2024 (5) TMI 666 - HC - Central Excise

HC sets aside penalty under Rule 25(1)(b) Central Excise Rules 2002 requiring mens rea for Section 11AC invocation

M/s Nandan Auto Tech Limited Versus Commissioner of Central Excise

The HC allowed the appeal and set aside the penalty imposed under Rule 25(1)(b) of Central Excise Rules, 2002 for alleged clandestine removal. The court ... Liability to pay fine and penalty under Rule 25(1)(b) of the Central Excise Rules, 2002 - Clandestine removal - Mens rea - existence of evidences or not - applicability of presumption of Section 11AC of CEA - HELD THAT:- Hon’ble Supreme Court in the case of Commissioner of Central Excise, Chandigarh Vs. Pepsi Foods Limited [2010 (12) TMI 15 - SUPREME COURT], held 'It is well settled that when the statutes create an offence and an ingredient of the offence is a deliberate attempt to evade duty either by fraud or misrepresentation, the statute requires 'mens rea' as a necessary constituent of such an offence. But when factually no fraud or suppression or misstatement is alleged by the Revenue against the respondent in the show-cause notice the imposition of penalty under Section 11-AC is wholly impermissible.' In view of the above decision of Hon’ble Apex Court ‘mens rea’ will play important role while invoking the provisions of Section 11 AC of the Central Excise Act, 1944. In the present case, the record shows that all the goods were accounted for, since the invoices with regard to the raw material and finished goods were there on record - Tribunal has totally ignored the documents produced before the Commissioner Appeals. As per Section 11AC of the Act, 1944, there should be an intention to evade the payment of duty and in the present case intention to evade the payment of duty is not proved by the authorities while passing the order of penalty - A perusal of the record shows that there was no intention to evade duty, which is requisite of Section 11AC of the Act. And Rule 25 of the Rules 2002 is not an independent rule and cannot be invoked unless it covers the ingredients to impose penalty as imposed in Section 11AC of the Act. So far as Rule 25 is concerned, it starts as “subject to the provisions of Section 11AC of the Act” which shows that Rule 25 would be applicable only in cases where Section 11AC is invoked. The impugned order is set aside - appeal allowed. Issues Involved:1. Whether penalty under Rule 25 of the Central Excise Rules, 2002 can be imposed without invoking provisions of Section 11AC of the Central Excise Act, 1944.2. Whether the appellant had the intention to evade duty.Summary:Issue 1: Penalty under Rule 25 without invoking Section 11ACThe High Court examined whether penalty under Rule 25 of the Central Excise Rules, 2002 can be imposed without invoking provisions of Section 11AC of the Central Excise Act, 1944, where 'mens rea' is a necessary ingredient. The Court referenced several judgments, including *Commissioner of Central Excise, Chandigarh Vs. Pepsi Foods Limited* and *State of Gujarat and Another Vs. Saw Pipes Ltd.*, to conclude that 'mens rea' is essential for invoking Section 11AC. The Court clarified that Rule 25 is not independent and must be read subject to Section 11AC, which requires proof of intent to evade duty.Issue 2: Intention to Evade DutyThe Court scrutinized the facts and evidence, noting that the appellant produced adequate records and invoices to reconcile the stock. The Commissioner (Appeals) had found that the raw material and finished goods were accounted for, and there was no evidence of intent to evade duty. The Tribunal's order ignored these documents. The Court reiterated that intention to evade duty, as required under Section 11AC, was not established by the authorities.Conclusion:The High Court allowed the appeal, quashing the Tribunal's order dated 01.09.2010. It held that Rule 25 of the Central Excise Rules, 2002 could not be invoked independently of Section 11AC of the Central Excise Act, 1944, which necessitates proving 'mens rea'. The Court found no intention to evade duty on the part of the appellant, thus invalidating the penalty imposed.