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TMI Blog2009 (5) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... in both the SLPs. 2. What are the conditions and the circumstances that would attract the imposition of penalty under section 11AC of the Central Excise Act (`The Act', hereinafter)? In the two cases before us the Tribunal has taken the view that there was no warrant for levy of penalty since the assessees had deposited the balance amount of excise duty (that was short paid at the first instance) even before the show cause notice was issued. On the other hand, on behalf of the Revenue, the appellants in the two appeals, it was contended, relying upon a recent decision of this Court in Union of India Vs. Dharamendra Textile Processors, 2008 (231) ELT 3 that mere non payment or short payment of duty (without anything else!) would inevitably lead to imposition of penalty equal to the amount by which duty was short paid. In our view the reason assigned by the Tribunal to strike down the levy of penalty against the assessees is as misconceived as the interpretation of Dharamendra Textile is misconstrued by the Revenue. We completely fail to see how payment of the differential duty, whether before or after the show cause notice is issued, can alter the liability for penalty, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the goods. The Additional Commissioner, therefore, invoked the provision of penalty as well. The assessee filed its show cause against imposition of penalty but the Joint Commissioner by his order dated September 26, 2001 not only confirmed the demand of duty (that was already deposited by the assessee) but also imposed penalty amounting to ₹ 1,79,522/- under section 11AC of the Act. On appeal, however, the Tribunal set aside the imposition of penalty on the sole ground that the assessee had made payment of the full duty amount even before the issuance of notice. 6. M/s Lanco Industries Limited, the respondent-assessee in the appeal arising from SLP (C) No. 4078/2008 is a company engaged in the manufacture of pig iron. The assessee sold pig iron and molten metal to another company called M/s. Lanco Kalahasthi Castings Limited (LKCL) which was in existence at the material time before its amalgamation with the respondent company, with effect from, April 8, 2004 as per the order of the Andhra Pradesh High Court, dated February 20, 2004 in Company Petition no. 182-83/ 2003. LKCL had its factory at a distance of about 150 metres from the assessee's factory where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade the proper payment of duty. 8. The assessee in his reply explained that it had deposited the entire amount of the demand on the same day (July 27, 2005). Moreover, the whole exercise was revenue neutral and, therefore, there was no reason to impose interest, much less any penalty. The Commissioner, however, not only confirmed the demand of duty but by his order dated January 25, 2006 also levied interest under section 11AB and 100% penalty under section 11AC of the Act observing whether or not the demand was revenue neutral was not relevant to the issue before him. Against the order of the commissioner the assessee filed an appeal before the Customs Excise and Service Tax Appellate Tribunal. The Tribunal allowed the appeal by its order dated September 5, 2006 as noted above. 9. On behalf of the assessees in both the cases it was submitted the stand of the Revenue that there was any short payment of duty and the consequent demand for recovery of the differential duty was quite untenable but 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, unwarrant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation of excisable goods under any other provisions of this Act or the rules made thereunder], a Central Excise Officer may, within [one year] from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice; Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis- statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, [as if ] for the words [ one year ], the words five years were substituted: Explanation. - Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of [one year] or five years, as the case may be. [(1A) When any duty of excise has not been levie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of service of the notice on the person under sub-section (1) (2B) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person, chargeable with the duty, may pay the amount of duty [on the basis of his own ascertainment of such duty or on the basis of duty ascertained by a Central Excise Officer] before service of notice on him under sub-section (1) in respect of the duty, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the duty so paid: Provided that the Central Excise Officer may determine the amount of short payment of duty, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of one year referred to in sub-section (1) shall be counted from the date of receipt of such information of payment. Explanation 1. - Nothing contained in this sub-section shall apply in a case where the duty was not levied or was not paid or was short-levied or was short-pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice for recovery of the duty to the person in default within one year from the relevant date (defined in sub section 3). In other words, in the absence of any element of deception or malpractice the recovery of duty can only be for a period not exceeding one year. But in case the non-payment etc. of duty is intentional and by adopting any means as indicated in the proviso then the period of notice and a priory the period for which duty can be demanded gets extended to five years. 12. In Cosmic Dye Chemical V Collector of Central Excise, (1995) 75 ELT 721 a three Judges Bench of this Court observed as follows: 5.The main limb of Section 11A provides limitation of six months. In cases, where duty is not levied or paid or short-levied or short-paid or erroneously refunded, it can be recovered by the appropriate officer within six months from the relevant date. (The expression `relevant date' is defined in the Section itself). But the said period of six months (substituted by one year with effect from May 12, 2000) gets extended to five years where such non- levy, short levy, etc., is by reason of fraud, collusion or any wilful mis-statement or suppression of facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of words `contravention of any of the provisions of this Act or Rules' are again qualified by the immediately following words `with intent to evade payment of duty.' Therefore, there cannot be suppression or mis-statement of fact, which is not wilful and yet constitute a permissible ground for the purpose of the proviso to Section 11A. Mis-statement of fact must be wilful. (emphasis supplied) 14. Sub-section 1A of section 11A provides that in case the person in default to whom the notice is given under the proviso to sub section 1 makes payment of duty in full or in part as may be accepted by him, together with interest under section 11AB and penalty equal to 25% of the accepted amount of duty within thirty days of the date of receipt of notice then the proceeding against him would be deemed to be conclusive (without prejudice to the provisions of sections 9, 9A and 9AA) as provided in the proviso to sub-section 2 of section 11A. Sub section 1A and the proviso to sub section 2 were inserted with effect from July 13, 2006 and, therefore, have no application to the periods relevant to the two appeals. 15. Sub-section 2B of section 11A provides that in case the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellate Tribunal or, as the case may be, the court , then, the benefit of reduced penalty under the first proviso shall be available, if the amount of duty so increased, the interest payable thereon and twenty-five per cent of the consequential increase of penalty have also been paid within thirty days of the communication of the order by which such increase in the duty takes effect. Explanation. - For the removal of doubts, it is hereby declared that- (1) the provisions of this section shall also apply to cases in which the order determining the duty under sub-section (2) of section 11A relates to notices issued prior to the date on which the Finance Act, 2000 receives the assent of the President; (1) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.] 17. The main body of sub-section 1 lays down the conditions and circumstances that would attract penalty and the various provisos enumerate the conditions, subject to which and the extent to which the penalty may be reduced. 18. One can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the decision, as follows: 2. A Division Bench of this Court has referred the controversy involved in these appeals to a larger Bench doubting the correctness of the view expressed in Dilip N. Shroff vs. Joint Commissioner of Income Tax, Mumbai Anr. [2007 (8) SCALE 304]. The question which arises for determination in all these appeals is whether Section 11AC of the Central Excise Act, 1944 (in short the `Act') inserted by Finance Act, 1996 with the intention of imposing mandatory penalty on persons who evaded payment of tax should be read to contain mens rea as an essential ingredient and whether there is a scope for levying penalty below the prescribed minimum. Before the Division Bench, stand of the revenue was that said section should be read as penalty for statutory offence and the authority imposing penalty has no discretion in the matter of imposition of penalty and the adjudicating authority in such cases was duty bound to impose penalty equal to the duties so determined. The assessee on the other hand referred to Section 271(1)(c) of the Income Tax Act, 1961 (in short the `IT Act') taking the stand that Section 11AC of the Act is identically worded and in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. It is in essence submitted that the penalty is for statutory offence. It is pointed out that the proviso to Section 11A deals with the time for initiation of action. Section 11AC is only a mechanism for computation and the quantum of penalty. It is stated that the consequences of fraud etc. relate to the extended period of limitation and the onus is on the revenue to establish that the extended period of limitation is applicable. Once that hurdle is crossed by the revenue, the assessee is exposed to penalty and the quantum of penalty is fixed. It is pointed out that even if in some statues mens rea is specifically provided for, so is the limit or imposition of penalty, that is the maximum fixed or the quantum has to be between two limits fixed. In the cases at hand, there is no variable and, therefore, no discretion. It is pointed out that prior to insertion of Section 11AC, Rule 173Q was in vogue in which no mens rea was provided for. It only stated which he knows or has reason to believe . The said clause referred to wilful action. According to learned counsel what was inferentially provided in some respects in Rule 173Q, now stands explicitly provided in Section 11AC. Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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