2010 (5) TMI 316 - HC - Central Excise

Court emphasizes careful consideration in imposing penalties under Section 11AC of Central Excise Act

The High Court held that while the penalty under Section 11AC of the Central Excise Act is mandatory, it should not be imposed mechanically. The Court ... Penalty under section 11AC of the the Central Excise Act is mandatory and equal to the duty demanded and the authority has no discretion to reduce the penalty.However,Penalty under section 11AC can be imposed only if there is intention to evade the duty. Issues:1. Whether the penalty under Section 11AC of the Central Excise Act is mandatory and equal to the duty demanded or the authority has discretion to impose a lesser penalty.Analysis:The appeal was filed by the Revenue against an order passed by the Customs, Excise and Service Tax Appellate Authority, New Delhi. The main issue raised was whether the penalty under Section 11AC of the Central Excise Act is mandatory and equal to the duty demanded or if the authority has the discretion to impose a lesser penalty. A Division Bench earlier held that the penalty is mandatory when the intention to evade tax is established, but in the absence of specific evidence of such intention, no penalty was levied.The case was remanded back to the High Court by the Supreme Court, which clarified the legal position regarding the discretion in imposing penalties. The facts of the case involved a Show Cause Notice issued by the Revenue to the Respondent, raising demands on various grounds such as parallel invoices, outgoing gate passes, incorrect valuation for duty payment, and free samples given to farmers. The Adjudicating Authority confirmed the duty amount and imposed an equal penalty under Section 11AC.The Tribunal, while confirming the demand, reduced the penalty considering the circumstances of the case. The Revenue appealed this decision, arguing that the penalty under Section 11AC is mandatory and cannot be reduced. However, the Respondent contended that the penalty should only be imposed if all the necessary ingredients are satisfied, and certain demands were based on legal issues rather than intentional evasion.The High Court analyzed the arguments and found that the penalty under Section 11AC is mandatory but should not be imposed mechanically. It held that the Revenue failed to prove intentional evasion of duty on all counts, especially those related to legal issues and procedural lapses. As a result, the Tribunal's decision to reduce the penalty was upheld, as it was deemed appropriate given the circumstances of the case.In conclusion, the High Court dismissed the Revenue's appeal, stating that the penalty reduction by the Tribunal was justified based on the lack of evidence of intentional evasion. The judgment favored the Respondent, emphasizing the need for the Revenue to establish the required ingredients for imposing penalties under Section 11AC.