2018 (10) TMI 151 - AT - Central Excise

Tribunal rules no penalty under Sec 11AC for appellant due to absence of fraud.

Concept Pharmaceuticals Ltd. Versus Commissioner of Customs & Central Excise Aurangabad

The Tribunal held that the penalty under Section 11AC of the Central Excise Act could not be imposed on the appellant as there was no element of fraud or ... Penalty - Valuation - Department had observed that the appellant had contravened the provisions of Section 4A of the Central Excise Act, 1994 read with Rule 4 of Valuation (Determination of Price of Excisable Goods) Rules, 2000 and Rule 4, 6, 8 of the Central Excise Rules, 2002 - whether, penalty can be imposed under Section 11AC of the Act and whether there is element of fraud, collusion, willful misstatement of facts, etc. in defrauding the Government revenue by the appellant? Held that:- The appellant entertained a bonafide belief that no Central Excise duty is payable on the quantity discount provided to its customers for supplying of the goods. Section 11AC of the Act provides for imposition of penalty, only when the ingredients, viz., fraud, collusion, suppression of facts, etc. are present in defrauding the Government revenue. In the present case, since the appellant entertained a genuine and bonafide belief at the material time and paid the differential amount of duty along with interest subsequently, the provisions of Section 11AC of the Act cannot be invoked for imposition of penalty on the appellant. Penalty set aside - appeal allowed - decided in favor of appellant. Issues:Whether penalty can be imposed under Section 11AC of the Act and whether there is an element of fraud, collusion, willful misstatement of facts, etc. in defrauding the Government revenue by the appellant.Analysis:The case involved appeals against an order passed by the Commissioner of Customs & Central Excise, Aurangabad. The appellant, engaged in the manufacture of P&P Medicines, failed to pay appropriate Central Excise duty in respect of free quantity of medicines supplied to its distributors. The department observed contravention of various provisions leading to show-cause proceedings and subsequent adjudication order confirming the demand, interest, and penalties under Section 11AC of the Central Excise Act, 1944. The appellant, disagreeing with the imposition of penalty, appealed before the Commissioner (Appeals) who upheld the adjudication order, prompting the appeals before the Tribunal.During the proceedings, the appellant cited a letter addressed to the Jurisdictional Range Superintendent stating that no excise duty is chargeable on quantity discounts provided to customers. The appellant argued that the ingredients for invoking Section 11AC, such as fraud, collusion, etc., were absent. The Revenue, however, contended that citing a previous tribunal decision incorrectly indicated an intention to defraud the Government, justifying the penalty. After hearing both sides and examining the records, the Tribunal considered the issue of whether penalty under Section 11AC could be imposed based on the presence of fraud or willful misstatement.Upon reviewing the appellant's letter to the Superintendent, the Tribunal found that the appellant genuinely believed no Central Excise duty was payable on the quantity discounts provided to customers. Section 11AC allows for penalties only in cases involving fraud, collusion, or suppression of facts to defraud Government revenue. As the appellant had a bona fide belief and subsequently paid the differential duty along with interest, the Tribunal concluded that Section 11AC could not be invoked for penalty imposition. Consequently, the impugned order imposing the penalty was set aside, and the appeals by the appellant were allowed to that extent.