2014 (12) TMI 863 - HC - Central Excise

Supreme Court: No Discretion on Section 11AC Penalties

The Supreme Court clarified that Section 11AC mandates a penalty without discretion, requiring authorities to impose penalties equal to the determined ... Penalty u/s 11AC - Confiscation of seized goods under Rule 173Q(2) of Central Excise Rules, 1944 - penalty for contravention of Rule 173Q of the Central Excise Rules - Interest u/s 11AB - Held that:- In view of the categorical statement of law and taking note of the specific provision of Section 11AC where there is a specific mandate that the assessee shall be liable to pay penalty, the mere payment of duty even after the show cause notice is not a ground to waive penalty. Hence, the Tribunal is not justified in deleting the penalty imposed under Section 11AC of the Central Excise Act. Such a mandate under the Statute cannot be given a go-by by the Tribunal. We therefore, answer the question of law in favour of the Revenue - Decided in favour of Revenue. Issues:1. Interpretation of Section 11AC for imposing penalty.2. Application of Section 11AC when duty is paid after show cause notice.3. Discretion of quasi-judicial authorities in reducing or waiving penalty.Issue 1: Interpretation of Section 11AC for imposing penaltyThe case involved a situation where goods were seized due to non-payment of duty by a registered assessee under the Central Excise Act. The Original Authority issued a show cause notice demanding duty, confiscating goods, and imposing penalties. The Original Authority waived the mandatory penalty under Section 11AC. The Revenue appealed, leading to a series of appeals and decisions. The Tribunal initially set aside the penalty under Section 11AC, but upon a rectification petition, it was clarified that Section 11AC could not be invoked if a major part of the duty was paid before the show cause notice. The Tribunal's decision was challenged by the Revenue, arguing that Section 11AC mandates penalty payment regardless of when duty is paid.Issue 2: Application of Section 11AC when duty is paid after show cause noticeThe Tribunal's decision was based on the premise that Section 11AC cannot be invoked if a significant portion of the duty was paid before the show cause notice, citing a similar case precedent. However, the Revenue contended that Section 11AC imposes a mandatory penalty, and the timing of duty payment does not affect the applicability of the penalty. The Tribunal's decision to delete the penalty under Section 11AC was deemed unjustified by the Revenue, emphasizing the statutory mandate for penalty payment under Section 11AC.Issue 3: Discretion of quasi-judicial authorities in reducing or waiving penaltyThe Supreme Court's interpretation of Section 11AC emphasized that the penalty is mandatory, with no room for discretion in quantifying the penalty amount. The decision in Union of India v. Dharamendra Textile Processors clarified that once Section 11AC applies, the authority must impose a penalty equal to the determined duty amount. The Tribunal's deletion of the penalty under Section 11AC was deemed erroneous, as the statutory provision leaves no discretion to waive the penalty based on the timing of duty payment. The Court upheld the Revenue's appeal, setting aside the Tribunal's decision and reinstating the penalty under Section 11AC.This detailed analysis of the judgment highlights the interpretation of Section 11AC, the application of penalties when duty is paid after a show cause notice, and the absence of discretion in reducing or waiving penalties as per statutory mandates and judicial precedents.