2014 (9) TMI 298 - HC - Central Excise

High Court reverses CESTAT decision, reduces penalty to 25% of differential duty under Section 11AC.

The High Court set aside the CESTAT's decision and reinstated the Original Authority's ruling with a modification on the penalty amount. The penalty was ... Levy of penalty and interest - differential duty - Whether payment of Central Excise Duty by the manufacturer before issue of notice but immediately after booking of an offence would absolve him from the liability of penalty under Rule 173Q and 57U of CER, 1944, in case of wilful misstatement with intent to evade duty - 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 wilful 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. In view of the judgment of the Supreme Court in Rajasthan Spinning and Weaving Mills [2009 (5) TMI 15 - SUPREME COURT OF INDIA], the CESTAT was not correct in their finding that payment of differential duty before issuance of show cause notice would put an end to the penalty proceedings initiated against the assessee. Therefore, the said finding is liable to be set aside - However, penalty reduced to 25% - Decided partly in favour of Revenue. Issues:- Interpretation of Sections 11AB and 11AC of the Central Excise Act regarding payment of duty, penalty, and interest.- Whether payment of differential duty before the issuance of a show cause notice absolves the manufacturer from penalty liability.- Correct application of penalty provisions under Section 11AC.- Comparison of tribunal findings with the Supreme Court judgments on penalty imposition.Analysis:1. Interpretation of Sections 11AB and 11AC: The judgment revolves around the interpretation of Sections 11AB and 11AC of the Central Excise Act concerning the payment of duty, penalty, and interest. These sections outline the conditions under which a person is liable to pay penalty equal to the duty determined, emphasizing fraud, collusion, wilful misstatement, or suppression of facts.2. Absolution from Penalty Liability: The core issue is whether the payment of differential duty before the issuance of a show cause notice absolves the manufacturer from penalty liability. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) opined that no penalty would be levied if the duty is paid before the notice, a view challenged by the Revenue in this appeal.3. Correct Application of Penalty Provisions: The judgment delves into the correct application of penalty provisions under Section 11AC. The Supreme Court's ruling in Union of India v. Rajasthan Spinning and Weaving Mills clarifies that payment of differential duty, whether before or after the notice, does not exempt the manufacturer from penalty if the conditions in Section 11AC are met.4. Comparison with Tribunal Findings: The Supreme Court's stance contrasts with the CESTAT's decision, which absolved the assessee from interest and penalty liability if the differential duty was paid before the notice. The judgment highlights that the CESTAT's interpretation was incorrect based on the Supreme Court's precedent.5. Penalty Imposition: The Original Authority's decision to impose a penalty equal to the duty determined under Section 11AC is deemed against the spirit of the provision. Instead, the penalty should be 25% of the differential duty determined, as per the first proviso to Section 11AC, allowing for a reduced penalty if the duty is paid promptly after the notice.6. Judgment Outcome: The High Court sets aside the CESTAT's order and restores the Original Authority's decision with a modification regarding the penalty amount. The penalty is reduced to 25% of the differential duty determined, aligning with the provisions of Section 11AC. The civil miscellaneous appeal is allowed accordingly, with no costs incurred.By thoroughly analyzing the interpretation of statutory provisions, absolution from penalty liability, correct penalty application, comparison with tribunal findings, and penalty imposition, the judgment clarifies the legal obligations and consequences related to duty payment and penalty under the Central Excise Act.