2010 (9) TMI 422 - HC - Central Excise

Revenue appeals dismissed; Rule 25 penalty cannot be imposed as Section 11AC ingredients were not established

COMMISSIONER OF C. EX. & CUSTOMS Versus SAURASHTRA CEMENT LTD.

The HC dismissed the Revenue's appeals, affirming the Tribunal's finding that penalty under Rule 25 C.E. Rules, 2002 could not be imposed because the ... Penalty - Delay in duty payment - Whether, the Hon’ble Tribunal is right in holding that the respondent will attract penalty under penal provisions of Rule 27 of the Central Excise Rules, 2002 and not under Rule 25 of the Central Excise Rules, 2002, and, that, the invocation of Rule 25 of the Central Excise Rules, 2002 for imposition of penalty for delayed deposit of duty, is not in accordance with law? HELD THAT:- Excisable goods were entered in records, cleared on Central Excise invoices and duty was also paid subsequently, though belatedly along with interest. As such, the said clause (d) is also not contravened. After analyzing and examining all these four sub-clauses of Rule 25, keeping in mind the facts of the case, the Tribunal held that the invocation of Rule 25 for imposition of penalty for delayed deposit of duty is not in accordance with law. For the purpose of invoking Section 11AC of the Act, the condition precedent is that the duty has not been levied, or paid or short-levied or short-paid or the refund is erroneously granted by reasons of fraud, collusion or any willful misstatement or suppression of facts. If these ingredients are not present, penalty under Section 11AC cannot be levied. Since Rule 25 can be invoked subject to the provisions of Section 11AC of the Act, as a natural corollary, the ingredients mentioned in Section 11AC are also required to be considered while determining the question of levying of penalty under Rule 25 of the Central Excise Rules. It is also relevant to mention here that applicability of Rule 25 is subject to the provisions of Section 11AC of the Act. The term “subject to” in the context assumes some importance. The Apex Court in the case of Commissioner of Ce. Ex., Bhavnagar v. Saurashtra Chemicals Limited,[2007 (5) TMI 4 - SUPREME COURT], after referring to its earlier decisions observed that the term “subject to” is an expression whereby limitation is expressed. It is further observed that the expression “subject to” must be given effect to. Thus, we have no hesitation in confirming the orders passed by the Tribunal and dismissing all these Appeals filed by the Revenue, by holding that there was no intention on the part of the respondent assessee to evade any payment of duty. It is only because of stringent financial condition, that the duty could not be paid in time and as soon as liquidity was available, duty was paid along with interest. The Tribunal has, therefore, rightly come to the conclusion that penalty could not be levied under Rule 25 of the Rules and for the alleged default, the penalty was restricted to Rs. 5,000/- in each matter under Rule 27 of the Rules. We, therefore, hold that no question of law, much less any substantial question of law arises out of the orders passed by the Tribunal. We, therefore, dismiss all these five Appeals without any order as to costs. Issues Involved:1. Applicability of Rule 25 versus Rule 27 of the Central Excise Rules, 2002 for imposing penalties on delayed payment of duty.2. Interpretation of Section 11AC of the Central Excise Act, 1944 in relation to penalty imposition.Detailed Analysis:Issue 1: Applicability of Rule 25 versus Rule 27 of the Central Excise Rules, 2002Facts and Proceedings:The appellant (revenue) argued that the respondent (assessee) cleared excisable goods without timely payment of duty, with delays ranging from 25 to 56 days. Show cause notices were issued demanding Central excise duty under Section 11AC of the Central Excise Act, 1944, along with interest and penalties under Rule 25 of the Central Excise Rules, 2002. The adjudicating authority confirmed the duty demand and imposed penalties. The Commissioner (Appeals) upheld the duty and interest demands but reduced the penalties in some cases. The Tribunal further reduced the penalties to Rs. 5,000 in each case, invoking Rule 27 instead of Rule 25.Revenue's Argument:The revenue contended that the Tribunal erred in applying Rule 27 instead of Rule 25. They argued that the respondents violated Rule 8(1) and 8(3) by not paying the duty on time and clearing goods without payment of duty, thereby attracting the exemplary penalty under Rule 25.Respondent's Argument:The respondent argued that the Tribunal correctly applied Rule 27, limiting the penalty to Rs. 5,000. They emphasized that there was no intention to evade duty; the delay was due to stringent financial circumstances, and the duty along with interest was eventually paid.Court's Analysis:The Court reviewed the provisions of Rule 25, which deals with confiscation and penalties for specific contraventions, and noted that none of the clauses (a) to (d) of Rule 25 were contravened by the respondent. The goods were accounted for, cleared on proper invoices, and duty was paid subsequently with interest. The Court also considered that Rule 25 is subject to Section 11AC, which requires an element of fraud, collusion, or willful misstatement for penalty imposition. The absence of such elements in the respondent's case justified the Tribunal's decision to apply Rule 27, which prescribes a lesser penalty.Issue 2: Interpretation of Section 11AC of the Central Excise Act, 1944Legal Provisions and Precedents:Section 11AC specifies that penalties are applicable only when non-payment or short payment of duty is due to fraud, collusion, willful misstatement, or suppression of facts. The Court referred to several precedents, including the Andhra Pradesh High Court's decision in Commissioner of C. Ex. Guntur v. Andhra Cements Limited and the Apex Court's ruling in Union of India v. Rajasthan Spinning & Weaving Mills, which emphasized that penalties should not be imposed without evidence of intentional evasion.Court's Conclusion:The Court concluded that the Tribunal correctly interpreted Section 11AC and Rule 25. The absence of any fraudulent intent or willful misstatement by the respondent meant that the stringent penalties under Rule 25 and Section 11AC were not applicable. The Tribunal's decision to impose a nominal penalty under Rule 27 was upheld.Summary:The Gujarat High Court dismissed the revenue's appeals, confirming the Tribunal's decision to apply Rule 27 of the Central Excise Rules, 2002, and limit the penalty to Rs. 5,000 in each case. The Court held that Rule 25 and Section 11AC, which require elements of fraud or willful misstatement for penalty imposition, were not applicable as the respondent's delay in duty payment was due to financial constraints and not intentional evasion. Consequently, no substantial question of law arose from the Tribunal's orders.