2009 (10) TMI 771 - HC - Central Excise

Deliberate deception key in penalty under Section 11AC Central Excise Act, 1944

The High Court ruled that penalty under Section 11AC of the Central Excise Act, 1944 is attracted only in cases of deliberate deception by the assessee to ... Whether equal penalty under Section 11AC is not imposable on the assessee merely on the ground that the duty has been deposited before the issue of show cause notice ? Whether in the facts and circumstances of this case, Section 11AC of the Act would be applicable so as to attract the provisions of interest and penalty under Section 11AC as well as 11AB of the Act?” Held that:- In the light of the absence of findings of clandestine removal of goods or any fraud, mis-representation, suppression of facts with the intention to evade duty, Section 11AC of the Act read with Rule 25 the Rules would not get attracted as has been held by the Hon’ble Supreme Court in the case of Rajasthan Spinning and Weaving Mills’s case (2009 (5) TMI 15 - SUPREME COURT OF INDIA). The question of law at ‘A’ is answered in favour of the revenue. It is held that Section 11AC of the Act would be attracted and the amount of penalty equivalent to the amount of duty becomes imposable. There is no discretion vested in the assessing authority, appellate authority or the Tribunal to reduce the penal amount except in the circumstances contemplated by various provisos to Section 11AC of the Act. Having answered the aforesaid question in favour of the Revenue, the other question whether Section 11AC of the Act is attracted to the facts of the present case has to be answered against the Revenue and in favour of the dealer. Issues:1. Imposition of penalty under Section 11AC of the Central Excise Act, 1944 when duty is deposited before issuance of show cause notice.2. Applicability of Section 11AC and 11AB of the Act in a case involving intentional non-payment or short payment of duty.Issue 1: Imposition of Penalty under Section 11ACThe appeal was initially dismissed by the High Court based on established principles from previous judgments, stating that if duty is deposited before the show cause notice, no penalty under Section 11AC is imposable. The matter was remitted back to the High Court by the Supreme Court for reconsideration in light of the judgment in Union of India v. Dharamendra Textile Processors. The case involved a dealer engaged in manufacturing PVC pipes, where a shortage of goods was detected, and duty was deposited before the issuance of the show cause notice. The appellate authority and the Tribunal held that no penalty or interest would be applicable in such cases, citing precedents. However, the Supreme Court clarified in subsequent judgments that penalty under Section 11AC is for deliberate deception by the assessee to evade duty, not automatically triggered by non-payment or short payment of duty.Issue 2: Applicability of Section 11AC and 11ABThe High Court analyzed the case in light of the clarified legal principles. It was noted that the Assessing Authority did not find any fraud or intentional evasion of duty by the dealer. The dealer's defense of misreporting by illiterate labor for the shortage was considered, and the Assessing Authority accepted the explanation. The appellate authority and the Tribunal also upheld the view that if duty is paid before the show cause notice, no penalty or interest under Section 11AC and 11AB would apply. The High Court, following the Supreme Court's guidance, ruled that in the absence of deliberate deception or intent to evade duty, Section 11AC would not be attracted. The Court held that the penalty equivalent to the duty amount is imposable under Section 11AC only in cases of deliberate deception, with no discretion to reduce the penalty amount unless specified by the Act.In conclusion, the High Court answered the first question in favor of the revenue, stating that Section 11AC would be attracted when duty is deposited before the show cause notice. However, the Court ruled in favor of the dealer regarding the applicability of Section 11AC to the specific case, emphasizing the absence of deliberate deception or evasion of duty. The appeal was disposed of accordingly, highlighting the importance of deliberate deception as a prerequisite for imposing penalties under Section 11AC.