2007 (8) TMI 310 - HC - Central Excise

High Court upholds Tribunal's decision on penalty reduction under Central Excise Act

UNION OF INDIA Versus PERFECT THREAD MILLS LTD.

The High Court dismissed the appeal, upholding the Tribunal's decision to reduce the penalty imposed on the respondent-assessee under Section 11AC of the ... Tribunal reducing the penalty imposed upon respondent – duty paid before issue of SCN - co-ordinate Division Bench in T.P.L. Industries’ case held that such penalty is not leviable at all - held that when the levy of penalty itself is contrary to the propositions laid down by the Court, the question as to whether reduction of the penalty from the amount equal to the duty to a lesser amount was valid or not, is not a substantial question of law worth adjudication – revenue’s appeal dismissed Issues involved:Appeal against reduction of penalty under Section 11AC of the Central Excise Act, 1944 by the Tribunal.Detailed Analysis:1. Reduction of Penalty Imposed on Respondent-Assessee:The appeal was filed by the Union of India against the reduction of penalty imposed on the respondent-assessee under Section 11AC of the Central Excise Act, 1944 by the Customs, Excise and Service Tax Appellate Tribunal. The respondent was found to have availed Cenvat credit on inputs used in the manufacture of both dutiable and exempted goods without maintaining separate records. The Tribunal reduced the penalty to Rs. 50,000 and set aside the penalty imposed on the General Manager.2. Imposition of Penalty by Adjudicating Authority:The Joint Commissioner, Central Excise, Jaipur-II confirmed the demand of Rs. 3,06,574 against the respondent for not paying the Cenvat credit attributable to inputs used in the manufacture of exempted goods. The authority also imposed penalties under Rule 13(2) of the Cenvat Credit Rules, 2002, read with Section 11AC of the Act, and a penalty on the General Manager under Rule 26 of the Central Excise Rules, 2002.3. Reduction of Penalty by Appellate Authority:The Commissioner (Appeals-II) upheld the demand and penalty imposed on the respondent but reduced the penalty on the General Manager from Rs. 25,000 to Rs. 15,000. The respondent and the General Manager appealed against this order before the Tribunal, arguing that since the duty was paid before the show cause notice, no penalty should be imposed.4. Judicial Review of Tribunal's Decision:The High Court examined whether the Tribunal had the discretion to reduce the penalty under Section 11AC when the duty had been paid before the issuance of the show cause notice. The Court referred to a previous judgment where it was held that no penalty under Section 11AC could be levied if the duty had been deposited before the notice.5. Dismissal of Appeal:The High Court dismissed the appeal, stating that the imposition of penalty under Section 11AC was unsustainable as the duty had been paid before the show cause notice. The Court cited a previous decision that penalty cannot be levied in such circumstances and concluded that the appeal did not involve any substantial question of law. The respondent's cross-objections were also rejected as not pressed.In conclusion, the High Court upheld the Tribunal's decision to reduce the penalty imposed on the respondent-assessee under Section 11AC, emphasizing that no penalty could be levied if the duty had been paid before the issuance of the show cause notice, as per previous judicial precedents.