2009 (11) TMI 293 - HC - Central Excise

Court Upholds Penalty for Partial Duty Payment Pre-Notice: No Discretion for Lesser Penalty

The court upheld the imposition of a penalty on the assessee for partial payment of duty before the issuance of a show-cause notice, emphasizing that ... Penalty- the assessee is engaged in manufacture of clearance of chemicals like Sodium Cynate, Cuprous Chloride, B.D.S.A., etc. falling under Chapter Head Nos. 28 & 29 of the Schedule to the Central Excise Tariff Act, 1985. A show-cause notice was issued for the demand of tax and penalty. Order in original was passed by the Additional Commissioner, Ahmedabad on 30-9-2002 demanding a duty of ₹ 5,95,500!- on finished goods valued at ₹ 43,04,935/- from the assessee and also demanding the central excise duty of P 97,063/- involved on the inputs under Proviso to Section11A (1) of the Act. The Additional Commissioner has also imposed penalty of Rs.,96,563/- under Section 11AC read with Rule 173Q of the erstwhile Central Excise Rules, 1944 and levied interest at the prescribed rate under Section 11AA of the Act. Commissioner (Appeals), confirmed the demand, penalty and interest raised and/or charged by the Additional Commissioner. Being further aggrieved by the decision of the Commissioner (Appeals), the assessee preferred an appeal before the CESTAT. Tribunal has confirmed the levy of penalty and set aside the order with regard to charging of interest under Section 11 of the Act. Held that- Since the demand relates to the period subsequent to 28-9-1996 and the earlier provision of Section 115 was not considered by the Tribunal, the impugned order of the Tribunal is set aside on this point and remand the matter to the Adjudicating Authority to decide the whole issue with regard to charging of interest keeping in mind the provisions contained in unamended Section 11AB of the Act. This appeal filed by the revenue is accordingly answered. Issues Involved:1. Imposition of penalty on the assessee for partial payment of duty before the issuance of a show-cause notice.2. Discretion of authorities to impose a penalty less than the amount of duty evaded under Section 11AC of the Central Excise Act.3. Levy of interest on the amount of Central Excise duty evaded for the period subsequent to 28-9-1996 till 11-5-2001 under Section 11AB of the Act.Detailed Analysis:1. Imposition of Penalty on the Assessee:The court examined whether a penalty should be imposed when the assessee had deposited part of the duty before the issuance of a show-cause notice. The Tribunal observed that the waiver of mandatory penalty is not justified merely because the evaded duty was paid before the issuance of the notice. The court emphasized that allowing such a waiver would make evasion risk-free and unfairly benefit the evader over genuine taxpayers. This aligns with the specific provision in the Explanation to Section 11A(2B) of the Act, which does not support the waiver of penalty in such circumstances.2. Discretion to Impose Penalty Less Than the Amount of Duty Evaded:The court addressed whether it was mandatory to impose a penalty equal to the amount of duty evaded or if there was discretion to impose a lesser penalty. The Supreme Court's decision in Union of India v. Dharamendra Textiles was cited, which clarified that the expression 'assessee shall be liable' does not imply discretion to levy a lesser penalty. The court further referenced the proviso to Section 11AC, which allows for a reduced penalty of 25% of the duty if the amount is paid within 30 days from the date of the order. The court noted that the adjudicating authority should explicitly inform the assessee of this option in the adjudication order, as highlighted in the Delhi High Court's decision in K.P. Pouches (P) Limited v. Union of India and the Punjab & Haryana High Court's decision in Commissioner of Central Excise, Rohtak v. J.R. Fabrics Private Limited.3. Levy of Interest on Evaded Duty:The court examined whether interest is leviable on the amount of Central Excise duty evaded for the period subsequent to 28-9-1996 till 11-5-2001 under Section 11AB of the Act. The Tribunal had deleted the interest on the grounds that the demand related to the period of 1997 to 2000, and no interest was leviable prior to 11-5-2001. However, the court noted that the Tribunal had only considered the provisions of sub-section (2) of Section 11AB, which was brought into effect from 11-5-2001. The court clarified that the earlier provision of Section 11AB, inserted by Section 76 of the Finance (No.2) Act, 1996, effective from 28-9-1996, was applicable. Consequently, the court set aside the Tribunal's order on this point and remanded the matter to the Adjudicating Authority to decide the issue of interest in light of the unamended Section 11AB of the Act.Conclusion:The court allowed the assessee's appeal for statistical purposes and remanded the matter to the Additional Commissioner to pass a fresh order, explicitly giving the assessee the option to pay the duty within 30 days and avail the reduced penalty. The revenue's appeal was also addressed, with the court remanding the issue of interest to the Adjudicating Authority for reconsideration based on the unamended Section 11AB of the Act. Both appeals were disposed of accordingly.