Whether imposition of penalty under Compounded Levy Scheme sustainable where benefit of Scheme was denied?

PJ/Case Law /2016-17/3295

Case:-S. KUMARS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, INDORE

Citation:- 2016 (339) E.L.T. 115 (Tri. - Del.)

Brief Facts:-The brief facts of the case are that the appellants are independent textile processors. They have filed an application on 18-5-2001 to avail the newly introduced Compounded Levy Scheme for textile in terms of Rule 96ZNA of the Central Excise Rules. Their application for the scheme was rejected later by the Commissioner on 9-8-2002. Thereafter, the appellants discharged duty under normal ad valorem basis. During the period from 1-5-2001 to 9-8-2001, the total duty paid by the appellant in terms of Compounded Levy Scheme (provisionally) was much higher than the duty payable under normal ad valorem levy. The appellants paid an excess duty of Rs. 1,38,14,885/- which was claimed as a refund and the same was granted to them. However, in June, 2006, the appellant were issued with a notice for imposition of penalty under Rule 25 read with Para-9(5)(ii) of Notification No. 32/2001-C.E. The penalty was proposed on the ground that the appellant had paid duty belatedly during the period from November, 2001 to Feb., 2002. The notice was adjudicated and the Commissioner vide his impugned order imposed a penalty of Rs. 2,04,00,000/- on the appellant. Aggrieved by this, the appellant is before Tribunal.

Appellants Contention:- Ld. Counsel, Shri B.L. Narsimhan submitted that there is no justification to impose any penalty on the appellant. The Compounded Levy Scheme introduced w.e.f. 1-5-2001 is a Self-Contained Scheme. They have filed application to avail the scheme and during the pendency of the decision by the Commissioner, they were paying central excise duty on provisional basis in terms of sub-rule (2) of Rule 96ZNA. Later, when the application for the scheme was rejected by the Commissioner, the amount already paid was adjusted against the normal duty liability in terms of Section 3 and they were granted refund of excess payment. The penalty imposed under sub-rule (5)(ii) of Rule 96ZNC is not legally sustainable as they were not operating under the Compounded Levy Scheme. They were discharging duty on the provisional basis till the disposal of their application. He also relied on the decisions of this Tribunal in support of his contention.

Respondents Contention:-Ld. AR reiterated the findings of the OriginalAuthority and stated that when the payment of duty in terms of Compounded Levy Scheme was delayed, such delay will attract mandatory penalty in terms of sub-rule (5) of Rule 96ZNC.

Reasoning Of Judgement:-The Tribunal heard both the sides and examined the appeal records.

The only point for decision is sustainability of penalty imposed on the appellant under the above said Rules. The admitted facts of the case are that the application for the scheme was rejected by the Department and as such from the beginning (1-5-2001), the appellant is out of the scheme. During the pendency of their application, the Rule permitted payment of duty in terms of Compounded Levy Scheme on a provisional basis, which upon final decision of the Commissioner will be adjusted against the actual dues to be determined. It is also admitted that by following provisionally Compounded Levy Scheme, the appellant paid excess amount of duty than what is payable in terms of normal ad valorem levy. When the scheme was not available to the appellant in terms of the rejection order by the Competent Authority, the question of imposing penalty equal to the duty paid does not arise. Here, such penalty has been imposed only for delay in payment of the provisional duty on due dates. It is an admitted fact that when there was a delay in payment of provisional duty, the applicable interest has already been paid. We find that the C.B.E. & C. vide Circular dated 30-4-2001 clarified that if the application is accepted by the Commissioner, it would be deemed to have been accepted from 1-5-2001. If, however, the application is rejected, the textile processor shall be liable to pay excise duty on the entire clearances from 1-5-2001 onwards as if the Compounded Levy was not applicable to him and the duty paid under the Compounded Levy shall be adjusted against his duty liability under ad valorem levy.

Further, the Tribunal inNav Bharat Udyog- 2004 (167) E.L.T. 292 (Tribunal-Delhi)held that when the assessee has paid excess duty under the Compounded Levy Scheme and later found to be not eligible for the Scheme, no penalty can be imposed. In an identical set of legal provisions of another Compounded Levy Scheme under Rules 96ZO, 96ZP and 96ZQ, the Hon’ble Supreme Court held that imposing penalty equivalent to the duty is arbitrary and excessive and is without authority of law. The Hon’ble Supreme Court struck down these three rules as violative of Articles 14, 19(i) & (g) of Constitution and are ultra vires of the Central Excise Act. The Rules dealt with by the Hon’ble Supreme Court are similar to the one now under consideration. In Prime Exports - 2004 (167) E.L.T. 313 (Tribunal-Delhi), the Tribunal held that imposition of penalty under Compounded Levy Scheme is not sustainable in the case where the availability of Scheme to the appellant was rejected by the Department.

Having considered carefully the above discussion and analysis, we find that in the present case, the penalty equal to the duty is not legally sustainable. When the application of the appellant for the scheme was rejected, it is clear that the appellants were not governed by the provisions of the Scheme. Invoking one of the provisions of the Scheme for imposing penalty is thus legally not sustainable. Further, during the pendency of their application, they were discharging duty only provisionally in terms of the Scheme as permitted by the Rules itself. In fact, the appellants paid much higher duty than the actual liability as arrived at after rejection of their application. Considering the above position, we find the impugned order is not sustainable and set aside the same. The appeal is allowed.

Decision:- Appeal allowed.

Comment:-The gist of the case is that penalty is not required to be levied under Compounded levy scheme for delay in paying provisional duty when interest has been paid and the duty paid under compounded levy scheme is higher than that payable under ad-valorem basis. The application for compounded levy scheme was rejected and so the penalty provisions under the said scheme cannot be made applicable on assessee.

Prepared By- Praniti Lalwani

Comments

PJ/Case Law /2016-17/3295

Post a Comment

Query