2007 (7) TMI 186 - HC - Central Excise

High Court: Penalties under Section 11AC require compliance with statutory provisions

The High Court clarified that penalties under Section 11AC of the Central Excise Act, 1944 cannot be solely based on professional management but must ... Whether there is any discretion u/s 11AC for imposing penalty less than an amount equivalent to evaded excise duty - held that there is no discretion with the authority to impose penalty less than 100 per cent (or 25 per cent in case the determined penalty is paid within thirty days), as under Section 11AC - Therefore, payment of short duty/unpaid before issuance of show cause notice does not exempt an assessee from payment of penalty under Section 11AC – revenue’s appeal allowed Issues:1. Interpretation of Section 11AC of the Central Excise Act, 1944 regarding the discretion for imposing penalties.2. Application of the proviso to Section 11AC in a case where duty is paid before the issuance of a show cause notice.Analysis:1. The High Court considered the substantial question of law regarding the discretion under Section 11AC of the Central Excise Act, 1944 for imposing penalties less than the amount equivalent to evaded excise duty. The Tribunal had reduced the penalty imposed on an assessee, citing the case of CCE v. Machino Montal (India) Limited. However, the High Court disagreed with the Tribunal's reasoning, emphasizing that penalty cannot be maintained solely based on the professional management of a company. The Court clarified that penalty may be imposed if Section 11AC provisions are not complied with, irrespective of the company's management status.2. The Court further delved into the application of the proviso to Section 11AC, which allows for a reduced penalty if the duty and interest are paid within thirty days from the communication of the order determining the duty. The Court noted that while the duty was paid before the issuance of the show cause notice, there was no evidence of timely payment of interest under Section 11AB. The Court highlighted that both duty and interest must be paid within the stipulated period to avail the benefit of reduced penalty. The Court clarified that if interest under Section 11AB is not paid within thirty days from the date of adjudication, the penalty under Section 11AC shall be imposed at 100 percent. Conversely, if the interest is paid within the specified period, the penalty may be reduced to 25 percent of the duty amount.3. The Court addressed arguments raised by the advocate regarding the non-existence of certain requirements under Section 11AC, such as fraud or collusion. It was noted that the contention of the assessee regarding the absence of suppression was rejected by the Commissioner and not challenged before the Court. The Court also considered the advocate's claim for the benefit of the proviso to Section 11AC, highlighting the importance of fulfilling all conditions, including timely payment of both duty and interest, to qualify for the reduced penalty. The judgment emphasized strict adherence to statutory provisions in determining penalties under the Central Excise Act, 1944.