Commissioner - Central Excise and Customs vs Bhagyoday Silk Industries

K.A. Puj, J.—Leave to amend as per the draft amendment.

The Commissioner of Central Excise & Customs, Surat-I has filed this tax Appeal u/s 35G of the Central Excise Act, 1944 proposing to

formulate the following substantial questions of law for determination and consideration of this Court;

(1) Whether in the facts and circumstances of the case, the Tribunal is justified and has committed substantial error of law in reducing the

mandatory penalty imposed under Section-11AC of the Central Excise Act, 1944 to the extent of 25% of the amount of duty on the ground that

the entire duty amount was deposited before issuance of show cause notice notice without satisfaction of first and second proviso to Section 11AC

of the said Act ?

(2) Whether, in the facts and circumstances of the case, the Tribunal is justified and has committed substantial error of law in placing reliance on the

decision rendered by the Hon''ble Delhi High Court in the case of CCE v. Malbro Appliances reported in 2007 (79) RLT 109 (Del) ?

Heard Mr. R. J. Oza, learned Standing Counsel appearing for the Revenue and perused the order passed by the authorities below.

At the time of hearing of this Tax Appeal Mr. Oza reframed the substantial questions of law which are as under:

(a) Whether or not benefit of reduced penalty under proviso to Section 11AC of the Central Excise Act, 1944 can be extended to such person

who has not paid amount of interest determined by the Adjudicating Authority payable u/s 11AB of the Central Excise Act, 1944 ?

(b) Whether or not benefit of reduced penalty under proviso to Section 11AC of the Central Excise act, 1944 can be extended to such person

who has paid, before issuance of show cause notice only duty determined by the Adjudicating Authority payable u/s 11A(2) of the Central Excise

Act, 1944?

(c) Whether the Adjudicating Authority is statutorily obliged to set out in his order the availability of benefit of reduced penalty prescribed under

proviso to Section 11AC of the Central Excise Act, 1944 and to give option to such person liable for penalty u/s 11AC of the Central Excise Act,

1944 ?

(d) Whether in the facts and circumstances of the case, the Tribunal is justified and has committed substantial error of law in placing reliance on the

decision rendered by the Hon''ble High Court in the case of Commissioner of Central Excise Vs. Malbro Appliances P. Ltd., and in case of K.P.

Pouches (P) Ltd. Vs. Union of India (UOI),

(e) Whether the impugned order made by the Tribunal can be said to be an order in accordance with law ?

(f) Whether or not in the facts and circumstances of the case the Tribunal has committed substantial error of law in reducing penalty to 25% of the

duty amount on the Respondent ?

Mr. Oza submitted that the Tribunal has not recorded any reasons setting out facts of the case of the Respondent and has mechanically passed

order extending benefit of reduced penalty on the Respondent. He has further submitted that the team of Central Excise Officers had carried

search of the Respondent''s premise on 23.8.2003 and detected evasion of Central Excise Duty payable by the Respondent as on the date of the

said search. The show cause notice was issued on 24.10.2005. The Adjudicating Authority has passed order dated 14.7.2006 demanding duty of

Rs. 1,35,402/- and interest at the appropriate rate from 1st of the month succeeding the month of which the duty ought to have been paid till the

payment of duty on Rs. 1,35,402/- u/s 11AB of the Central Excise Act, 1944. The Adjudicating Authority has also imposed penalty of Rs.

1,35,402/- under 11AC of the Central Excise Act, 1944 with option that the amount of penalty would be reduced to 25% of Rs. 1,35,402/-, if the

duty amount and interest thereon and the penalty are all paid within 30 days from the date of communication this order. The Respondent preferred

Appeal and the Appellate Commissioner by his order dated 26.12.2007 dismissed the Appeal of the Respondent. Thereafter, the Respondent

filed Appeal before the Tribunal.

Mr. Oza has submitted that the Respondent has not complied with the preconditions for availment of benefit of reduced penalty under proviso to

Section 11AC of the Central Excise Act, 1944 and, therefore, the impugned order of the Tribunal is liable to be set aside.

Mr. Oza further submitted that the decision of the Delhi High Court in the case of K.P. Pouches (P) Ltd. Vs. Union of India (UOI), cannot be

applied to the case of the Respondent inasmuch as in the case of K.P. Pouches (P) Ltd., (Supra) the Adjudicating Authority has not ordered

recovery of interest u/s 11AB of the Central Excise Act, 1944 because in the said case the Assessee had deposited total amount of duty payable

u/s 11A(2) of the Act on the date of detection of evasion of duty itself. He has further submitted that the decision in the case of Commissioner of

Central Excise Vs. Malbro Appliances P. Ltd., also cannot be applied because the facts of the case on hand are not identical to the facts of the

case of the Assessee in the Malbro Appliances P. Ltd., (Supra). On the contrary, in view of settled proposition laid down by the Punjab and

Haryana Court in the case of Commissioner of Central Excise Vs. Machino Montell (I) Ltd., as well as judgments of the Apex Court in the case of

Union of India (UOI) Vs. Rajasthan Spinning and Weaving Mills, Union of India (UOI) and Others Vs. Dharamendra Textile Processors and

Others, and decisions of the Tribunal in the case of Jawala Steels Pvt. Ltd. reported in 2009 (238) ELT 694 (Tri Kolkata), and 2009 (165) ECR

219 and such other cases, the Tribunal was required to allow department to levy penalty on the Respondent for the amount equivalent to his duty

liability and pass order accordingly.

Mr. Oza has further submitted that the impugned order of the Tribunal is in disregard of the law laid down by this Court in Tax Appeal No. 140

of 2008 and Special Civil Application No. 22931 of 2005 and such other judgments, which obligate upon the Tribunal to record cogent reasons in

support of conclusion arrived at by him in passing the final order. In support of this submission Mr. Oza also relied on the following decisions (I)

Coats Viyella India Ltd. v. Commissioner of Central Excise 2004 (133) ELT 229 (SC) (ii) Tata Engineering & Locomotive Co. Ltd. v. Collector

of Central Excise 2006 (203) ELT 360 (SC) (iii) CCE, Lucknow Vs. Wimco Ltd., (iv) Commissioner of Central Exicse v. GTC Industries Ltd.

2008 (228) 505 (SC) (v) Commissioner of Central Excise v. Srikumar Agencies 2008 (232) 577 (SC) (vi) Stadfast Paper Mills Vs. D.R. Kohli,

Former Collector of Central Excise, Baroda and Others,

We have considered the submissions made by Mr. Oza and also perused very minutely the order passed by the authorities below. As a matter

of fact, all these questions reframed by Mr. Oza are different facets of the main question as to whether the Tribunal is justified in reducing the

penalty to 25% of the duty leviable on the Respondent. All these aspects of the main question are already considered by this Court in its order

dated 18.11.2009 in the case of Exotic Associates v. Commissioner of Central Excise Tax Appeal No. 572 of 2007 with Tax Appeal No. 869 of

2007 and Tax Appeal No. 1942 of 2008 in the case of Commissioner of Central Exicse & Customs v. Rama Synsilk Mills P. Ltd. decided on

21.1.2010. This Court after considering the decision of Commissioner of Central Excise v. Malbro Appliances 2007 (79) RLT 109 (Delhi); Union

of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, Union of India (UOI) Vs. Rajasthan Spinning and Weaving Mills,

K.P. Pouches (P) Ltd. Vs. Union of India (UOI), Commissioner of Central Excise, Rohtak v. J.R. Fabrics Pvt. Ltd. 2009 (238) ELT 209 has

taken the view that the order passed by the Tribunal retaining the penalty of 25% of the duty amount seems to be quite justified. For the reasons

recorded in the said two judgments, we do not feel it necessary to take any different view in this Appeal.

However, Mr. Oza has made two more submissions in this Tax Appeal. He has emphatically stated that the Respondent has not complied with

pre-condition for availment of benefit of reduced penalty under proviso to Section 11AC of the Central Excise Act, 1944. As per the first proviso,

the duty amount was not paid with interest and even the reduced penalty of 25% is not deposited by the Respondent within 30 days from the date

of such determination, as required under second proviso to Section 11AC of the Act. So far as second issue is concerned, Mr. Oza submitted that

the Adjudicating Authority is not under any statutory obligation to set out in its order the availability of benefit of reduced penalty prescribed under

proviso to Section 11AC of the Central Excise Act and to give an option to such person liable for penalty under that Section. Both these issues

were dealt with by this Court in Tax Appeal No. 572 of 2007 with tax Appeal No. 869 of 2007 decided on 18.11.2009. It is also important to

note that the Adjudicating Authority has not calculated the interest neither in the order-in-original nor even thereafter. It is, therefore, too much to

expect from the Respondent Assessee to pay the interest alongwith the duty amount in absence of such calculation of interest. As far as statutory

obligation of the Adjudicating Authority is concerned, the Central Excise Department itself has issued Circular on 22.5.2008 wherein it is clarified

that in all cases wherein penalty u/s 11AC of the Act is imposed the provisions contained in the first and second proviso of Section 11AC should

be mandatorily mentioned in the order-in-original itself by the Adjudicating Authority. It is, therefore, not open for the revenue to agitate this issue

before the Court in contradiction of the Circular issued by the Central Excise Department. This Court in Exotic Associates (Supra) has directed the

Adjudicating Authority to pass a fresh order giving option to the Assessee to pay the duty amount within 30 days by making it explicitly clear in the

order itself that if the Assessee wants to avail such option he is permitted to do so. In the case on hand since the duty amount has already been

paid by the Respondent Assessee and if the interest and/or reduced penalty of 25% were not paid by the Respondent Assessee, the Adjudicating

Authority may send a communication to the Respondent Assessee indicating therein that the particular amount of interest and/or 25% of the penalty

of the duty amount is not paid by the Respondent Assessee and hence if the Assessee wants to avail the benefit of the reduced penalty of 25%,

such amount of interest and/or penalty of 25% should be paid within 30 days from the date of receipt of such communication, failing which they

would be liable to pay penalty u/s 11AC equivalent to the amount of duty.

Before parting, we observe that the order passed by the Tribunal cannot be said to be a non-speaking and non-reasoned order. The

authorities cited by Mr. Oza in support of his submission that a non-speaking order is passed by the Tribunal and hence it deserves to be

dismissed, were duly considered by us and we are of the view that they are not applicable to the facts of the present case. The Tribunal while

dismissing the Appeal, referred to and relied on the decision of Delhi High Court in the case of CCE v. Malbro Appliances P. Ltd. reported in

2007 (79) RLT 109 (Del). The facts are on record. The orders are before the Tribunal. There is nothing in the order of the Tribunal that any

objection is raised by the departmental representative that the said decision of the Delhi High Court is not applicable to the facts of case. The

Tribunal is taking consistent view in the matters of penalty levied u/s 11AC and when the duty amount is paid before issuance of show cause

notice, the penalty is reduced to 25% of the duty amount. If the duty amount with interest is not paid in time and even reduced penalty of 25% of

the duty amount is not paid in time and option is not given to the Respondent Assessee, we have taken the view that such option should be given to

the Assessee and period of 30 days would commence from the date of giving such option. Since the Respondent Assessee was challenging the

levy of penalty u/s 11AC of the Act upto Tribunal and for the first time the Tribunal had reduced the penalty under Section-11AC of the Act to the

extent of 25% of the duty amount on the ground that the duty amount was paid by the Respondent-Assessee much before the issuance of show

cause notice, we direct the Adjudicating Authority to call upon the Respondent-Assessee to pay the penalty as reduced by the Tribunal and also

the interest amount, if any, u/s 11AB of the Act, within 30 days from the date of receipt of communication, failing which the Respondent-Assessee

would be liable to pay penalty under Section-11AC to the extent of 100% of the duty amount. In this view of the matter, no interference is called

for in the order of the Tribunal.

Subject to the above clarification this Tax Appeal stands dismissed.