2011 (4) TMI 628 - AT - Central Excise

Penalty under Section 11AC must match duty liability without discretion

The Supreme Court clarified that penalty under Section 11AC of the Central Excise Act must match the duty liability without excise officers' discretion. ... Penalty - whether it is appropriate to set aside the penalty imposable as equal to the amount of duty under Section 11AC only on the ground that the assessee had deposited the amount of duty prior to the issuance of the show cause notice - Held that:- Sub-section 2B of Section 11A Explanation 1 makes it clear that the payment would, nevertheless, be subject to imposition of interest under Section 11AB. Explanation 2 makes it further clear that in case the escape of duty is intentional and by reason of deception the main provision of sub section 2B will have no application”, above para answers the issue to be decided in the matter and is accordingly answered, appeal disposed of Issues:1. Reduction of penalty imposed upon the assessees by the Tribunal.2. Contention regarding penalty under Section 11AC of the Central Excise Act, 1944.3. Applicability of penalty when duty is paid prior to the issuance of a show cause notice.Analysis:1. The appeals were initially disposed of by the Tribunal in 2004, reducing the penalty imposed on the assessees. The department challenged this reduction, leading to the matter reaching the High Court and subsequently the Supreme Court. The Apex Court upheld that penalty under Section 11AC must be equivalent to the duty liability, with no discretion left to excise officers. The issue was referred to the Larger Bench, confirming that penalty under Section 11AC should match the duty liability. The High Court directed the Tribunal to consider if setting aside the penalty equal to the duty amount due to pre-notice duty payment is appropriate.2. The Apex Court decision in the case of Union of India vs. Rajasthan Spinning & Weaving Mills clarified the issue of imposing a penalty when duty is paid before the service of a notice. Sub-section 2B of Section 11A states that if the duty is paid before notice, the Revenue will not issue a notice, but this does not exempt the payment from interest under Section 11AB. Furthermore, if the escape of duty is intentional and due to deception, the provision of sub-section 2B would not apply. The Court's explanation makes it clear that payment before notice does not absolve the assessee from penalty if the duty evasion was intentional and deceptive.3. The quoted paragraph from the Apex Court decision conclusively addresses the issue at hand, affirming that penalty can still be imposed even if the duty is paid before the notice is served. Therefore, the appeals were disposed of based on this clarification, confirming that the penalty should be upheld even if duty payment was made before the issuance of a show cause notice.