Requirement of mens rea in penalty imposition.

PJ/CASE LAW/2015-16/2609

Case:-COMMISSIONER OF CENTRAL EXCISE & CUSTOMS VERSUS G.E. PLASTICS INDIA LTD.

Citation:- 2014 (306) E.L.T. 180 (Guj.)

Brief facts:- Briefly stated, facts are that the respondent-assessee was alleged to have cleared the goods of Rs. 9,84,000/- without payment of Central Excise duty. There were other allegations of wrong availment of Modvat credit also. It is the case of the respondent-assessee that such duty was not paid on bona fide belief that the assessee was not required to pay the same. Be that as it may, even before the Department issued show cause notice for recovery of such unpaid dues, the dues were paid and the credit was reversed. It appears that to the extent the assessee had used certain items for captive consumption without payment of duty valued at Rs. 2,46,000/- Department issued show cause notice 2-7-1998 under Section 11AC of the Central Excise Act, calling upon the assessee, to show cause why penalty equivalent to such amount of Rs. 2,46,000/- be not imposed upon it. It was notice that there were certain other proposals in the said show cause notice. And however, in the present appeal are not concerned with rest of them. The Assessing Officer and the Appellate Authority imposed penalty of Rs. 2,46,000/-. Ultimately, the issue reached the Tribunal. The Tribunal by the impugned judgment deleted the penalty on the short ground that the assessee had reversed the credit even before issuance of show cause notice and therefore, no penalty should be imposed. The Tribunal relied on a decision of the Delhi Bench reported in 2004 62 RLT 709 = 2004 (168)E.L.T.466 (Tri.-Del.).

Appellant’s Contention:-Learned counsel for the Revenue submitted that the issue is decided by the Apex Court in their favour in the case of Union of India v. Dharamendra Textile Processors, 2008 (231)E.L.T.3 (S.C.) wherein it was held that penalty under Section 11AC is required to be imposed without the necessity to prove mens rea. He submitted that merely because the assessee deposited the amount before issuance of show cause notice would not mean that there was no intention to evade duty. He submitted that credit was reversed only after the Department started investigation.

Respondent’s Contention:-Learned counsel for the respondents submitted that the decision in the case of Dharamendra Textile Processors (supra) has since been considered and explained by the Apex Court in the case of Union of India v. Rajasthan Spining & Weaving Mills, 2009 (238)E.L.T.3 (S.C.) and our attention was drawn to paras 18, 19 and 23 of the said judgment.

Reasoning of Judgment:-As already recorded, the Tribunal allowed the appeal of the respondent only on the ground that the credit was reversed before the issuance of show cause notice. To the Court’s mind, by virtue of decision in the case of Dharamendra Textile Processors (supra), this cannot be the sole ground for deleting the penalty. However, in view of the decision in the case of Rajasthan Spinning & Weaving Mills (supra), explaining the decision in the case of Dharamendra Textiles, other defences of the assessee shall have to be examined. In other words, if the assessee can establish that it had sufficient reasons for not paying the duty and that there was no intention to evade duty, question of penalty under Section 11AC will have to be looked from that angle. In the result, the judgment of the Tribunal is set aside. The proceedings are remanded before the Tribunal for consideration of the appeal of the assessee afresh after hearing both sides, bearing in mind the observations made hereinabove and those of the Apex Court in the aforesaid cases. The appeal is disposed of accordingly.

Decision:- Appeal disposed off.

Comment:- The essence of the case is that the reversal of duty before the issue of show cause notice by the assessee cannot be the sole ground for non imposition of penalty under section 11AC. The important thing that must be proved by the assessee is that they had no intention of evasion of duty and have sufficient reason of non payment and only then penalty under section 11AC can be set aside. Hence, penalty under Sec 11AC is required to be imposed only if there was mens rea.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2015-16/2609

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