2007 (7) TMI 529 - AT - Central Excise

Tribunal upholds penalty under Section 11AC for contravention of Central Excise Act provisions

The Tribunal dismissed the application for modification/rectification of the Final Order regarding penalty under Section 11AC of the Central Excise Act. ... Rectification of mistake - Penalty - Quantum of ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under Section 11AC is imposable where excisable goods were cleared without payment of duty though duty was said to have been paid prior to issuance of show-cause notice. 2. Whether the proviso to Section 11AC (providing for penalty equal to 25% of duty where specified payments are made within 30 days) applies where duty/interest/penalty were not paid within the stipulated 30-day period from communication of the duty determination. 3. Whether the Tribunal has power to reduce a penalty imposed under Section 11AC when the proviso's conditions are not satisfied. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Liability to penalty under Section 11AC where goods were cleared without payment of duty Legal framework: Section 11AC imposes penalty equal to the amount of duty where duty has been short paid, not paid or erroneously refunded by reason of fraud, collusion, wilful mis-statement or suppression of facts, or contravention of any provision of the Act with intent to evade duty; liability attaches to the person liable to pay duty. Precedent treatment: The applicant relied on an earlier High Court decision that upheld a reduced penalty in a comparable factual matrix; the Court examined that decision's applicability. Interpretation and reasoning: The Tribunal found factual admission that excisable goods were cleared without payment of duty and that goods were located outside the factory. Such clearance constituted contravention of the Act and satisfied the statutory triggers (short payment/non-payment by reason of contravention) for liability under Section 11AC. The Court therefore treated the imposition of penalty equal to duty as consistent with the statutory mandate. Ratio vs. Obiter: Ratio - where goods are cleared without payment of duty and facts establish contravention/intention to evade, Section 11AC liability to pay penalty equal to duty is attracted. No obiter on alternative factual scenarios. Conclusion: Penalty under Section 11AC is imposable on the facts where goods were cleared without payment of duty. Issue 2 - Applicability of the proviso to Section 11AC and conditions for 25% penalty Legal framework: The proviso to Section 11AC provides that where duty determined under the relevant provision (Section 11A) and interest under Section 11AB are payable and such amounts are paid within 30 days from communication of the order determining duty, the penalty shall be 25% of the duty so determined; further, the benefit of the reduced penalty is available only if the amount so determined (including the reduced penalty) is also paid within 30 days. Precedent treatment: An earlier High Court decision was cited by the applicant as upholding a substantially reduced penalty under the proviso; the Tribunal noted that the proviso's temporal payment condition was not before that High Court in that decision. A prior Larger Bench of the Tribunal, after taking into account a Supreme Court decision, held that the proviso applies only where payments are made as specified and that the Tribunal lacks power to reduce penalty where proviso conditions are unmet. Interpretation and reasoning: The proviso's text conditions the reduced 25% penalty on prompt payment - not only payment of duty and interest within 30 days but also payment of the penal amount hence determined within the same 30-day window. The present case lacked satisfaction of these conditions because the reduced penalty amount itself was not paid within 30 days. Consequently, the statutory preconditions for invoking the 25% reduction were not met, and the proviso could not operate to limit the penalty. Ratio vs. Obiter: Ratio - the proviso to Section 11AC is strictly conditional; reduced penalty of 25% is available only when duty, interest and the penal amount (as so reduced) are paid within 30 days of communication of the duty determination. Distinction of earlier High Court decision is treated as non-binding on the present factual question because the precise proviso condition was not considered there. Conclusion: The proviso to Section 11AC does not apply where the statutory 30-day payment conditions are not complied with; thus the reduced 25% penalty was not available in the present case. Issue 3 - Tribunal's power to reduce penalty under Section 11AC when proviso conditions are unmet Legal framework: Section 11AC prescribes a statutory penalty; the proviso creates a statutory exception reducing penalty to 25% when specific payment conditions are fulfilled within 30 days. Precedent treatment: A Larger Bench of the Tribunal, after considering the highest court's guidance, held that the Tribunal does not possess power to reduce a penalty imposed under Section 11AC where the proviso's conditions are not satisfied. Interpretation and reasoning: Given the mandatory language of Section 11AC and its proviso, where the proviso's temporal payment conditions are not met the statutory penalty remains as determined (i.e., equal to the duty); the Tribunal cannot exercise a discretionary power to grant a reduction in penalty beyond what the statute provides. The Court applied this principle to the present facts where the reduced payment was not made within the prescribed period. Ratio vs. Obiter: Ratio - absent satisfaction of the proviso's conditions, the Tribunal lacks jurisdictional power to reduce the statutory penalty prescribed by Section 11AC. Conclusion: The Tribunal could not lawfully reduce the penalty in the present matter because the proviso's mandatory 30-day payment requirements were not complied with. Overall Conclusion On the facts before the Court - clearance of excisable goods without payment of duty and non-compliance with the proviso's 30-day payment condition - penalty under Section 11AC was properly imposed equal to the amount of duty; the proviso's reduced penalty was inapplicable and the Tribunal had no power to effect a further reduction. The application for modification/rectification of the Final Order was dismissed.