2014 (5) TMI 829 - HC - Central Excise

Imposition of Penalty Even After Duty Payment Not Voluntary; Reduced to 25% per Section 11AC

COMMR. OF C. EX., CHENNAI-III Versus ELKAYEM AUTO ANCILLARIES (P) LTD.

The Court held that penalty could be imposed even if duty was paid before a show cause notice, as payment was not voluntary. The penalty was reduced to ... Interest u/s 11AB - Penalty u/s 11AC - whether the assessee would be absolved from the liability to pay interest and penalty in view of their payment of differential duty before the issuance of show cause notice - Held that:- - Held that:- Section 11AB deals with interest on delayed payment of duty. Similarly Section 11AC deals with penalty for short-levy or non-levy of duty in certain cases. Both these provisions indicate that in case the duty has not been levied or paid or has been short levied or short paid or erroneously refunded by reasons of fraud, collusion or any willful misstatement or suppression of facts, or contravention of any of the provisions of the Central Excise Act or the Rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty shall also be liable to pay penalty equal to the duty so determined. The assessee is also liable to pay interest for the period in question. When the assessee is having the benefit of payment of penalty at 25% of the duty determined, in case the duty is paid within a period of thirty days after the issuance of show cause notice, it is beyond logic as to why they should not be given the indulgence to pay penalty at 25%. The prompt payment of duty after pointing out suppression and before issuance of show cause notice cannot be taken as a negative factor against the assessee to claim penalty at 100%. In case the penalty is paid even before issuance of show cause notice, necessarily, the assessee should be given the benefits of the first proviso to Section 11AC of the Act - Penalty reduced to 25% - Decided partly in favour of Revenue. Issues:Challenge to levy of penalty on the ground of duty payment before show cause notice issuance.Detailed Analysis:Background Facts:The case involves M/s. Elkayem Auto Ancillaries Private Ltd., engaged in manufacturing two-wheeler components. The Central Excise Department found duty evasion on certain goods, which the assessee rectified by paying the duty before a show cause notice was issued. Despite this, penalty and interest were imposed, leading to an appeal.The Moot Question:The main issue raised was whether penalty and interest could be imposed when duty was paid before the issuance of a show cause notice, even if there was evasion detected by the Department.Consideration:The payment of differential duty by the assessee was not voluntary but a result of Department inspection. The Assessing Authority believed penalty was justified, but the Appellate Authority and CESTAT disagreed, citing settled law that no penalty could be imposed if duty was paid before a show cause notice.Core Legal Provisions:Sections 11AB and 11AC of the Central Excise Act deal with interest and penalty for non-payment or evasion of duty. The authorities believed that payment before the show cause notice absolved the assessee from interest and penalty, which was contested.Judicial Precedents:The Supreme Court's ruling in Union of India v. Rajasthan Spinning and Weaving Mills clarified that mere payment of duty, whether before or after a show cause notice, does not absolve liability for penalty under Section 11AC. The Court emphasized that penalty is for deliberate deception to evade duty.Decision:The Court found that the assessee was not justified in claiming immunity from penalty due to early duty payment. The Original Authority's decision to impose a penalty equal to the duty was deemed against the law. The penalty was reduced to 25% of the differential duty determined by the Original Authority, in line with Section 11AC.Conclusion:The Civil Miscellaneous Appeal was allowed, setting aside the CESTAT's decision and modifying the penalty amount to 25% of the differential duty. The judgment clarified the application of penalty provisions in cases of duty evasion and early payment.