Payment of 25% penalty under Section 11AC of CEA, 1944

PJ/Case Laws/2011-12/1299

Case: COMMISSIONER OF CENTRAL EXCISE, ROHTAK v/s J.R. FABRICS (P) LTD.

Citation: 2009 (238) E.L.T. 209 (P & H)

Issue:- Whether benefit of paying penalty upto 25% within thirty days under Section 11AC is available at adjudication stage or even at appellate stage?

Brief Facts:- The dealer-respondent is engaged in the manufacture of unprocessed woven fabrics, chenille fabrics and pile fabrics falling under Chapter 54, 55 and 58 of the Central Excise Tariff Act, 1985. He was registered with the central excise department and was availing CENVAT credit facility. They were clearing its fabrics without payment of duty which was detected during visit of Central excise officers on 13-2-2003. The non-payment was found on Chenille fabrics in respect of the period from 28-7-2001 to 28-2-2002 which was prior to the date of registration in March, 2002.

The dealer-respondent conceded their default and deposited the amount of duty along with interest on the chenille fabrics. The said amount was paid even before the issuance of show cause notices. They also deposited additional sum before issuance of show cause notice. They admitted their liability vide their reply and also pointed out that the amount of duty along with interest had already been paid which may be appropriated as legally paid.

The Adjudicating Authority confirmed the demand and also imposed penalty under Rule 25of erstwhile CER, 2001 read with Section 11AC and 38A of the Act. Penalty was also imposed on the Managing Director.

In appeal, the Commissioner (Appeal) modified the impugned order by setting aside the penalty imposed on the Managing Director.

In further appeal, the Tribunal held that the dealer-respondent was liable to pay only 25% of duty amount s penalty by placing reliance on judgment given in CCE v/s Malbro Appliances Private Ltd [2007 (208) ELT 503].

Hence, Revenue is in appeal before the High Court.

Appellant’s Contention:- Revenue contended that provisions of Section 11AC of the Act has now been interpreted by the Supreme Court in the case of Union of India v. Dharamendra Textile Processors, 2008 (231)E.L.T. 3 (S.C.). According to them a plain reading of 2nd proviso to Section 11AC of the Act would make it clear that equal amount of duty found to be paid to the revenue is to be realized as penalty and therefore the amount of 25% imposed by the Tribunal as penalty is liable to be set aside.

Respondent’s Contention:- Respondent argued that the judgment of the Supreme Court in Dharamendra Textile’s case would not be applicable to the facts of the present case. They drew attention to proviso to sub-section 2 of section 11AC of the Act and argued that where duty is determined and interest payable thereon under Section 11AB of the Act is paid within 30 days from the date of communication of the order of the officer determining such duty then the amount of penalty has to be 25% of the duty so determined. They further submitted that dealer-respondent has been deprived of the opportunity to pay 25% of the duty because no benefit of the proviso was extended to them by imposing penalty equivalent to 25% of the duty amount. They highlighted that once the dealer-respondent has deposited the amount of duty as well as the interest much prior to the date of assessment order drawn under section 11(2) of the Act then there was no question of delay in depositing the amount of penalty equivalent to 25% of the total duty. They stated that the Authorities below had illegally insisted on imposition of penalty equivalent to the amount of duty which has been patently contrary to 1st proviso to Section 11AC of the Act.

Reasoning of Judgment:- The High Court held in view of Section 11AC that a perusal of Section 11AC of the Act shows that an amount equal to the amount of duty as determined by the Central Excise Officer under Section 11A(2) of the Act is required to be paid by the assessee where any duty of excise has not been (a) levied or paid or (b) has been short paid or (c) erroneously refunded by the reason of fraud collusion or any willful mis-statement or suppression of facts or (d) contravention of any of the provisions of this Act or the Rules made there under with intent to evade payment of duty. The aforesaid principal clause has four provisos. The first two provisos postulate a concessional rate of penalty in case the amount of duty as determined under sub-section 11A(2) of the Act and the interest payable thereon under Section 11AB of the Act stand paid within thirty dates from the date of communication of the order of the officer determining such duty. In such a case the amount of penalty has been stipulated to be 25% of the duty so determined.

The second proviso further imposes an obligation that the benefits contemplated by first proviso are to be available if the amount of penalty so determined has also been paid within a period of thirty days. In other words, if the duty as determined under Section 11A (2) of the Act by the Central Excise Officer is paid within thirty days then penalty equal to the amount of duty is not required to be paid and the amount contemplated in lieu of the penalty is 25% of the total amount of excise duty determined the officer concerned.

Further the 3rd proviso takes care of a situation where duty determined to be payable is reduced or increased by the Commissioner (Appeals), Appellate Tribunal or by this Court then duty as reduced or increased is required to be taken into account. The provision takes care of fluctuation in the assessment of duty at the appellate stage. However, in the present case there is no increase or decrease in the assessment of duty of excise. The alteration has been ordered by the Tribunal in the order of the Commissioner (Appeals) by reducing the amount of penalty to 25% of the total amount of duty of excise assessed by the Assessing Authority. Therefore, the appeal filed by the Revenue is liable to be rejected.

It was further held that the relevant provisions which came into effect from 12.05.2000 were applicable to the present case which covered the period from 28-7-2001 to 28-2-2002. on facts, it is held that the assessee had paid the amount before the issuance of show cause notice and in the impugned order, the Adjudicating Authority had appropriated the amount already paid by the assessee.

It was held that the order of Tribunal was correct but the reasoning was not correct. It was held that The amount of 25% imposed as penalty is not because any discretion is vested in the Court or the Tribunal but because of 1st and 2nd provisos incorporated by the Parliament (by Act No. X of 2000) w.e.f. 12-5-2000. Therefore, the Tribunal should not have committed the same error that merely because the amount of duty has been deposited before the issuance of show cause notice that imposition of penalty becomes illegal or lenient view was required to be taken.

Further the argument of the Revenue that the judgment in Dharamendra Textile Processor’s case would apply and penalty equal to the amount of duty of excise assessed by the Assessing Authority is to be paid. Such an argument would not be available because judgment in Dharamendra Textile. Processor’s casedealt with Section 11AC of the Act and has concluded the mandatory nature of the penalty contemplated by the proviso. In para 26, reference has been made to the Union Budget of 1996-97, when Section 11AC of the Act was introduced. It was then clarified that there was no scope for any discretion and the levy of penalty is of mandatory character, the Supreme Court further placed reliance on the Notes on Clauses concluding that similar indication has been given therein. It appears that provisos 1st and 2nd which were added in the year 2000 were not the subject matter of consideration before their Lordships in Dharamendra Textile Processors’ case.

It was also held that the facts of the present case were similar to the facts in K. P. Pouches case [2008 (228) E.L.T. 31], wherein it was held by the Division Bench of the High Court that when the statutory authorities are acting illegally and contrary to the 1st proviso to Section 11AC of the Act and therefore the assessee cannot be faulted to challenge the order passed by the Assistant Commissioner which fault was also repeated by the Commissioner (Appeals).

Decision:- Appeal rejected.

Comment:- This is important decision wherein it is held that the option is not given in adjudication order to pay the duty, interest and 25% penalty within 30 days then the option can be given by appellate authority at appellate stage. But the department is not accepting the same saying that it is clearly written in the statue book then there is no need to give the option. We have come across a case where the department has filed the appeal is Apex Court against such order. Let us wait and watch about the Apex court decision.

Comments

PJ/Case Laws/2011-12/1299

Post a Comment

Query