2008 (3) TMI 343 - HC - Central Excise

Payment before notice bars penalties under Section 11AC: Court decision

The Court analyzed whether penalties under Section 11AC of the Central Excise Act could be imposed when duty was paid before the notice. It was determined ... Whether any discretion vests on the authorities under the Central Excise Act in quantifying the penalty imposable under Section 11AC of the Central Excise Act, 1944? Whether in appeal filed by the Revenue against the order of the Commissioner of Central Excise (Appeals) setting aside the penalty levied against the assessee, the Tribunal was justified in not entertaining the plea of the assessee that in case appeal is allowed, the quantum of penalty may be reduced, on the ground that no cross-examination has been filed? Whether mens rea in any form is part of consideration before penalty under Section 11AC can be imposed? Held that:- On the face of a combined reading of provisions of Sections 11A(2B) and (2C), in view of the fact, that the matter relates to the period subsequent to receipt of the assent of President to the Finance Bill, 2001, in view of the fact, that leviable duty has been deposited immediately on 8-10-2001, while show cause notice was issued on 1-4-2002 only, no penalty under Section 11AC could be imposed. Appeal allowed. Issues:1. Discretion of authorities in quantifying penalty under Central Excise Act.2. Entertaining plea of reducing penalty in appeal filed by Revenue.3. Consideration of mens rea before imposing penalty under Section 11AC.Issue 1: Discretion of authorities in quantifying penalty under Central Excise Act:The appeal was filed against the Tribunal's judgment imposing penalties on the assessee for carrying chewing tobacco without the necessary invoice. The Additional Commissioner initially imposed penalties, which were partly set aside by the Commissioner (Appeals). The Tribunal allowed the Department's appeal, setting aside the penalty. The argument revolved around whether the penalty under Section 11AC could be imposed, considering the duty was paid before the show cause notice. The Court analyzed similar judgments and provisions of Section 11AC(2b) to determine that if the duty was deposited before the notice, no penalty could be imposed under Section 11AC.Issue 2: Entertaining plea of reducing penalty in appeal filed by Revenue:The Tribunal did not entertain the assessee's plea to reduce the penalty if the appeal was allowed, citing lack of cross-examination. The Court considered judgments from Punjab and Haryana High Court, emphasizing that payment of duty before the notice does not bar the imposition of penalty under Section 11AC. The Court examined the timelines of events and relevant provisions to conclude that in this case, no penalty could be imposed under Section 11AC.Issue 3: Consideration of mens rea before imposing penalty under Section 11AC:The Commissioner (Appeals) set aside the penalty, noting the absence of mens rea to evade duty. The Department appealed, and the Tribunal allowed it based on factual findings. The Court referred to judgments highlighting that payment of duty before the notice does not prevent penalty imposition under Section 11AC. Analyzing various cases, the Court concluded that in this scenario, where duty was paid before the notice, no penalty under Section 11AC could be imposed. The appeal was allowed, setting aside the Tribunal's judgment and restoring the Commissioner's order.