2024 (6) TMI 903 - AT - Central Excise

Rejection for waiver of show-cause notice - imposition penalty under Section 11AC of CEA - prior determination of duty under Section 11A(2) of the Central Excise Act, 1944 - demand of differential Central Excise duty along with Cess and interest - HELD THAT - Where any duty of Excise has not been levied or paid or has been short levied or short paid by reasons of collusion or any willful misstatement or suppression of facts or contravention of any of the provisions of the Act or the Rules made there under with an intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section 2 of Section 11A shall also be liable to pay a penalty equal to the duty so determined. In terms of the above provisions, the duty has to be necessarily determined under sub-section 2 of Section 11A has to determine the duty of Excise due from such person and there upon such person shall pay the amount so determined. In the impugned order, it is found that there is no allegation or determination of duty as per Section 11A (2) invoking the proviso to Section 11A. Therefore, the notice and the impugned orders imposing penalty under Section 11AC without determining the duty under Section 11A(2) as per the provisions of Section 11A cannot be sustained. The High Court of Karnataka in the case of Commissioner of Central Excise, Mangalore vs. Shree Krishna Pipe Industries 2004 (1) TMI 82 - HIGH COURT OF KARNATAKA AT BANGALORE held in similar set of facts has held 'where assessee deposits the duty even prior to the issue of a show cause notice, penalty should not be imposed and interest should not be levied.' The penalty is not imposable as the duty has been paid before the issuance of show-cause notice and there is no determination of duty thereafter - the impugned order is set aside - appeal allowed.

Summary

Issues:
1. Whether penalty under Section 11AC of the Central Excise Act, 1944 can be imposed when duty has not been determined?
2. Whether waiver of show-cause notice can be granted in cases of short levy due to fraud, collusion, or willful misstatement?

Analysis:

Issue 1: The appellant, engaged in manufacturing TV sets, had not loaded amortization cost of moulds supplied by another company for TV parts. Upon audit observation, the appellant paid the differential duty amount and requested waiver of show-cause notice. However, a notice was issued proposing penalty under Section 11AC without determining the duty. The Tribunal held that penalty under Section 11AC can only be imposed when duty is determined under Section 11A(2). Citing precedents, the Tribunal emphasized that voluntary payment of duty before a show-cause notice precludes penalty imposition. The High Court also supported this stance in similar cases, emphasizing that duty determination is a prerequisite for penalty under Section 11AC.

Issue 2: The appellant contended that the waiver of show-cause notice should have been granted as the duty was paid promptly upon audit observation. The Commissioner argued that Section 11AB Explanation 1 justifies the imposition of Section 11AC penalty. However, the Tribunal ruled that without a determination of duty under Section 11A(2), the penalty under Section 11AC cannot be sustained. Citing relevant judgments, the Tribunal emphasized that the liability to pay penalty arises only after the determination of duty and if the duty is evaded due to fraud or willful misstatement. As the duty was paid voluntarily before the notice, the imposition of penalty was deemed unjustified.

In conclusion, the Tribunal set aside the impugned order and allowed the appeal, holding that penalty cannot be imposed when duty has been paid before a show-cause notice and duty determination is lacking. The judgment underscores the importance of duty determination as a prerequisite for penalty imposition under Section 11AC, especially in cases where duty is voluntarily paid before any formal notice.