2019 (6) TMI 954 - SC - Central Excise

Penalty u/s 11AC of CEA - period from 1-4-1994 to 16-1-1997 - whether the penalty could also be imposed under the aforesaid provision for the period prior to 28-9-1996 inasmuch as Section 11AC of the Act under which the penalty proceedings were initiated, was brought on the statute book by amendment only w.e.f. 28-9-1996? - HELD THAT - It is held by the High Court itself in the impugned judgment that Section 11AC is prospective in nature. In spite of that the High Court has upheld the penalty imposed by the appellant for the entire period including the period prior to 28-9-1996 - We are of the opinion that here the High Court clearly fell into error. Undoubtedly, Section 11AC is a penal provision. Once it is held to be prospective in nature, it becomes effective only from the date it was brought into force i.e. 28-9-1996. Therefore, no penalty for the period prior to this date can be imposed under this provision. The penalty for the period 1-4-1994 to 27-9-1996 set aside - penalty from 28-9-1996 onwards is upheld - appeal allowed in part.

Summary

Issues:
- Imposition of penalty under Section 11AC of the Central Excise Act, 1944 for the period prior to 28-9-1996.

Analysis:
The appellant, engaged in casting machines and unmachined castings of Hubs and Drums used in motor vehicles, was found manufacturing machined and rough casting of Brake Drum of motor vehicles during a visit by the respondent. A show cause notice was issued alleging the appellant availed SSI exemption by manufacturing goods of different brands. The Joint Commissioner directed recovery of tax and a mandatory penalty under Section 11AC. The Commissioner (Appeals) allowed the appeal partially, confirming duty on machined goods cleared under certain brand names but no duty on goods cleared under other brand names. The penalty was reduced equivalent to the duty to be levied. Both parties appealed to the CESTAT, which quashed the Commissioner (Appeals) order, leading to the appellant's challenge in the High Court, which dismissed the appeal.

The main issue was the imposition of penalty under Section 11AC for the period prior to 28-9-1996. The High Court upheld the penalty for the entire period, including before the amendment bringing Section 11AC into force. However, the Supreme Court held that Section 11AC is prospective and effective only from its enactment date, 28-9-1996. Therefore, no penalty could be imposed under this provision for the period before this date. The Court found the High Court erred in upholding the penalty for the pre-amendment period. Consequently, the Supreme Court partially allowed the appeal, quashing the penalty for the period 1-4-1994 to 27-9-1996, while upholding the penalty from 28-9-1996 onwards.