2009 (5) TMI 15 - SC - Central Excise

Once the conditions specified u/s 11AC of the Central Excise Act are satisfied, penalty becomes mandatory and there is no scope of discretionary power - payment of differential duty, whether before or after the show cause notice is issued, can not alter the liability for penalty - the conditions for which are clearly spelled out in section 11AC of the Act - the stand taken by the CESTAT (Tribunal) has been rejected by the Apex Court in which tribunal waived the penalty stating that the assessees had made payment of the demands simply in order to buy peace and to avoid any litigation. In those circumstances the imposition of penalty was wholly unjust, unwarranted and unauthorised in law .

Issues Involved:
1. Conditions and circumstances attracting the imposition of penalty under section 11AC of the Central Excise Act.
2. The Tribunal's interpretation of penalty imposition when the assessees deposited the balance amount of excise duty before the show cause notice was issued.
3. The applicability and interpretation of the Supreme Court's decision in Union of India Vs. Dharamendra Textile Processors.
4. The distinction between recovery, interest, and penalty under sections 11A, 11AA, 11AB, and 11AC of the Central Excise Act.

Issue-wise Detailed Analysis:

1. Conditions and Circumstances Attracting the Imposition of Penalty under Section 11AC of the Central Excise Act:
The judgment clarifies that penalty under section 11AC is applicable when there is a deliberate act of deception by the assessee with the intent to evade duty. The section specifies that penalty is imposed for non-payment or short payment of duty due to fraud, collusion, willful misstatement, suppression of facts, or contravention of any provisions of the Act with intent to evade duty. The court emphasized that mere payment of differential duty, whether before or after the issuance of a show cause notice, does not alter the liability for penalty if the conditions for penalty under section 11AC are met.

2. Tribunal's Interpretation of Penalty Imposition:
The Tribunal had set aside the imposition of penalty on the ground that the assessees had paid the full amount of duty before the issuance of the show cause notice. The Supreme Court found this reasoning to be misconceived. The court stated that the timing of the duty payment does not affect the penalty liability if the conditions under section 11AC are fulfilled. The Tribunal's interpretation was thus deemed incorrect, and the matters were remitted for fresh consideration.

3. Applicability and Interpretation of the Supreme Court's Decision in Union of India Vs. Dharamendra Textile Processors:
The Revenue argued that the Dharamendra Textile decision mandated penalty imposition for any non-payment or short payment of duty. The Supreme Court clarified that Dharamendra Textile should not be interpreted to mean that penalty under section 11AC is automatic for any non-payment or short payment. Instead, the application of section 11AC depends on the existence of conditions such as fraud, collusion, or willful misstatement. Once these conditions are met, the penalty must be equal to the duty determined, with no discretion in quantifying the penalty.

4. Distinction Between Recovery, Interest, and Penalty under Sections 11A, 11AA, 11AB, and 11AC:
The judgment elaborates on the different provisions for recovery (section 11A), interest (sections 11AA and 11AB), and penalty (section 11AC). Section 11A deals with the recovery of duties not levied or paid, with a one-year limitation period for unintentional non-payment and a five-year period for intentional non-payment involving fraud or suppression. Section 11AC specifies the penalty for intentional evasion of duty. The court highlighted that section 11AC applies only when there is a finding of deliberate evasion, and the penalty must be equal to the duty determined under section 11A(2).

Conclusion:
The Supreme Court set aside the Tribunal's orders in both appeals and remitted the matters for fresh consideration in light of the judgment. The court reiterated that penalties under section 11AC are punitive measures for deliberate deception and are not automatically applicable in every case of non-payment or short payment of duty. The Tribunal was directed to reconsider the cases within four months, ensuring adherence to the legal principles elucidated in the judgment.

← Previous Next →