Penalty under section 11AC cannot be imposed in every case of default.

PJ/CASE LAW/13-14/2067

Case:- COMMISSIONER OF CENTRAL EXCISE, SALEM V/S CROCODILE (I) PVT. LTD.

Citation:- 2013 (297) E.L.T. 363 (Mad.)

Brief Facts:- The assessee is the manufacturer of readymade garments falling under Chapter sub heading 62.01 of the Central Excise Tariff Act, 1985. After communicating with the jurisdictional Superintendent and after considering the reply, the Revenue held that credit taken to a sum of Rs. 1507414/-, was in excess of the admissible credit. However, subsequently, the assessee reversed the wrongful credit taken and paid the duty thereon. Evidently, this was before the issuance of show cause notice. Thus, though the original notice issues on 16.04.2004 proposed levy of interest under Section 11AB of the Central Excise Act, 1944 and penalty under Rule 13 (1) of the Cenvat Credit Rules, 2002, on the above facts, the Assistant Commissioner dropped the proposal on the levy of interest and penalty. On appeal by the Revenue, by virtue of the powers under Section 35E (2) of Central Excise Act, 1944, the Commissioner reversed the order of the Assistant Commissioner. He proposed the imposition of penalty under Rule 13 (1) of the Cenvat credit Rules, 2002 and interest under Rule 12 of Cenvat Credit Rules, 2002. The assessee objected to this that the notice failed to point out how the penal provisions were attracted in the case, more so in the context of payment of the duty even before the issue of the notice in terms of Section 11A (2B) of Central Excise Act, 1944. A cursory reading of the notice shows that except for mere reference to the proposal to levy penalty under Section 13(1) of Cenvat Credit Rules, 2002, there is no discussion as regards the various requirements which are necessary for the purpose of levy of penalty under Section 11AC of Central Excise Act, 1944. A reading of the order of the commissioner shows that he confirmed the levy of penalty observing that the reversal of the credit made by the assessee after detection of the case clearly established the intention to cause wrongful gain warranting imposition of penalty. Thus, even if any credit was reversed before the issuance of show cause notice, it being made after the detection, penalty was leviable under Section 11AC of Central Excise Act, 1944. Thus, ultimately the Commissioner confirmed his proposal to levy of penalty of Rs. 150000/- under Rule 13 of the Cenvat credit Rules, 2002 and confirmed the levy of interest at Rs. 124150/-.
Aggrieved by this, the assessee went on appeal before the Customs, Excise & Service Tax Appellate Tribunal. Considering the merits of the case, the Tribunal found that the assessee reversed the credit on 23-10-2003 after getting intimation from the department as to the admissibility of the claim. In terms of Rule 12 of Cenvat Credit Rules, 2002, the assessee was rightly asked to pay the interest. However, it was also an admitted fact that the assessee did not utilise the credit and reversed immediately on receipt of the intimation about the error. In the circumstances, in the absence of any other material to show the intent to cause wrongful gain as required under Section 11A of the Central Excise Act, the levy of penalty was cancelled by the Tribunal. Aggrieved by this, the present appeal by the Revenue.
Appellant’s Contention:-The appellants placed reliance on the decision reported in 2009 (238) ELT 3 (SC) Union of India v. Rajasthan Spinning & Weaving Mills and submitted that for the detection by them, the assessee would not have reversed the entry. In the circumstances, going by section 11AC of the Central Excise Act, and on the facts, the levy of the penalty under section 11 AC is liable to be imposed.

Respondent’s Contention:-The Respondents submitted that they have availed cenvat credit on the basis as had been stated so by the department. However, subsequently, on receipt of intimation from the department in October 2003, they reversed the credit immediately thereon and paid the duty. In these circumstances, no penalty is warranted.

Reasoning of Judgment:- The Hon’ble Tribunal held that the assessee reversed the credit on 23.10.2003 after getting intimation from the department as to the admissibility of the claim. In terms of Rule 12 of Cenvat Credit Rules, 2002, the assessee was rightly asked to pay the interest. However, it was also an admitted fact that the assessee did not utilize the credit and reversed immediately on receipt of the intimation about the error. In the circumstances, in the absence of any other material to show the intent to cause wrongful gain as required under Section 11A of the Central Excise Act, the levy of penalty was cancelled by them.
Further, they held that they do not agree with the submission of the Revenue. The decision of the Apex Court reported in 2009 (231) ELT 3 (SC) Union of India v. Rajasthan Spinning & Weaving Mills referred to the decision of the Apex Court reported in 2008 (231) ELT 3 (SC) Union of India v. Dharamendra Textile Processors, wherein, the Apex Court pointed out that the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable, the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub section (2) of Section 11A. In so holding, the Apex Court held that in every case of non-payment or short payment of duty, penal provisions cannot be automatically invoked, in other words, the conduct of the assessee in each of the case, before imposing penalty, has to be looked at on the bona fides of the assessee as regards his claim which otherwise would not be sustained in law.
Further, they held that as far as the present case is concerned, it is no doubt true that the assessee originally made the claim for Cenvat credit. As rightly submitted by the assessee, the same was availed on the basis what had been stated so by the department. However, subsequently, on receipt of intimation from the department in October 2003, the assessee reversed the credit immediately thereon and paid the duty. In the background of the said facts, they may look into the show cause notice issued by the adjudicating authorities well as by the commissioner. On a reading of the show cause notice, they can safely hold that it does not states any details or makes allegations which are required to be considered for the purpose of levy of penalty under Rule 13 (1) of the Cenvat Credit Rules, 2002. In the absence of any specific ground alleged, they do not find any justifiable ground to disturb the order of the Tribunal. Applying the law declared by the Apex court in the decision reported in 2009 (238) ELT 3 (SC) Union of India v. Rajasthan Spinning & Weaving Mills, they rejected the appeal filed by the Revenue.

Decision:- The appeal was rejected.

Comment:-The crux of this case is that the mandatory penalty under section 11AC is imposed only when the ingredients of fraud, willful misstatement, suppression of facts etc. are present. When there is no allegation of any willful misstatement or suppression of facts, mandatory penalty cannot be levied on the assessee.

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PJ/CASE LAW/13-14/2067

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