Effect payment of penalty 1% under sub section (6) of section 11A of CEA

[Pradeep Jain]

Sir, Differential excise duty paid during the audit from 2010to Mar 14 along with interest .Now department insisting to pay penalty under above section. if we pay to same department will not service notice under para(i) of sub-section (7) of section 11A and all proceedings deemed to be concluded. Please confirm & after that any restrictions  to the customer to avail CENVAT credit of such payment of Differential Excise duty or their jurisdiction may issue SCN against such CENVAT Credit.

Regds

Pradeep

[YAGAY andSUN]

Dear Pradeep,

In our opinion, after paying the duty and intimating to Department in writing, Department may not take in further action.

Regards

Team YAGAY & SUN

(Management & Indirect Tax Consultants)

[Rajagopalan Ranganathan]

Sir,

     Section 11 A (5), (6) and (7) stipulates that-

   (5)  Where, during the course of any audit, investigation or verification, it is found that any duty²[has not been levied or paid or has been] short-levied or short-paid or erroneously refunded for the reason mentioned in clause (a) or clause (b) or clause (c) or clause (d) or clause (e) of sub-section (4) but the details relating to the transactions are available in the specified record, then in such cases, the Central Excise Officer shall within a period of five years from the relevant date, serve a notice on the person chargeable with the duty requiring him to show cause why he should not pay the amount specified in the notice along with interest under section 11AA and penalty equivalent to fifty per cent of such duty.

(6) Any person chargeable with duty under sub-section (5), may, before service of show cause notice on him, pay the duty in full or in part, as may be accepted by him along with the interest payable thereon under section 11AA and penalty equal to one per cent of such duty per month to be calculated from the month following the month in which such duty was payable, but not exceeding a maximum of twenty-five per cent of the duty, and inform the Central Excise Officer of such payment in writing.

(7) The Central Excise Officer, on receipt of information under sub-section (6) shall -

      (i) not serve any notice in respect of the amount so paid and all proceedings in respect of the said duty shall be deemed to be concluded where it is found by the Central Excise Officer that the amount of duty, interest and penalty as provided under sub-section (6) has been fully paid;

      (ii) proceed for recovery of such amount if found to be short-paid in the manner specified under sub-section (1) and the period of one year shall be computed from the date of receipt of such information. 

    Therefore once you comply with provisions of Sub Section 6 I Section 11 A then no further proceeding s can be launched against you.  Regarding CENVAT Credit after payment of duty as mentioned above you have to issue a supplementary invoice to pass on the credit.  However, rule 9 (b) of CENVAT Credit Rules 2004 prohibit passing on of the credit  if the duty is not paid, no levied, short levied or short paid due to reason of fraud etc.  therefore it depends on the wordings of the show cause notice issued under sub-section 5 of Section 11A.

AI Summary

Voluntary payment under section 11A(6) stops further proceedings once duty, interest and prescribed penalty are paid and notified. Voluntary payment during audit of duty, interest and a prescribed monthly penalty, with written intimation to the officer, prevents service of a show cause notice and renders proceedings concluded for the amount paid; if short paid the officer may recover the deficit with the one year limitation from receipt of the intimation. After such payment the supplier may issue a supplementary invoice to pass CENVAT credit, subject to prohibition where non payment arose from fraud or similar grounds under the CENVAT Credit Rules.