2008 (1) TMI 296 - HC - Central Excise

Taxpayer liable only to 25% penalty under Section 11AC after full duty paid before SCN; 100% penalty illegal

KP. POUCHES (P) LTD. Versus UNION OF INDIA

HC held that because the assessee deposited the full duty before issuance of the SCN, only 25% of the duty was leviable as penalty under Section 11AC; the ... Clearance of goods (gutka) without payment of duty - duty paid before SCN issued - Whether the Customs, Excise and Service Tax Appellate Tribunal was correct in law in upholding the imposition of 100% penalty on the Assessee in terms of Section 11 AC of the Central Excise Act, 1944? - HELD THAT:- Assessee deposited the entire duty amount well before the show cause notice was issued and, therefore, the Assessee would be liable to pay only 25% of the duty amount as penalty. The fact that the Assistant Commissioner levied an incorrect penalty left the Assessee with no option but to challenge it otherwise he would have had to pay the full penalty amount, which is statutorily not leviable, and then claim a refund of 75% excess penalty paid. Having rightly challenged the imposition, it cannot be said that the Assessee had no intention of paying the penalty within time and saddle itself with an avoidable liability. On the contrary, it could easily be assumed (given the conduct of the Assessee) that if the correct penalty has been imposed, the Assessee would have paid it during the time prescribed. Since the statutory authorities have themselves acted illegally and contrary to the first proviso to Section 11AC, the Assessee cannot be faulted for challenging the order passed by the Assistant Commissioner. Unfortunately, the error committed by the Assistant Commissioner was repeated by the Commissioner (Appeals) as well as by the Tribunal. Consequently, the failure of the Assessee to pay the penalty amount within 30 days of the adjudication order cannot be held against the Assessee on the facts of the present case. The question of law is, therefore, answered in the negative, in favour of the Assessee and against the Revenue. The appeal is disposed of accordingly. Issues:1. Interpretation of Section 11AC of the Central Excise Act, 1944 regarding the imposition of penalty.2. Correctness of the penalty imposed by the Assistant Commissioner and subsequent authorities.3. Applicability of the first proviso to Section 11AC in the case.4. Adjudication of the penalty amount and the Assessee's obligation to pay within 30 days.5. Judicial review of penalty imposition and entitlement to benefit under the Act.The High Court analyzed the case concerning the imposition of a penalty on the Assessee under Section 11AC of the Central Excise Act, 1944. The Court framed the substantial question of law regarding the correctness of upholding a 100% penalty on the Assessee by the Customs, Excise, and Service Tax Appellate Tribunal. The case involved the interception of goods, admission of wrongdoing by an employee, and subsequent actions taken by the authorities. The Assistant Commissioner imposed a penalty of 100% of the duty amount under Section 11AC. The Assessee contended that as the duty was paid before the show cause notice, the penalty should not exceed 25% as per the first proviso to Section 11AC.The Court observed that the purpose of Section 11AC and its provisos was to provide a benefit to the Assessee if the duty demanded was paid within 30 days of the adjudication order. In this case, since the duty was paid before the notice, the Assessee should only be liable for 25% of the duty amount as a penalty. The Court noted that the Assistant Commissioner incorrectly demanded 100% penalty, contrary to the statutory entitlement of the Assessee under the first proviso to Section 11AC.The Court held that the Assessee challenging the incorrect penalty imposition was justified, as the authorities acted illegally and contrary to the law. The failure to pay the penalty within 30 days could not be held against the Assessee in this circumstance. The Court ruled in favor of the Assessee, directing the Assessee to make the balance payment within a specified period. The judgment emphasized the importance of explicitly stating the options available to the Assessee under Section 11AC in adjudication orders to avoid similar issues in the future.The Court's decision highlighted the need for clarity in penalty imposition and the obligation of the authorities to adhere to statutory provisions. The judgment provided a comprehensive analysis of the legal provisions, the Assessee's rights, and the correct application of penalties under the Central Excise Act, ensuring a fair and just outcome in the case.