2009 (5) TMI 15 - SC - Central Excise

Penalty under s.11AC applies only if statutory conditions met; penalty equals duty under s.11A(2) per Dharamendra Textile

Union of India Versus M/s Rajasthan Spinning & Weaving Mills AND Commissioner of Customs and Central Excise Versus M/s. Lanco Industries Ltd.

SC allowed the two appeals, set aside the Tribunal orders, and remitted the matters to the respective Tribunals for fresh consideration in accordance with ... Imposition of penalty under section 11AC - Non-payment Or Short payment of duty - Compliance of conditions mentioned u/s 11AC - Applicability and interpretation of the Supreme Court's decision in Union of India Vs. Dharamendra Textile Processors [2008 (9) TMI 52 - SUPREME COURT] - HELD THAT:- In a case of non-payment, short-payment or erroneous refund of duty normally three issues are likely to arise relating to (i) recovery, (ii) interest and (iii) penalty. The three issues are dealt with under section 11A (Recovery of duties), section 11AA (Interest for the period from three months after the determination of duty payable till the date of payment of duty), section 11AB (Interest for the period from the first day of the month succeeding the month in which duty was payable till the payment of duty) and section 11AC (Penalty for short levy or non levy of duty). On behalf of the assessees it was also submitted that sections 11A and 11AC not only operate in different fields but the two provisions are also separated by time. The penalty provision of section 11AC would come into play only after an order is passed under section 11A(2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in section 11AC. It is clear that penalty under section 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section. The decision in Dharamendra Textile [2008 (9) TMI 52 - SUPREME COURT] must, therefore, be understood to mean that though the application of section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of section 11A. That is what Dharamendra Textile decides. It is evident that in both the appeals, orders were passed by the Tribunal on a wrong premise. In both the appeals, therefore, the impugned orders passed by the Tribunal are set aside and the matters are remitted to the respective Tribunals for fresh consideration, in accordance with law, and in light of this judgment. As the matters are quite old it is hoped and expected that the Tribunal would pass the final order within four months from the date of the receipt of this order. The two appeals are allowed but with no order as to costs. Issues Involved:1. Conditions and circumstances attracting the imposition of penalty under section 11AC of the Central Excise Act.2. The Tribunal's interpretation of penalty imposition when the assessees deposited the balance amount of excise duty before the show cause notice was issued.3. The applicability and interpretation of the Supreme Court's decision in Union of India Vs. Dharamendra Textile Processors.4. The distinction between recovery, interest, and penalty under sections 11A, 11AA, 11AB, and 11AC of the Central Excise Act.Issue-wise Detailed Analysis:1. Conditions and Circumstances Attracting the Imposition of Penalty under Section 11AC of the Central Excise Act:The judgment clarifies that penalty under section 11AC is applicable when there is a deliberate act of deception by the assessee with the intent to evade duty. The section specifies that penalty is imposed for non-payment or short payment of duty due to fraud, collusion, willful misstatement, suppression of facts, or contravention of any provisions of the Act with intent to evade duty. The court emphasized that mere payment of differential duty, whether before or after the issuance of a show cause notice, does not alter the liability for penalty if the conditions for penalty under section 11AC are met.2. Tribunal's Interpretation of Penalty Imposition:The Tribunal had set aside the imposition of penalty on the ground that the assessees had paid the full amount of duty before the issuance of the show cause notice. The Supreme Court found this reasoning to be misconceived. The court stated that the timing of the duty payment does not affect the penalty liability if the conditions under section 11AC are fulfilled. The Tribunal's interpretation was thus deemed incorrect, and the matters were remitted for fresh consideration.3. Applicability and Interpretation of the Supreme Court's Decision in Union of India Vs. Dharamendra Textile Processors:The Revenue argued that the Dharamendra Textile decision mandated penalty imposition for any non-payment or short payment of duty. The Supreme Court clarified that Dharamendra Textile should not be interpreted to mean that penalty under section 11AC is automatic for any non-payment or short payment. Instead, the application of section 11AC depends on the existence of conditions such as fraud, collusion, or willful misstatement. Once these conditions are met, the penalty must be equal to the duty determined, with no discretion in quantifying the penalty.4. Distinction Between Recovery, Interest, and Penalty under Sections 11A, 11AA, 11AB, and 11AC:The judgment elaborates on the different provisions for recovery (section 11A), interest (sections 11AA and 11AB), and penalty (section 11AC). Section 11A deals with the recovery of duties not levied or paid, with a one-year limitation period for unintentional non-payment and a five-year period for intentional non-payment involving fraud or suppression. Section 11AC specifies the penalty for intentional evasion of duty. The court highlighted that section 11AC applies only when there is a finding of deliberate evasion, and the penalty must be equal to the duty determined under section 11A(2).Conclusion:The Supreme Court set aside the Tribunal's orders in both appeals and remitted the matters for fresh consideration in light of the judgment. The court reiterated that penalties under section 11AC are punitive measures for deliberate deception and are not automatically applicable in every case of non-payment or short payment of duty. The Tribunal was directed to reconsider the cases within four months, ensuring adherence to the legal principles elucidated in the judgment.