Whether benefit of reduced penalty being 25% available even if duty, interest and 25% penalty paid before passing of order?

PJ/CASE LAW/2015-16/2628

Case:-PRIME ALLOYS VERSUSCOMMR. OF C. EX. & S.T., CHANDIGARH-I

Citation:-2015 (316) E.L.T. 645 (P & H)

Brief facts:- Dissatisfied with the order dated May 29, 2013 passed by the Customs Excise and Service Tax Appellate Tribunal, New Delhi (for brevity “the Tribunal”), the appellant (M/s. Prime Alloys, Village Ambey Majra, G.T. Road, Mandi Gobindgarh) ] preferred the appeal under Section 35G of the Central Excise Act, 1944 (for short “the Act”). The appellant’s firm had claimed that the following question of law would emerge from the impugned order :-
“whether imposition of 100% penalty is justifiable when the duty as well as interest along with 25% of the duty has been deposited prior to the passing of the Order-in-Original dated July 20, 2009 by the adjudicating authority and/or denial of benefit provided under Section 11AC of the Act is wrong and contrary to law.”
Briefly stating the facts, which led to the controversy and were necessary for its disposal were that appellant’s firm is engaged in the trading of iron and steel products falling under Chapter 72 of the First Schedule of the Central Excise Tariff Act, 1985 (for short “the Tariff Act”) and is registered with Central Excise Department for trading excisable goods. The Divisional Preventive Staff conducted an inspection at the premises of appellant on July 30, 2008, during which, a quantity of 20.100 Metric Ton of Silicon Manganese involving Cenvat credit of ` 2,14,483/- was found deficit. The said fact was admitted by Darbara Singh, one of the partners of appellant-firm but he could not furnish any plausible explanation for the shortage. Accordingly, a show cause notice dated January 30, 2009 was issued to the appellant for debarring it from passing on the Cenvat credit of ` 2,14,483/- for imposition of penalty under Rule 25 of the Central Excise Rules, 2002 (for brevity “the Rules 2002”) read with Section 11AC of the Act. Appellant’s firm was debarred from passing on the credit of the above referred amount by the adjudicating authority vide order dated July 20, 2009 and slapped penalty of the equal amount. The appellant firm deposited the duty as well as interest along with 25% of the duty on February 10, 2009 i.e. prior to the passing of order dated July 20, 2009 by the adjudicating authority.
Order dated July 20, 2009 debarring the appellant from passing on the credit of ` 2,14,483/- as well as imposition of penalty of equal amount was challenged by the appellant’s firm before Commissioner (Appeals), Central Customs & Excise, Chandigarh, who upheld the same and dismissed the appeal vide order dated December 31, 2011. Thereafter, the appellant’s firm preferred an appeal before the Tribunal, which also met the same fate. Dissatisfied with the above referred orders, this appeal was been filed.

Appellant’s contention:- While assailing the impugned order dated May 29, 2013 passed by the Tribunal, Mr. Ishpuneet Singh, learned Counsel for the appellant’s firm ebulliently argued while referring to provisos to sub-section 2 of Section 11AC of the Act that where the duty is determined and interest payable thereon under Section 11AB of the Act is paid within 30 days from the date of communication of the order of the adjudicating officer or any other officer empowered in this behalf to determine such duty, the amount of penalty must be to the extent of 25% of the duty so determined. It had been further stressed by the learned Counsel for the appellant that once an amount of duty as well as the interest along with 25% of the duty so determined has been deposited much prior to the date of adjudication order drawn under Section 11(2) of the Act then the question of imposition of penalty equal to the amount of duty determined, did not arise at all. To buttress his contention, learned Counsel for the appellant has placed reliance upon the pronouncements of the Division Bench of this Court captioned as Commissioner of Central Excise Commissionerate v. J.R. Fabrics (P). Ltd.,2009 (170) ECR 171 (P & H) = 2009 (238)E.L.T.209 (P & H)and Commissioner of Central Excise v. Shipley Hosiery Industries, decided on 27-1-2010.

Respondent’s contention:-On the other hand, Mr. Sukhdev Sharma, learned Counsel for the respondent has vehemently argued that provisos of Section 11AC of the Act had been interpreted by the Supreme Court in case Union of India v. Dharamendra Textile Processors (2008) 306 ITR 277 (SC) = 2008 (231)E.L.T.3 (S.C.),in which, it had been observed that the equal amount of duty found to be paid to the Revenue had to be realized as penalty. It was further been argued by him that even otherwise, if plain reading of second proviso of Section 11AC of the Act also made it clear that equal amount of duty found to be paid to the Revenue can be realized by way of penalty and in such circumstances, 100% penalty imposed by the Tribunal was legally as well as factually justified.
Reasoning of judgement:- They gave their anxious thought to the rival submissions made by the learned Counsel for the parties and perused the record with their able assistance and found legal force in the submissions made by learned Counsel for the appellant.
Before proceeding further to decide the question raised by the appellant, it was considered appropriate to refer Section 11AC of the Act, which read as under :-
“Penalty for short-levy or non-levy etc., in certain cases.- Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any willful misstatement or suppression of facts or contravention of any of the provisions of this Act or of the rules made there under with intent to evade payment of duty, the persons who is liable to pay duty as determined under sub-section (2) of Section 11A, shall also be liable to pay a penalty equal to the duty so determined :-
Provided that where such duty as determined under sub-section (2) of Section 11A, and the interest payable thereon under Section 11AB, is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such duty, the amount of penalty liable to be paid by such person under this section be twenty five percent of the duty so determined :
Provided further that the benefit of reduced penalty under the first proviso shall be available if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso :
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Explanation :-for the removal of doubts, it is hereby declared that
(1)       the provisions of this section shall also apply to cases in which the order determining the duty under sub-section (2) of Section 11A relates to notices issued prior to the date on which the Finance Act, 2000 receives the assent of the President;
(2)       any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.”
A glance at the aforesaid provision clearly depicted that an amount equal to the amount of duty as determined by the Central Excise Officer under Section 11A(2) of the Act is required to be paid by the assessee where any duty of excise has not been levied or paid; or has been short paid or erroneously refunded by the reason of fraud collusion or any wilful misstatement or suppression of facts or contravention of any of the proviso of the Act or the Rules made with an intention to evade payment of duty. The first and second provisos are relevant to be considered for determining the amount/rate of penalty on the amount of duty determined by the Central Excise Officer/determining authority. A close scrutiny of these provisos makes it abundantly clear that a concessional rate of penalty in case the amount of duty as determined under [Section] 11A(2) of the Act would be 25% when duty as well as interest payable thereon has been paid within 30 days from the date of communication of the order of the determining authority/Officer
Then they examined the facts of the case in the light of the aforesaid provisions and the authorities i.e. J.R. Fabrics (P) Ltd. case (supra) and Shipley Hosiery Industries case (supra) relied upon by the learned Counsel for the appellant.
It was an undisputed fact and was also evident from the pleadings and documents that Divisional Preventive Staff conducted an inspection of the appellant-firm on July 30, 2008 during which, 20.100 MT quantity of Silicon Manganese involving Cenvat credit of ` 2,14,483/- was found deficit. The said fact was admitted by Darbara Singh, one of the partners of appellant-firm but he could not furnish any plausible explanation for the shortage. Accordingly, the respondent-Revenue issued a show cause notice dated January 30, 2009 which was duly replied. At the time of filing of reply to the show cause notice on February 10, 2009, the amount of duty and interest payable thereon along with 25% penalty was deposited much prior to the passing of the impugned order dated July 20, 2009 imposing penalty, of ` 2,14,483/- which is equal to the amount of duty of excise determined by the adjudicating authority. Moreover, substantial question of law proposed/posed in this case stand already determined by the Division Bench of this Court in J.R. Fabrics (P) Ltd. case (supra) and Shipley Hosiery Industries case (supra), wherein it was concluded that according to proviso of Section 11AC of the Act only 25% of duty of excise was payable. The facts of the case were absolutely similar and identical to the facts of the cases referred to above and present case is covered, whereas authority relied upon by learned Counsel for respondent-Revenue captioned as Dharamendra Textile Processor’s case (supra) was not applicable to the facts of the case in hand. Even otherwise, learned Counsel for the respondent-Revenue had also failed to show any judgment taking a contrary view.
For thereasons and legal proposition discussed above, the substantial question of law was answered in favour of the appellant. Accordingly, appeal was allowed whereby impugned order dated May 29, 2013 stood set aside.
Decision:-Appeal allowed.

Comment:- As per provision contained in section 11AC, if the assessee pays duty, interest and 25% penalty under section 11AC within 30 days from the date of communication of order in original, the penalty under section 11AC will be restricted to 25% instead of 100%. However, the benefit of reduced penalty should not be denied only for the reason that the duty, interest and 25% penalty was paid before issuance of order in original. Hence, benefit of reduced penalty was extended by placing reliance on the decisions given in the case of J. R. Fabrics (P) Ltd. and Shipley Hosiery Industries case.

Prepared by :- Prayushi jain

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PJ/CASE LAW/2015-16/2628

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