Penalty under Section 11AC of CEA, 1944

PJ/Case Laws/2010-11/1056

Case:-Geneva Fine Punch Enclosures Ltd v/s CCE, Bangalore

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

Issue:- Whether penalty under Section 11AC can be imposed when duty liability is not determined under Section 11A (2)?

Brief Fact:- Department in their investigation found that the appellant-assessee is liable to pay an amount of Rs 2, 61,028 along with interest due to some procedural irregularities during the period from July 2001 to November 2003. Appellant paid the amount with interest and intimated this fact to investigating officers before the show cause notice was issued.

Department issued show cause notice proposing to impose penalty under Section 11AC. The assessee contested the show cause notice before the adjudicating authority. The Adjudicating Authority relying upon the various decisions of the Tribunal and as upheld by the Supreme Court came to the conclusion that the appellant having paid the duty liability before the issuance of show cause notice, no penalty need be imposed under Section 11AC.

Revenue preferred an appeal. The Commissioner (Appeals) allowed their appeal and passed the order that appellant was liable penalty equivalent to duty. It was also held that the appellant can also exercise the option of reduced penalty of 25%, as provided under proviso to Section 11AC, by paying the penalty within 30 days from the date of receipt of this order.

Appellant has filed this appeal against impugned order.

Appellant’s Contentions:- Appellant referred to the provisions of Section 11AC and 11A. It was submitted 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.  The imposition of penalty under Section 11AC mandates a requirement of confirmation of duty under provisions of Section 11A (2). Reliance was placed on the judgment given in UOI v/s Rajasthan Spinning and Weaving Mills [2009 (238) ELT 3 (SC)].

Respondent contention:- Revenue contended that the show cause notice illustrates the examples wherein the 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 submitted 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.  The entire show cause notice proceeds and lays down the ingredients of the Section 11A (2).  Hence penalty imposed by the Commissioner under Section 11AC is sustainable.

Reasoning of Judgment:- The Tribunal held that the provisions of Section 11AC 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.

The Tribunal held 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.

Reliance was placed on the judgment given in the case of Rajasthan Spinning and Weaving Mills wherein it was held that the penalty provision of Section 11AC would come into play only after an order is passed under Section 11A (2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in Section 11AC.

Accordingly, the Tribunal held that in appellant’s case there was no determination of duty liability under the 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. Impugned order is set aside.
Decision:- Appeal Allowed.

Comment:- Earlier it was held in number of cases that the duty is deposited before issue of show cause notice then no penalty under Section 11AC will be imposed. But the Apex Court has held in case of Dharmendra Textile that the penalty is imposable irrespective of the fact that duty is deposited before or after the issue of show cause notice. Thereafter, it was also decided that the allegation of willful suppression, fraud, collusion is necessary for invoking penalty under Section 11AC. Further, it was held that the option to pay 25% penalty along with duty and interest within 30 days is available even at appellate stage. The Delhi High Court said that the option should be given at adjudication stage that the duty, interest is paid along 25% penalty within 30 days then rest of penalty under Section 11AC will be waived. But if this option is not given earlier then it can be given at appellate stage. Now with this new analogy that if the demand is not confirmed under Section 11A(2) then the penalty cannot be imposed under Section 11AC will have far reaching effect. Further, this is not a final decision and the department will challenge it in Courts also. Let us wait and watch. But the appellant will have one more ground to plead before the Authorities.

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PJ/Case Laws/2010-11/1056

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