Whether the penalty under provision to sec 11AC giving benefit to assessee of paying duty @ 25%, is to be paid within 30 days or the same can be extended?

Case:-THE COMMISSIONER OF CENTRAL EXCISE, MUMBAI Vs M/s CASTROL INDIA LTD

Citation: - 2012-TIOL-464-HC-MUM-CX

Issue: -Whether the penalty under provision to sec 11AC giving benefit to assessee of paying duty @ 25%, is to be paid within 30 days or the same can be extended?

Brief fact: -The assessee is a manufacture of excisable goods. The assessee inter alia during the year 2000 had availed Modvat credit of central excise duty paid on inputs used in the manufacture of the final products under Rule 57AB of the Central Excise Rules, 1944 ['1944 Rules' for short]. In the year 2002, it was noticed by the departmental audit party that during November-December, 2000 the assessee had actually availed Modvat credit amounting to Rs.31,53,034/- as against the admissible credit amounting to Rs.3,40,861/-. Thus, the excess credit taken by the assessee during the aforesaid period was to the tune of Rs.28,12,173/-. On being pointed out by the Central Excise Authorities regarding the availment of excess credit during the period from November, 2000 to December, 2000, the assessee on 21st March, 2002 paid the excess credit availed by reversing the credit to the extent of Rs.28,12,173/-.

As the excise authorities were of the opinion that the assessee had availed the excess credit
with an intention to evade payment of duty, a show cause notice was issued on 8th January, 2003 calling upon the assessee to show cause as to why the excess credit availed by them should not be disallowed and the amount deposited on 21st March, 2002 should not be appropriated under Rule 57AH(2) of the 1944 Rules read with the proviso to Section 11A of the 1944 Act. By the said show cause notice, the assessee was also called upon to show cause as to why interest at the appropriate rate should not be recovered from them under Rule 57AH(1) of the 1944 Rules and Section 11AB of the 1944 Act. The assessee was also called upon to show cause as to why penalty should not be imposed under Section 11 AC of the 1944 Act and Rules 57AH(2) of the 1944 Rules.

After the issuance of the show cause notice dated 8th January, 2003, the assessee on 31st
March, 2003 paid interest amounting to Rs.8,24,364/- on the excess credit availed by the assessee. Thereafter, in its reply to the show cause notice, the assessee contended that the excess credit was taken through oversight and due to the clerical error / punching error and that as soon as the error was pointed out, the excess credit has been reversed even before the issuance of the show cause notice and, therefore, the question of appropriating the credit reversed as duty or imposing penalty under Section 11AC of the 1944 Act does not arise.
Rejecting the contention of the assessee, the Commissioner of Central Excise, passed an Order
in Original on 12th November, 2003 under Section 11A(2) of the 1944 Act holding that the excess credit of Rs.28,12,173/- was taken with an intention to evade payment of duty and, therefore, the credit of Rs.28,12,173/- reversed by the assessee was liable to be appropriated against the credit denied and interest of Rs.8,24,364/- paid by the assessee was liable to be appropriated against interest payable under Section 11AB of the 1944 Act. As the excess credit was availed with an intention to evade duty, the adjudicating authority held that Section 11AC was attracted and accordingly levied mandatory penalty of Rs.28,12,173/- (equal to the duty confirmed) under Section 11AC of the 1944 Act.

The assessee filed an appeal before the CESTAT to challenge the penalty imposed under Section 11AC of the Act. However, the CESTAT following the decision of the Delhi High court in the case of K.P.Pouches (P) Ltd. V/s. Union of India reported in (2008) 228 E.L.T. 31 (Del) = (2008-TIOL-240-HC-DEL-CX) held that since the option to pay the reduced penalty under the proviso to Section11AC has not been given in the adjudication order dated 12th November, 2003, the benefit of reduced penalty under Section 11AC of the Act cannot be denied to the assessee. Accordingly, the CESTAT reduced the penalty to 25% and directed the assessee to pay 25% of the penalty imposed within 30 days of the communication of the order of CESTAT dated 19th May, 2011, failing which the assessee would be liable to pay 100% of the penalty. Challenging the aforesaid order of CESTAT, the revenue has filed the present appeal.

Appellant Contention:- The learned counsel appearing on behalf of the revenue submitted that once the demand raised by invoking the larger period of limitation is confirmed, then, penalty under Section 11AC is mandatorily leviable equal to the duty determined under Section 11A(2). Relying on the Board Circular No.898 dated 15th September, 2009, submitted that the benefit of paying 25% of the penalty instead of paying 100% penalty is available only when duty confirmed under Section 11A(2) with interest payable thereon under Section 11AB and 25% of the total penalty imposed under Section 11AC is paid within 30 days from the date of communication of the order passed by the Central Excise Officer. In the present case, admittedly the assessee has not paid 25% of the penalty imposed under Section 11AC within 30 days from the date of communication of the order passed by the Central Excise Officer and, therefore, the assessee is liable to pay penalty at 100%.

They relied on the decision of The Commissioner of Central Excise V/s. M/s. Viraj Alloys Ltd. (Central Excise Appeal No.64 of 2005) decided on 13th October, 2010.

It is not open to the CESTAT to enlarge the scope of Section 11AC and direct the assessee to pay 25% of the penalty within 30 days from the date of communication of the order passed by the CESTAT. Accordingly, the counsel for the revenue submitted that the order of CESTAT which is contrary to the provisions contained in Section 11AC of the 1944 Act must be held to be bad in law

Respondent Contention:- Thelearned counsel for the assessee submitted that although this Court in the case of Viraj Alloys Ltd. (supra) has held that the benefit of paying the reduced penalty is available only if the duty with interest and reduced penalty is paid within 30 days from the date of receipt of the quantified demand based on the order in original, the said decision is based on the concession made by the counsel for the assessee therein and, therefore, the said decision cannot be said to lay down any binding precedent. In any event, it is submitted, that as per the aforesaid decision it was obligatory on the part of the adjudicating authority to make it explicitly clear in the operative part of the order that the quantified duty liability along with interest under Section 11AB, if paid within 30 days from the date of receipt of quantified demand, then, penalty payable would be 25% of the duty liability confirmed in the order passed under Section 11A(2). In the present case, the adjudication order passed on 12^th November, 2003 does not comply with the aforesaid direction of this Court and, therefore, no fault can be found with the decision of the CESTAT in directing the assessee to pay 25% of the penalty within 30 days from the date of communication of the order of CESTAT.

It is further contended on behalf of the assessee that under Section 35C of the 1944 Act, the
Appellate Tribunal has the power to modify and / or remand back to the original authority and to give directions as it may deem fit. In the present case, in the absence of determining the second stage penalty by the adjudicating authority, the Tribunal was entitled to cure the irregularity in the order of the adjudicating authority by determining the second stage penalty contemplated under Section 11AC and on such determination and its communication to the assessee, the assessee was entitled to pay the same within 30 days of the communication of the said order of the Tribunal. In support of the above contention reliance is placed on the decision of the Delhi High court in the case of K.P. Pouches (P) Ltd. (supra), decision of the Punjab & Haryana High court in the case of Commissioner of Central Excise V/s. J.R. Fabrics (P) Ltd. reported in (2009) 238 ELT 209 (P&H) = (2009-TIOL-259-HC-P&H-CX), decision of the Gujarat High court in the case of Commissioner of Central Excise V/s. Bhagyoday Silk Industries reported in (2010) 262 ELT 248 (Guj) = (2010-TIOL-200-HC-AHM-CX) and also other decisions of Punjab & Haryana High Court and Gujarat HighCourt wherein similar view has been taken.

Reasoning of Judgment: The argument advanced on behalf of the assessee that the provisions of Section 11AC have to be read liberally cannot be accepted, because, Section 11AC imposes punishment to an assessee who has intended to evade duty by adopting any of the means mentioned therein. While punishing the persons who have sought to evade payment of duty, the legislature gives an incentive to pay lesser penalty provided the duty sought to be evaded with interest and 25% of the penalty is also paid within the time stipulated therein. The incentive in Section 11AC is intended to encourage payment of tax due to the revenue at the earliest without resorting to unwarranted litigation and it is not an incentive for violating the provisions of law. Therefore, the incentive in Section 11AC given to the persons who have violated the provisions of the 1944 Act cannot be treated as if an incentive given to persons who have complied with the provisions of law. Therefore, the provisions contained in Section 11AC have to be construed strictly and if the assessee fails to comply with the conditions set out in the proviso to Section 11AC, the benefit of paying lesser penalty cannot be extended to the assessee.

If the contention of the assessee that even the appellate authority can direct the assessee covered under Section 11AC to pay 25% of the penalty within thirty days from the date of communication of the order passed by the appellate authority is accepted, then it would defeat the very object with which the incentive under Section 11AC is allowed. The basic object of granting incentive under Section 11AC is to encourage payment of duty sought to be evaded with interest and penalty at 25% within the time stipulated therein. When the legislature specifically fixes the time limit within which the duty with interest and penalty at 25% is to be paid for availing the incentive, it would neither be open to the appellate authority nor any other authority to permit the assessee to pay 25% penalty at any time other than the time prescribed under Section 11AC.

The third and the fourth proviso to Section 11AC make it further clear that, it is only
when the duty determined as payable under Section 11A(2) is increased by the appellate authority or the Court as the case maybe, then, the twenty five per cent of the increased penalty has to be paid within thirty days of the communication of the order by which such increase in the duty take effect. Thus, the appellate authority under the fourth proviso to Section 11AC is authorised to permit the assessee to pay penalty beyond the time prescribed under Section 11AC only in respect of the increased penalty required to be paid on account of the increase in the duty determined as payable under Section 11A(2) in the appellate proceedings and not in any other cases. Therefore, when the liability to pay 25% penalty under the first and the second proviso to Section 11AC is required to be paid within thirty days from the date of communication of the order the Central Excise Officer determining duty under Section 11A(2), it would not be open to the appellate authority or the Court to direct the assessee to pay 25% penalty beyond the date stipulated in the first and the second proviso to Section 11AC. For all the aforesaid reasons, we find it difficult to endorse the contrary views expressed by the Delhi High Court, P & H High Court and the Gujarat High Court in the cases referred to by the counsel for the assessee.

In the present case, the applicability of Section 11AC is not in dispute. It is also not in dispute that the assessee has paid the duty sought to be evaded as also the interest payable thereon under Section 11AB before the passing of the adjudication order. Admittedly, the assessee has not paid 25% of the penalty imposed under Section 11AC within thirty days from the date of the communication of the order of Central Excise Officer determining the duty sought to be evaded under Section 11A(2) of the Act which is the mandatory requirement under Section 11AC. Instead of paying 25% of the penalty within the stipulated time, the assessee has chosen to file an appeal against imposition of penalty under Section 11AC and the Tribunal has permitted the assessee to pay 25% penalty beyond the time prescribed under the proviso to Section 11AC which is not permissible in law.

In the result, the substantial question of law framed in this appeal is answered in the negative
i.e. in favour of the revenue and against the assessee.
The appeal is disposed of in the above terms with no order as to costs

Decision: -Revenue appeal allowed

Comments
This is an important judgement on the revenue’s side, and the HC has taken strict view, that to avail the benefit of reduced penalty, assessee has to pay 25% amount within stipulated time only.

Comments

PJ/Case Laws/2012-13/1127

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