Whether Department can impose penalty under section 11AC when penalty under Rule 25 was invoked?

PJ/CASE LAW/2016-17/3149

Case:-COMMISSIONER OF CENTRAL EXCISE, PUNE-II VERSUS GNAT FOUNDRY PVT. LTD.

Issue:- Whether Department can impose penalty under section 11AC when penalty under Rule 25 was invoked?

Brief Facts:-The facts of the case are that the respondents are engaged in the manufacture of Cast Iron Casting and Cast Steel Castings. On the basis of intelligence, Preventive Officers visited the factory premises on 10-7-2003 and recorded the statements wherein it was stated that entries in the note book are made by one Shri K.T. Yezare and that they had supplied from their factory, the cast steel casting of Trunnion Bracket, Trunnion Shoe and Pit to M/s. R.A. Somavanshi without preparing invoice/bill, also without accounting in their Daily Stock Account and without payment of Central Excise duty. Therefore show cause notice was issued for clandestine removal of the goods for demanding duty along with interest and penalty also proposed on them under provisions of Rule 25 of Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944. The respondent filed an appeal before the Commissioner (Appeals) who after scrutinized their document reduced the duty demand of Rs. 1,79,527/- along with interest but penalty of Rs. 2,08,253/- under Section 11AC was set aside following the decision of Machino Montell (I) Ltd.- 2004 (62) RLT 709 = 2004 (168) E.L.T. 466 (Tri.) wherein it was held that when the duty has been paid before issuance of show cause notice, no penalties are imposable under Section 11AC. Aggrieved by the same, the Revenue came in appeal before Tribunal.
Appellant Contentions:- The learned DR submitted that it is a case of clandestine removal of goods without payment of Central Excise Duty which has been admitted by the respondent, hence there is suppression of fact with intent to evade payment of Central Excise Duty. To support his contention he placed reliance on the decision of the Hon’ble Apex Court in the case of Union of India v. Rajasthan Spinning & Weaving Mills - 2009 (238)E.L.T.3 (S.C.)wherein it was held that mandatory penalty under Section 11AC is to be imposed if it is found that the assessee has escaped the payment of duty with an intention to evade payment of duty. The decision relied upon by the Commissioner (Appeals) is no more good law in present scenario. Hence the impugned order is to be set aside.

Respondent Contentions:-On the other hand, the learned Advocate appearing on behalf of the respondent submitted that in this case penalty has been proposed under Rule 25 read with Section 11AC of Central Excise Act, 1944. He further submitted that in the show cause notice there was no proposal of mandatory penalty under Section 11AC hence the penalty under Section 11AC is not imposable. To support his contention he relied on Schrader Duncan Ltd. v. CCE, Mumbai-III - 2010 (251) E.L.T. 290 (Tri.-Mumbai)wherein this Tribunal has held that show cause notice issued involving Rule 25 of Central Excise Rules, 2002 read with Section 11AC of Central Excise Act, 1944 reflects misconceptions of author of show cause notice and it was held that this is a case where the department wanted to penalize the appellant under Rule 25 and the authorities below chose to venture into the domain of Section 11AC, which was not warranted in this case. In this view of the matter, penalty imposed on the assessee was set aside. Hence the penalty should not be levied on the respondent.

Reasoning of Judgment:- On careful examination of the show cause notice, it was found that the show cause notice has made a proposal of penalty under the provision of Rule 25 of Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944. In show cause notice there is no proposal to penalize the respondent under Section 11AC of the Act and in the case of Schrader Duncan Ltd. (supra) this Tribunal has held that when there is a proposal under Rule 25 of the Rules no penalty can be levied under Section 11AC. As in the case of Schrader Duncan Ltd. (supra) the penal provision invoked in the show cause notice where Rule 25 of the Rules read with Section 11 of the Act the original authority invoked Section 11AC and the same was confirmed by the appellate authority. The facts of this case for invoking penal provision are identical to the case cited by the learned Advocate. Following the ratio of the case cited by the learned Advocate, Tribunal was also of the view that no penalties under Section 11AC be imposed on the respondent in this case also. Accordingly, impugned order is upheld. Appeal filed by the Revenue is rejected.

Decision:- Appeal rejected.

Comment:- The gist of the case is that when department has issued show cause notice for proposal of penalty under the provision of Rule 25 of Central Excise Rules. 2002, it cannot impose penalty under section 11AC of the Central Excise Act, 1944. This view is supported by decision given in the case of Schrader Duncan Ltd.

Prepared by: Mahesh Parmar

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PJ/CASE LAW/2016-17/3149

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