Whether delayed payment of duty, but before issuance of SCN, attracts penalty?

PJ/CASE LAW/2015-16/2946

Case:-COMMR. OF C. EX., TIRUNELVELI VERSUS SRI RAMJI FIREWORKS INDUSTRIES

Citation:- 2015 (317) E.L.T. 443 (Mad.)

Brief facts:- The respondent herein had been engaged in the business of fireworks. During the years 1994, 1995 and 1996 the respondent had distributed some gift boxes even without paying duty. Under the said circumstances, show-cause notice, dated 7-9-1998 had been issued wherein the demand of duty, interest coupled with penalty were mentioned. The demand made in show-cause notice had been upheld in Order-in-Original, dated 24-5-1999 and the same had been agitated before the Commissioner of Appeals. The Commissioner of Appeals had dismissed the appeal filed by the respondent and subsequently, the respondent had filed Appeal No. E/443/2003 before the CESTAT.
The CESTAT, after hearing both sides, allowed the appeal in part and set aside the demand made by the Department with regard to penalty and upheld the demand made with regard to duty and interest. Against the disallowed portion, the present Civil Miscellaneous Appeal had been preferred at the instance of the Department as appellant.

Appellant’s contention:- The learned counsel appearing for the appellant meticulously drew the attention of the Court to the provision of Section 11AC of the Central Excise Act, 1944 which deals with penalty in case of short levied or erroneously refunded or non-payment of duty.

Respondent’s contention:-Even though the respondent had been served with summons, appearance had not been made. Under the said circumstances, the present Civil Miscellaneous Appeal was disposed off on merits on the basis of the contentions put forth on the side of the appellant.

Reasoning of judgement:- At the time of admitting the present Appeal, the following substantial question of law had been settled for consideration : -
“Whether the CESTAT is right in dismissing the appeal and vacating the mandatory penalties imposed when there is a plethora of conflicting decision on the same issue by various higher appellate forums/authorities?”
The present claim of penalty came within the purview of non-payment.
It was seen from the records that the respondent had to pay Central Excise Duty in the years 1994, 1995 and 1996, but they paid duty only on 5-11-1997. Even though, the respondent had paid duty on 5-11-1997 and that too prior to issuance of show cause notice, dated 7-9-1998, the respondent could not absolve its liability from paying penalty under the Section mentioned supra.
The CESTAT without properly considering the said provision had simply found that since before the issuance of show cause notice the respondent had paid Central Excise Duty, it need not pay penalty. Since the said Section deals with short levy or short payment or erroneous refund and non-payment, this Court was of the view that the approach made by the CESTAT with regard to penalty was totally erroneous and therefore, the order passed by the CESTAT was liable to be set aside and the substantial question of law settled in the present Appeal was having substance.
In fine, this Civil Miscellaneous Appeal was allowed without costs and the Final Order No. 725 of 2008 in Appeal No. E/443/2003 passed by the CESTAT with regard to penalty was set aside. Consequently, connected Miscellaneous Petition was closed.

Decision:- Appeal allowed.

Comment:- The main question to be dealt in this case was that- whether delayed payment of duty before issuance of SCN attracts penalty or not? To answer this question Section 11AC of the Central Excise Act, 1944 was referred to. Since the said Section deals with short levy or short payment or erroneous refund and non-payment, Court was of the view that the approach made by the CESTAT with regard to penalty was totally erroneous. No matter whether the duty has been paid before issuance of SCN or not- delay in payment of duty attracts penalty and the same has to be paid.

Prepared By- Sharad Bang

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PJ/CASE LAW/2015-16/2946

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