2018 (6) TMI 996 - HC - Central Excise

Penalty - duty paid before issuance of SCN - Whether penalty was liable to be imposed on the assessee in case where duty had been deposited by the assessee before issue of show cause notice? - Held that - Payment of duty before issuance of show cause notice however carries an important connotation of the assessee not contesting the liability. Mere depositing the amount does not amount to payment of duty. Payment of duty would arise when the liability is accepted. This would have an important element of avoiding litigation. In the present case, the assessee opposed the show cause notice proceedings all throughout upto the stage of Tribunal. Even before the Tribunal, the appeal was not confined to penalty but on the order passed by the Adjudicating Authority and confirmed by the Appellate Authority regarding confiscation of goods and confirmation of excise duty demand - This was thus, clearly not a case where the assessee had paid the duty even before issuance of show cause notice. The assessee therefore cannot claim waiver of penalty on this count - penalty upheld. Separate penalty on partners - Held that - This Court in case of Jai Prakash Motwani, 2009 (1) TMI 501 - GUJARAT HIGH COURT held that once penalty is imposed on the partnership firm, no separate penalty can be imposed on the partners - penalty on partners set aside. Appeal allowed in part.

Summary

Issues:
Challenge to judgment of CESTAT on penalty imposition when duty was paid before show cause notice.

Analysis:
The appeal challenged the CESTAT judgment regarding the imposition of penalties when duty was paid before the show cause notice. The case involved a partnership firm engaged in manufacturing activities, where goods were seized due to past clandestine removal without duty payment. The Adjudicating Authority ordered confiscation of seized goods, confirmed excise duty, and imposed penalties on the firm and its partners. The Commissioner of Appeals upheld the order, noting admissions by the partners regarding the irregularities. The Tribunal affirmed the decision, leading to the appeal.

The appellants contended that penalties should not apply as duty was paid before the show cause notice, citing relevant case laws. They also argued against separate penalties on partners when the firm was penalized. The Court considered the absence of specific conditions for waiving penalties under Rule 173Q and emphasized the importance of accepting liability to avoid litigation. It clarified that mere depositing of duty does not equate to payment unless liability is acknowledged.

While the appellants opposed the show cause notice proceedings at all levels, the Court noted that the appeal covered various aspects, not just penalties. Therefore, the waiver of penalty due to pre-notice duty payment did not apply. However, following precedents, the Court ruled that once a penalty is imposed on a partnership firm, individual partners should not face separate penalties. This principle was upheld based on previous judgments, leading to the deletion of penalties on the partners while upholding the rest of the order. The appeal was partially allowed, and the tax appeal was disposed of accordingly.