to pay differential amount of duty within 30 days of crystalisation of such amount. It would not be too much to expect the Revenue authorities to clearly spell out the fulfilment of such requirements in the order itself. The Circular issued by the CBDT shall need to be regarded at this stage, which also noted that the provision has been made for the speedy recovery of the amount in the interest and benefit of both, the Department and the assessee. Thus, if the duty and interest are to be paid along with reduced rate of penalty within the stipulated period. This Court in a number of decisions has also taken a stand that if both the authorities have failed to avail the option of reduced penalty i.e. the Order-in-Original and Appellate Commissioner, the Tribunal can surely avail such benefit at the appellate stage. In the Order-in-Original itself, the adjudicating authority had made available such an option to the assessee by spelling out in no unclear terms that the duty and interest if are paid along with reduced rate of penalty, the penalty shall be worked out at the reduced rate of 25%. The petitioner, however, has chosen not to pay either the duty or interest or the reduced rate of penalty and instead challenged such order before the Commissioner, who of course set aside the order of imposition of penalty on the respondent-Unit and a personal penalty imposed upon the Director. Neither the duty amount nor the interest has been paid either prior to raising of the demand or after the demand had been finalised in the Order-in-Original. It is also not the case that the Order-in-Original does not spell out the availment of reduced rate of penalty in the event of payment of both, duty and interest, within the stipulated period of 30 days. Assessee paid the duty, interest and penalty on January 18, 2012 pursuant to an interim direction, however, payment at that stage surely was not in consonance with the spirit and intent of provision as entire round of litigation before Appellate Commissioner was already resorted to by then, despite a clear indication in Order-in-Original. In such circumstances, at the appellate stage, the Tribunal has committed an error of having made available the option of reduced penalty. This is not only contrary to the spirit of law on the subject, but it is a wrong application of the ratio laid down in the case of Akash Fashion Prints Ltd. (2009 (1) TMI 113 - GUJARAT HIGH COURT ) to the facts of the case of the assessee-respondent. - Decided in favour of Revenue.

Summary

Issues Involved:
1. Error of Law in Extending Reduced Penalty Benefit under Section 11AC of the Central Excise Act, 1944.
2. Reliance on a Non-final Decision in Aakash Fashion Prints Pvt. Ltd. Case.

Detailed Analysis:

1. Error of Law in Extending Reduced Penalty Benefit under Section 11AC of the Central Excise Act, 1944:

The Tribunal extended the benefit of reduced penalty under Section 11AC of the Central Excise Act, 1944, despite the conditions not being met. According to the first and second provisos to Section 11AC, the benefit of a reduced penalty of 25% is available only if the duty determined under Section 11A(2), interest payable under Section 11AB, and penalty at 25% of the duty determined are paid within thirty days from the date of communication of the order by the Central Excise officer.

The facts reveal that the duty amount was not paid within the stipulated period. The Order-in-Original dated June 24, 2003, required payment within thirty days, but the duty was paid between November 29, 2001, and November 25, 2003, and the interest and penalty were paid on February 16, 2012. Hence, the benefit of reduced penalty should not be available at the appellate stage.

The Tribunal's reliance on the decision of Akash Fashion Prints Ltd. was misplaced. In Akash Fashion Prints Ltd., the duty was paid before the demand was raised, which was considered compliance with the first proviso. However, in the present case, neither the duty nor the interest was paid within the stipulated period, and the Tribunal's decision to extend the benefit was contrary to the law.

2. Reliance on a Non-final Decision in Aakash Fashion Prints Pvt. Ltd. Case:

The Tribunal relied on the decision of this Court in Akash Fashion Prints Pvt. Ltd., which was under challenge before the Supreme Court and had not attained finality. The Tribunal extended the benefit of reduced penalty following the decision in Akash Fashion Prints Pvt. Ltd., which was not appropriate as the decision was not final.

The Tribunal's decision was challenged, and the High Court noted that the Tribunal committed an error by applying the ratio of Akash Fashion Prints Pvt. Ltd. incorrectly. The High Court emphasized that the Tribunal should not have extended the benefit of reduced penalty when the conditions under Section 11AC were not fulfilled.

Conclusion:

The High Court quashed the Tribunal's order extending the benefit of reduced penalty, emphasizing that the conditions under Section 11AC were not met. The Tribunal's reliance on the Akash Fashion Prints Pvt. Ltd. case was misplaced, and the benefit of reduced penalty should not have been extended at the appellate stage. The High Court allowed the Tax Appeal, ruling that the Tribunal's decision was contrary to the law and the spirit of the provisions under Section 11AC.