Penalty under Section 11AC

PJ/Case Laws/2010-11/1002

Case: K.P. Pouches (P) Ltd v/s Union of India & Anr

Citation: 2008 (085) RLT 0483 (Del.)

Issue:- Whether imposition of 100% penalty on the appellant in terms of Section 11AC of the Central Excise Act, 1944 is justified when duty was paid immediately on discovery of non-payment?

Brief Facts:- Appellant is a manufacturer of Ghutka. On 16.09.2003, two tempos carrying Ghutka were intercepted by the Excise Authorities. From an enquiry from the tempo staff, they reached the factory premises of the appellant. On questioning, one employee admitted to have cleared the goods without payment of duty. He further stated that he has done this despite of the specific direction from the Director not to do so. The Director of the Company admitted that his employee had committed a mistake and he took full responsibility for the acts of his employee. On the same date, by making an adjustment in the PLA Register, the duty in respect of the impugned goods was debited by the Appellant.

Thereafter, show cause notice was to the appellant mentioning that the debit entry had voluntarily and admittedly been made by the Appellant towards duty payable on the goods.

The Assistant Commissioner held that the appellant had violated the provisions of the Central Excise Act, 1944, and ordered confiscation of the goods and also appropriation of the duty. The Assistant Commissioner also imposed a penalty on the appellant of 100% of the duty under the provisions of Section 11AC of the Act.

Aggrieved by the imposition of 100% penalty, appellant preferred an appeal before the Commissioner (Appeals) who rejected the same. Further appeal before the Tribunal was also dismissed. Appellant then filed miscellaneous application, wherein the Tribunal held that since the appellant had not paid the penalty within 30 days of the adjudication order, it was not entitled to the benefit of the first proviso to Section 11 AC of the Act.

Appellants Contention:- Appellant contended that in view of the first proviso to Section 11 AC of the Act, penalty in excess of 25% could not have been levied since the entire duty was paid by the Appellant on the date of the search and seizure, which was of course well before the date of the show cause notice. It is also submitted that the appellant has deposited an amount of Rs. 50,000/- before the Tribunal at the time of waiver of pre-deposit. This amount is a little short of 25% of the duty amount.

Appellant contended that they will make the balance payment within ten days of the receipt of the order passed by HC.

Respondent’s Contention:- Revenue placed reliance upon the second proviso to Section 11 AC and contented that since the penalty determined by the Assistant Commissioner was not paid by the Appellant within 30 days of the adjudication order, the Appellant is not entitled to the benefit of the first proviso to Section 11 AC.

Reasoning of Judgment:- TheHigh Court held that the purpose of the Section and the provisos is to give a benefit to the assessee if he pays the duty demanded within 30 days of the adjudication order. In that event, the assessee would be liable to pay only 25% of the duty amount by way of penalty; otherwise he would be liable to pay 100% of the duty amount by way of penalty. In the present case, the appellant had deposited the entire duty amount well before the show cause notice was issued and, therefore, the appellant would be liable to pay only 25% of the duty amount as penalty.

It was held that the Assistant Commissioner could not have demanded more than 25% of the duty amount by way of penalty, in view of the first proviso to Section 11 AC of the Act. The demand of 100% of the duty amount by way of penalty was incorrect and contrary to the benefit that the appellant was statutorily entitled to under the first proviso to Section 11 AC of the Act.

It was held that the Authorities below did not pay attention to the terms of the first proviso to Section 11AC of the Act. On facts, it was observed that no one can say that if the Assistant Commissioner had in fact imposed only 25% of the duty amount by way of penalty, the appellant would not have paid the penalty amount within 30 days of the Adjudication order. However, the benefit of doubt in this regard must go to the Appellant considering its bona fides, which are obvious from the fact that the appellant debited the duty amount on the date of the search, well before a show cause notice was issued to it. Under these circumstances, the High Court inferred that if the correct penalty had been imposed upon the Appellant, he would have paid it within the time prescribed.

It was held that since the statutory authorities have themselves acted illegally and contrary to the first proviso to Section 11 AC, the Appellant cannot be faulted for challenging the impugned order. Consequently, the failure of the Appellant to pay the penalty amount within 30 days of the adjudication order cannot be held against the Appellant on the facts of the case.

Time given to the appellant to deposit the remaining amount towards 25% penalty under Section 11AC.

Decision:- Appeal allowed.

Comments:- It is clearly held by Apex court in Dharmendra Textile that penalty under Section 11AC is mandatory. Further, it was held that there should be fraud, willful suppression of facts, collusion etc. for imposing penalty under Section 11AC ibid. But the penalty is reduced to 25% if the duty, interest and 25% penalty is paid with in thirty days of order. The Board issued circular that this benefit is available only if these are paid within 30 days of order-in-original. But Hon’ble Delhi High court has held that the benefit of this proviso is also available at later stage also if the adjudication officer has not given the option to assessee in his order-in-original. This is landmark judgement.

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PJ/Case Laws/2010-11/1002

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