2011 (7) TMI 1047 - HC - Central Excise

High Court overturns Tribunal's penalty deletion under Section 11AC, emphasizes duty evasion intent, orders fresh evaluation.

The High Court set aside the Tribunal's decision to delete the penalty under Section 11AC solely based on credit reversal before the show cause notice. ... - Issues:1. Whether Tribunal could set aside mandatory penalty and interest when intent to evade payment of duty is establishedRs.2. Whether Tribunal correctly deleted penalty under Section 11AC based on credit reversal before show cause noticeRs.Analysis:1. The case involved an appeal by the Revenue against the CESTAT judgment. The main issue was whether the Tribunal could set aside the mandatory penalty and interest when the intent to evade payment of duty was established. The respondent-assessee was accused of clearing goods without paying Central Excise duty and wrong availment of Modvat credit. The Department issued a show cause notice under Section 11AC for non-payment of duty valued at Rs. 2,46,000 for captive consumption. The Tribunal deleted the penalty citing that the assessee had reversed the credit before the show cause notice, based on a Delhi Bench decision.2. The Revenue argued that penalty under Section 11AC should be imposed without proving mens rea, referring to a Supreme Court case. They contended that the assessee's deposit before the show cause notice did not negate the intention to evade duty, as the credit reversal occurred only after the Department's investigation began. The respondent's counsel cited another Supreme Court case, explaining the previous judgment and highlighting specific paragraphs.3. The High Court noted that the Tribunal's decision to delete the penalty solely based on credit reversal before the show cause notice was not sufficient, considering the Supreme Court's stance on penalties under Section 11AC. They referred to a different Supreme Court case, stating that other defenses of the assessee should be examined to determine the intention to evade duty. The Court set aside the Tribunal's judgment and remanded the proceedings for a fresh consideration, instructing a reevaluation of the appeal after hearing both sides and considering the relevant case laws.In conclusion, the High Court's judgment emphasized the need to thoroughly examine all aspects of the case, including the intention to evade duty, before imposing penalties under Section 11AC. The decision highlighted the importance of considering all defenses raised by the assessee and instructed a fresh hearing to ensure a fair and comprehensive evaluation of the appeal.