Whether penalty imposable if entire duty deposited before issuance of SCN?

PJ/CASE LAW/2015-16/2836

Case:UNION OF INDIA. V/S INDIAN ISPAT WORKS PVT. LTD

Citation: -2015 (322) E.L.T. 647 (Chhattisgarh)

Brief Facts:- This is an appeal filed by the Revenue (Commissioner of Central Excise) under Section 35G of the Central Excise Act, 1944 (hereinafter for short called ‘the Act’) against order dated 30-6-2006 passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi in Appeal No. E/1806/06-SM(BR) in E/Stay/1392/06-SM(BR). By the impugned order, the appeal filed by the Revenue was dismissed by the Tribunal. So the short question that arises for consideration in this appeal is whether the Tribunal was justified in dismissing the appeal filed by the Revenue?

The short question involved in this appeal is whether the Tribunal was justified in upholding of the setting aside of the penalty order imposed on the assessee of Rs. 64,689/- under Section 11AC of the Act.

It is apposite to reproduce the entire order passed by the Tribunal to appreciate the issue involved in the case, which reads as under:-

“ xxx xxxx xxxx

3. I find from the records that the respondents, in this case, has already deposited the entire amount of duty involved, on the surprise physical verification conducted by the authorities in which some shortages were pointed out. Since the respondents had already deposited the amount of duty involved in this case, the learned Commissioner (Appeals) has set aside the penalties imposed on the respondents under Section 11AC relying upon the provisions of sub-section (2B) of Section 11A. An identical issue was agitated by the Revenue before the Hon’ble High Court of judicature at Mumbai in the case of CCE I v. Gaurav Mercantiles Ltd. reported in 2005 (190) E.L.T. 11 (Bom.) wherein their Lordship have held as under :

3. “The substantial questions of law sought to be raised are as under :

(1) Whether the Tribunal is correct in interpreting Section 11A of the Central Excise Act while holding that Duty demand on 19-4-2004, was not required to be made due to insertion of sub-section (2B) to Section 11A on 11-5-2001 and that invoking the penalty clause of Section 11AC is not called for?

(2) Whether sub-section (2B) of Section 11A is applicable considering the fact that the assessee indulged in clandestine removal. When the show cause notice contains detailed narration of events apparently leading to the conclusion of intention to evade payment of duty, whether mere non-invocation of specific/provision to Section 11A will vitiate the show cause notice for purpose of imposition of penalty under Section 11AC of Central Excise Act, 1944?

Factual matrix reveals that the show cause notice was issued on 19-4-2002 whereas entire amount of duty and penalty was paid on 31-1-2001 and 1-9-2001. It is thus clear that the entire duty liability was paid prior to the issuance of show cause notice.s

Appellant contentions:- The Revenue is of the view that a penalty order of Rs.64,689 under section 11AC shall be imposed against the assessee. Accordingly, he prays for allowing the appeal.

Respondent contentions: -The Learned counsel appearing for the Respondent-assessee tried to support the order of the Tribunal on the basis of two judgments; one of the Madras High Court in the case of CCE, Madras v. Jkon Engineering (P) Ltd., 2005 (67) RLT 157 (Mad.) and another from the Karnataka High Court in the case of Commissioner of C.Ex., Mangalore v. Shree Krishna Pipe Industries, 2004 (165)E.L.T.508 (Kar.),wherein both the Courts have taken a view that where duty or penalty imposed has been deposited before issuance of show cause notice under Section 11AC of the Central Excise Act, 1944, no action under Section 11AC of the Central Excise Act should be initiated or taken. It is also brought to notice that a view similar to above view had also been taken by the Tribunal at Bangalore in the case of Rashtriya Ispat Nigam Ltd. v. Commissioner of Central Excise, Vishakhapatanam, 2003 (161)E.L.T.285 (Tri.-Bang.).The above view taken by the Tribunal at Bangalore was a subject matter of appeal before the Apex Court. Appeal has been dismissed by the Apex Court [2004 (163) E.L.T. A53]. In this view of the matter, it can safely be concluded that the view taken by the Tribunal was accepted by the Apex Court. Moreover, the respondent, Indian Ispat Works Pvt. Ltd., has already deposited theentire amount of duty involved before the issue of show cause notice and is therefore not liable to any penalty of Rs. 64,689.

Reasoning of Judgment:-From perusal of the above quoted order would go to show that a penalty order passed under Section 11AC against the assessee by the adjudicating authority, which was however set aside by the Commissioner (Appeals) in an appeal filed by assessee and the same was upheld by the Tribunal by dismissing the Revenue’s appeal essentially on the ground that the entire amount of the duty had already been deposited by the assessee prior to issuance of impugned show cause notice demanding penalty amount from the assessee. The Tribunal placed reliance upon the two decisions of Madras and Karnataka High Courts reported in 2005 (67) RLT 157 (Mad.) CCE, Madras v. Jkon Engineering (P) Ltd., and 2004 (165)E.L.T.508 (Kar.) Commissioner of C.Ex., Mangalore v. Shree Krishna Pipe Industries,and then came to this conclusion holding that since the entire duty has been deposited much prior to the show cause notice by the assessee and hence this does not appear to be a fit case for imposition of any penalty on the assessee for commission of any breach on their part.

They are inclined to concur with the aforesaid view of the Tribunal, which in their opinion is based on the two decisions of the High Courts referred supra. Even otherwise, in High Court’s opinion, the view taken by the Tribunal appears to be just and proper, because if the assessee had already deposited the duty amount prior to issuance of show cause notice, then there was no apparent intention on his part to evade any payment of duty. It therefore did not show any contemptuous conduct or any kind of dishonest intention on the part of the assessee in either evading the payment of duty or indulging in any kind of malpractice to avoid payment of duty warranting payment of penalty under Section 11AC of the Act. This was, therefore, not a fit case for imposition of penalty to the assessee, which even otherwise was worked out to Rs. 64,689/-. It may be appropriate to mention that in identical case the Tribunal’s Bench at Bangalore had also taken the same view in the case of other assessee and the same was upheld by the Hon’ble Supreme Court, as is clear from the finding recorded by the Tribunal in para 6 of the impugned order, quoted supra. In the light of the foregoing discussion, High Court do not find any merit in this appeal which does not involve any substantial issues of law worth taking note of while deciding it in their appellate jurisdiction. The appeal thus fails and is accordingly dismissed.

In the above circumstances, no substantial question of law is involved in this appeal. Appeal is thus dismissed for want of substantial question of law. It can be seen that the issue agitated by the Revenue in this case before them is squarely covered against them by the decision of the Hon’ble High Court.

Accordingly, there is no merit in the appeal of the Revenue and therefore, appeal is dismissed.

Decision:-Appeal dismissed.

Comment:-The crux of the case is that the no penalty is imposable if the duty amount is paid before issuance of show cause notice as per section 11A (2B) of the Central Excise Act, 1944.

Prepared by:Shraddha Singhvi

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PJ/CASE LAW/2015-16/2836

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