2017 (9) TMI 23 - HC - Central Excise

Supreme Court Upholds Mandatory Penalties for Duty Evasion

The Supreme Court held that penalties under Section 11AC are mandatory in cases of duty evasion, as established in Union of India v. Dharamendra Textile ... Penalty u/s 11AC - Whether the penalty under Section 11AC which is mandatory in nature can be reduced or waived by the Hon'ble CESTAT? - Held that: - This provision provides for a penalty wherein duty of excise has not been levied, paid or short paid or erroneously rejected by reasons of fraud, collusion or any willful misstatement or suppression of facts, or contravention of any of the provisions of the Act or rules with intent to evade payment of duty. In such a case person liable to pay duty shall also be liable to pay a penalty equal to duty so determined. Penalty was mandatory and the Tribunal did not have discretion to reduce the amount as held by the Supreme Court in case of Dharamendra Textile Processors [2008 (9) TMI 52 - SUPREME COURT] - appeal allowed - decided in favor of appellant-Revenue. Issues:1. Reduction of penalty under Section 11AC by the Tribunal.Analysis:The case involved tax appeals arising from a Tribunal judgment confirming duty demands and imposing penalties on companies for clearance of goods without payment of duty. In the first case, the Tribunal confirmed duty demands but reduced the penalty, citing excessive penalties imposed by the Commissioner. The Tribunal allowed units receiving goods to utilize duty credit and reduced penalties significantly. A substantial question of law was framed regarding the reduction or waiver of mandatory penalties under Section 11AC by the Tribunal. In the second case, the Tribunal confirmed duty demands but reduced penalties without providing substantial reasons for the reduction. The Tribunal's decision was challenged by the department, arguing that penalties under Section 11AC are mandatory in cases of duty evasion due to fraud or contravention of rules. The Supreme Court precedent in Union of India v. Dharamendra Textile Processors established that Section 11AC mandates penalties equal to the determined duty, leaving no discretion for lesser penalties. The Tribunal's reduction of penalties was deemed inappropriate as the conditions for applying Section 11AC were met, making penalties mandatory. Consequently, the Court set aside the Tribunal's judgment and restored the original penalties imposed by the adjudicating authority. The appeals were disposed of in favor of the department, emphasizing the mandatory nature of penalties under Section 11AC.