2025 (2) TMI 142 - AT - Central Excise

Tribunal rejects double adjustment of pre-deposited amount for both duty and penalty obligations

The CESTAT New Delhi dismissed the appeal regarding appropriation of pre-deposited amounts. The appellant had deposited Rs. 61,06,692 during investigation ... Appropriation of amount deposited during investigation towards penalty, towards the amount of duty confirmed in the impugned order - levy of penalty u/r 26 of the Central Excise Rules, 2002, read with Section 174(2) of the CGST Act, 2017 - HELD THAT:- It is undisputed that the amount of Rs. 61,06,692/- was deposited by Balaji under the head “other receipts” as representing towards the penalty. Although no penalty was imposed on them, it was deposited apparently towards the anticipated penalty. Thereafter, once the impugned order was passed, the appellant adjusted this amount against the 25% penalty to be deposited within 30 days. Thus, it fulfilled the condition to avail the benefit of reduced penalty of 25%. If this amount is adjusted towards the deposit of duty, naturally it cannot also be accounted towards penalty and in which case the sum paid as penalty within 30 days would be only of Rs. 72,14,714/- which is much lower than the 25% of the confirmed duty. Conclusion - The impugned order is correct in not adjusting the amount deposited as penalty before the SCN was issued towards duty. This amount has already been adjusted by Balaji while paying the 25% penalty. Appeal dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:1. Whether the amount deposited by Balaji Wire Pvt. Ltd. (Balaji) during the investigation towards penalty should be appropriated towards the confirmed duty in the impugned order.2. Whether the penalty imposed on Mr. Arun Kumar Gupta under Rule 26 of the Central Excise Rules, 2002, read with Section 174(2) of the CGST Act, 2017, is sustainable.ISSUE-WISE DETAILED ANALYSIS1. Appropriation of Penalty Amount towards Duty by BalajiRelevant Legal Framework and Precedents: The legal framework involves Section 11AC of the Central Excise Act, 1944, which provides for a reduced penalty of 25% if the duty, interest, and penalty are paid within 30 days of the communication of the order.Court's Interpretation and Reasoning: The Court considered whether the penalty amount deposited by Balaji during the investigation could be appropriated towards the duty confirmed in the impugned order. The appellant argued for such appropriation to reduce the interest payable, while the department contended that the penalty amount was correctly adjusted against the penalty as per Section 11AC.Key Evidence and Findings: Balaji deposited Rs. 61,06,692/- as penalty during the investigation, which was later adjusted against the 25% penalty requirement under Section 11AC. The Court found that this amount could not simultaneously be appropriated towards duty.Application of Law to Facts: The Court applied the provisions of Section 11AC, concluding that Balaji had already utilized the deposited penalty amount to fulfill the 25% penalty condition, making it ineligible for appropriation towards duty.Treatment of Competing Arguments: The Court rejected Balaji's argument for appropriation of the penalty amount towards duty, agreeing with the department's stance that such a move would contravene the conditions for reduced penalty under Section 11AC.Conclusions: The Court upheld the impugned order's decision not to appropriate the penalty amount towards duty, resulting in the dismissal of Balaji's appeal.2. Penalty Imposed on Arun Kumar GuptaRelevant Legal Framework and Precedents: The penalty was imposed under Rule 26 of the Central Excise Rules, 2002, which pertains to penalties for certain offenses related to excisable goods liable for confiscation or issuance of invoices without delivery of goods.Court's Interpretation and Reasoning: The Court examined whether the conditions for imposing a penalty under Rule 26 were met. The rule applies to situations involving goods liable for confiscation or fraudulent invoices.Key Evidence and Findings: The Court found no evidence of goods being confiscated or fraudulent invoices issued in this case.Application of Law to Facts: The Court determined that the absence of confiscated goods or fraudulent invoices meant the penalty under Rule 26 was not applicable.Treatment of Competing Arguments: The Court sided with Arun's argument that the penalty was unjustified, given the lack of evidence supporting the conditions under Rule 26.Conclusions: The penalty imposed on Arun was set aside, and his appeal was allowed with consequential relief.SIGNIFICANT HOLDINGSCore Principles Established: The judgment reinforces the principle that penalties under Section 11AC of the Excise Act require strict compliance with payment conditions for reduced penalties. It also clarifies the applicability of Rule 26 penalties, emphasizing the necessity of evidence for confiscation or fraudulent invoicing.Final Determinations on Each Issue: The appeal by Balaji was dismissed, affirming the decision not to appropriate the penalty amount towards duty. The appeal by Arun was allowed, and the penalty imposed on him was set aside.