2009 (11) TMI 10 - HC - Central Excise

Court emphasizes early deposit of excise duty doesn't absolve penalty for fraud

The High Court allowed the appeal but emphasized that early deposit of excise duty before the show cause notice does not automatically absolve the ... Penalty – mandatory penalty - Whether interest and penalty is imposable even if C.E duty has been deposited by the assessee before Show Cause Notice in case where the said duties deposited not voluntarily but on detection by the department – held that - The question as to whether penalty should be imposed or not is a question of fact. Since this question has not been determined by the Commissioner (Appeals) or the Tribunal whose decisions are based only on the consideration that the excise duty was deposited prior to the issuance of the show cause notice, we set-aside the orders of the Commissioner (Appeals) and the Tribunal and remand the case back to the Commissioner (Appeals) for fresh decision on the issue of penalty after determining the question whether the non-payment of duty in the present case was on account of fraud, collision or any willful mis-representation or suppression of facts or contravention of any of the provisions of the Excise Act or the Rules made thereunder with intention to evade payment of duty as laid down under Section 11AC. Issues:Whether interest and penalty are imposable even if C.E duty has been deposited by the assessee before Show Cause Notice.Analysis:The High Court, in a case involving excise duty deposit before the issuance of a show cause notice, referred to a previous judgment where it was held that penalty can be imposed even if excise duty is deposited before the notice. In the present case, the assessee's premises were visited by the Central Excise Commissionerate's staff, revealing a shortage of raw material and excise duty. The assessee deposited the duty the next day, and a show cause notice was issued, imposing a penalty under Section 11AC. The appeal was allowed based on the early deposit of duty. However, the High Court emphasized that the mere deposit before the notice does not negate penalty provisions under Section 11AC, which apply in cases of fraud, collusion, willful misstatement, or contravention of the Act with intent to evade duty.The Court highlighted that the liability to pay penalty arises when excise duty is not paid, short-paid, or erroneously refunded due to specified reasons. The Court rejected the argument that depositing the amount before the notice exempts the assessee from penalty. The respondent's counsel contended that the lower authorities did not assess whether the case fell under Section 11AC. The Court emphasized that the determination of whether penalty should be imposed is a factual question. As the lower authorities did not delve into whether the non-payment of duty involved fraud or willful misrepresentation, the Court set aside their orders and remanded the case for a fresh decision on the penalty issue in line with Section 11AC's criteria.In conclusion, the High Court disposed of the appeal by remanding the case for a fresh decision on the penalty issue based on the specific provisions of Section 11AC. The Court emphasized that the mere early deposit of excise duty before the show cause notice does not automatically absolve the assessee from penalty if the non-payment was due to fraud, collusion, or contravention of the Act with intent to evade duty.