penalty for short-levy and non-levy under Section 11AC

PJ/Case Laws/2010-11/1026

Case: GENEVA FINE PUNCH ENCLOSURES LTD. Versus CCE, BANGALORE

Citation: 2010 (102) RLTONLINE 366 (CESTAT-BAN.)

Issue:- Whether penalty for short-levy and non-levy under Section 11AC can be imposed only when the liability to pay duty is determined under provisions of Sub-section (2) of Section 11A.

Brief Facts:- The relevant facts that arise are for consideration are that on the basis of investigation conducted by the Department against the assessee appellant it revealed that they are liable to pay an amount of Rs. 2,61,028/- along with interest due to some procedural irregularities as alleged in the show cause notice during the period July 2001 to November 2003.  The assessee appellant paid the amount which has been intimated to them by the officers who were conducting the investigation along with interest before the issuance of show cause notice.  Show cause notice dated 10.03.2005 was issued to the assessee directing them to show cause as to why penalty should not be imposed on them under Section 11AC of the Central Excise Act 1944, Rule 173Q of the erstwhile Central Excise Rules 1944 and Rule 25 of the Central Excise Rules 2001/2002.  The assessee contested the show cause notice before the adjudicating authority.  The adjudicating authority in his order-in-original relying upon the various decisions of the Tribunal and as upheld by the Hon’ble Supreme Court came to the conclusion that the assessee having paid the duty liability before the issuance of show cause notice, no penalty need be imposed under Section 11AC of Central Excise Act 1944 as well as Rule 173Q of erstwhile Central Excise Rules 1944 and Rule 25 of the Central Excise Rules 2001/2002.  He dropped the proceedings initiated by the show cause notice for the imposition of penalties.  Aggrieved by such an order, revenue preferred an appeal before the learned Commissioner (Appeals).  Learned Commissioner (Appeals) after considering the submissions made by both sides set aside the order-in-original and allowed the appeal filed by the Department.

Appellant’s Contentions:- Appellant has noticed provisions of Section 11AC and 11A.  She would submit that the show cause notice and order-in-original has nowhere confirmed the demand under provisions of Section 11A (2) of Central Excise Act 1944.  It is their submission that the imposition of penalty under Section 11AC mandates a requirement of confirmation of duty under provisions of Section 11A (2).  Appellant relied upon the decision of the Apex Court in the case of UOI Vs. Rajasthan Spinning and Weaving Mills 2009 (92) RLT 691 (SC)=2009 (238) ELT 3 (SC).


Respondent’s Contentions:- Respondent submitted that the show cause notice illustrates the examples wherein the assessee appellant has not discharged the duty liability on the goods which were cleared from the factory premises on delivery challans and also on raw materials on which cenvat credit was taken without payment of duty.  It is their submission that the show cause notice clearly records the existence of debit notes wherein the development charges were charged to the customer which formed part of the assessable value and on which no excise duty was discharged.  Further the entire show cause notice proceeds and lays down the ingredients of the Section 11A (2).  Hence penalty imposed by the learned Commissioner under Section 11AC is sustainable.

Reasoning of Judgment:- The Tribunal finds from the show cause notice that the assessee was asked to show cause as to why penalty should not be imposed on them under Section 11AC of the Central Excise Act, 1944 and Rule 173Q of the Central Excise Rules 1944/Rule 25 of the Central Excise Rules, 2001/2002.

Against such allegation, the contentions of the assessee were accepted by the adjudicating authority and he dropped the proceedings.  While dropping the proceedings learned adjudicating authority has relied upon the decisions wherein the ratio was that once the assessee pays the demand of duty before issuance of show cause notice, no penalty is imposable.

It can be seen from the above reproduced finding of the learned Commissioner (Appeals) that learned Commissioner (Appeals) has come to the conclusion that there is mens rea and once mens rea is proved, penalty is imposable.  We find from paragraph-9 of the impugned order that the learned Commissioner (Appeals) has reproduced the provisions of Section 11AC which clearly specify that penalty for short-levy and non-levy under Section 11AC can be imposed only when the liability to pay duty is determined under provisions of Sub-section (2) of Section 11A.  We find that the show cause notice does not demand duty or there is any direction to the assessee for determination of duty under Sub-section (2) of Section 11A.  In the absence of such determination of duty under sub-section (2) of Section 11A, penalty under Section 11AC cannot be imposed.  Hon’ble Supreme Court in the case of Rajasthan Spinning and Weaving Mills (supra) have been relied upon.
In view of the ratio as laid down by the Hon’ble Supreme Court, respectfully following the same tribunal finds that in this case there being no determination of duty liability under provisions of Section 11A (2) of the Central Excise Act, the impugned order to the extent it imposes equivalent amount of penalty under Section 11AC is not sustainable.

Decision:-The impugned order is set aside and appeal allowed.

Comment:- It is clear from the above judgment that for invocation of section 11AC of Central Excise Act, 1944 the condition of determination of duty under section 11A (2) of Central Excise Act, 1944 is to be fulfilled.

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PJ/Case Laws/2010-11/1026

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