2007 (7) TMI 6 - HC - Central Excise

Explanation cannot override sub-section (2B); Section 11AB interest stops from date of deposit of short duty

Commissioner of Central Excise & Customs, Aurangabad. Versus M/s Padmashri VV Patil Sahakari Sakhar Karkhana Ltd.

HC rejected the contention that an Explanation can nullify sub-section (2B); the Explanation must explain, not override, the main provision. The court ... Discretion to exempt penalty under Section 11-AC and interest under Section 11-AB - short duty paid before issuance of show cause notice - HELD THAT:- Taking into consideration that the tail piece relied upon by learned counsel is included in the Explanation to particular sub-section (2B), we are unable to accept the interpretation as tried to be attributed by the learned counsel for one simple reason that an explanation ought to be there for the purpose of explaining the main provision, it can not nullify the effect of main provision. If Explanation (2) interprets as attempted by learned counsel due to the phrase with which it ends 'but for this sub-section', the explanation will have to be ignored being in conflict with sub-section (2B), which it explains. However, the meaning of this clause 'but for this sub-section' can be enlightened when we refer to Section 11AB (1). Ordinarily, the interest is payable till payment of short duty as adjudicated, but in view of sub-section(2B), which gives liberty to the party to pay the short duty even before determination or without determination by the officer of Central Excise, the interest would stop to run to the extent of amount deposited by self ascertainment and on the date such amount is so deposited.. If the tail piece of Explanation (2) was to be so strong as to nullify the effect of sub-section(2B), Section 11AB would not have incorporated within it the clause 'or has paid the duty under sub-section (2B)'. Thus, we are unable to agree with the proposition that interest u/s 11AB is also not chargeable in case the short duty or unpaid duty is deposited with the Government before issuance of show cause notice. Issues Involved:1. Discretion to exempt penalty under Section 11AC and interest under Section 11AB of the Central Excise Act, 1944.2. Justification for exemption based on the payment of evaded excise duty before the issuance of a show cause notice.Detailed Analysis:Issue 1: Discretion to Exempt Penalty under Section 11AC and Interest under Section 11ABThe court examined whether authorities have the discretion to exempt penalties under Section 11AC and interest under Section 11AB when confirming the demand for evaded excise duty. The relevant sections of the Central Excise Act, 1944, were scrutinized, including Sections 11A, 11AA, 11AB, and 11AC.Penalty under Section 11AC:- Section 11AC imposes a penalty equal to the amount of duty evaded when the non-payment or short payment of duty is due to fraud, collusion, willful mis-statement, suppression of facts, or contravention of any provisions with intent to evade duty.- The court found no discretion for authorities to impose a penalty lower than 100% of the duty evaded, except under the proviso allowing a 25% penalty if the duty is paid within 30 days from the date of determination.- The court referenced the judgment in Commissioner of Central Excise, Delhi-III v/s Machino Montell (I) Ltd., which affirmed that mere payment of duty before the issuance of a show cause notice does not negate the imposition of a penalty under Section 11AC.Interest under Section 11AB:- Section 11AB mandates that interest is payable on the amount of duty evaded, with rates determined by the Central Government, ranging between 10% and 36% per annum.- The court clarified that interest under Section 11AB is a civil liability, applicable irrespective of whether the non-payment or short payment of duty was innocent or mala fide.- The court emphasized that there is no discretion to exempt the assessee from paying interest under Section 11AB, as the language of the section is unambiguous and mandatory.Issue 2: Justification for Exemption Based on Payment Before Issuance of Show Cause NoticeThe court considered whether the payment of evaded duty before the issuance of a show cause notice justifies exemption from penalties and interest.Penalty under Section 11AC:- The court noted that the assessee had paid the majority of the evaded duty before the issuance of the show cause notice and the balance before the notice was served.- However, the court concluded that the payment of duty before the issuance of a show cause notice does not exempt the assessee from the penalty under Section 11AC, especially when there is a finding of fraud, collusion, or willful mis-statement.- The court upheld the finding of the Commissioner (Appeals) that there was no evidence of mala fide intention or suppression of facts by the assessee, and thus, the penalty under Section 11AC was not imposable.Interest under Section 11AB:- The court examined the argument that no interest is payable if the duty is paid before the issuance of a show cause notice, referencing the Tribunal's decision in Rashtriya Ispat Nigam Ltd. v/s Commissioner of Central Excise, Visakhapatnam.- The court distinguished between the civil liability of interest and the penal nature of the penalty, asserting that interest under Section 11AB is mandatory and not subject to the same considerations as penalties under Section 11AC.- The court concluded that interest under Section 11AB is payable even if the duty is paid before the issuance of a show cause notice, as it compensates for the delay in payment of duty to the government.Conclusion:The court held that:1. There is no discretion to exempt penalties under Section 11AC, except as provided under the proviso for a reduced penalty if the duty is paid within 30 days of determination.2. Interest under Section 11AB is a mandatory civil liability and is payable irrespective of whether the duty is paid before the issuance of a show cause notice.3. The appeal was partly allowed, restoring the order of the Joint Commissioner regarding the imposition of interest under Section 11AB.