Commissioner of C. Ex. and Customs vs Rajhans Silk Mills

Harsha Devani, J.—In this appeal u/s 35G of the Central Excise Act, 1944 [the Act], the Appellant Revenue has challenged the order dated 26th September 2008 made by the Customs, Excise and Service Tax Appellate Tribunal proposing the following two questions:

Whether Section 11AC of the Central Excise Act, 1944 inserted by Finance Act, 1996 with intention of imposing mandatory penalty on persons who evaded payment of tax should be read to contain mens rea as an essential ingredient and whether there is a scope for levying penalty below the prescribed minimum?

Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in allowing appeal of the revenue only to the extent of enhancement of penalty to the extent of 25% of the duty amount along with confirmation of interest and thereby disallowing appeal of the revenue for rest of the claim made in the impugned appeal before the Tribunal?

The facts stated in brief are that against the order made by the adjudicating authority confirming demand of central excise duty of Rs. 3,96,486/-along with interest u/s 11AB of the Act and penalty of Rs. 1 lakh under Rule 25 of the Central Excise Rule, 2002 (the Rules), the Assessee preferred appeal before the Commissioner [Appeals]. Before the Commissioner [Appeals], the Assessee did not contest the demand of duty and challenged the order made by the Adjudicating Authority only to the extent the same levied interest and penalty. The Commissioner [Appeals] held that since the entire amount of duty was paid prior to the issuance of show cause notice, no penalty under Rule 25 was imposable. As regards the demand for interest, the Commissioner (Appeals) found that in view of the decisions on which reliance had been placed by the Assessee, interest could not be demanded u/s 11AB of the Act. He, accordingly, set aside both the interest as well as penalty. Against the order of Commissioner (Appeals), the revenue went in appeal before the Tribunal, who, vide the impugned order dated 12-5-2008, partly allowed the appeal by enhancing the penalty to the extent of 25% of the duty amount and also confirmed the interest.

Assailing the impugned order of the Tribunal, Mr. RJ. Oza, learned Senior Standing Counsel for the Appellant, submitted that the Tribunal was not justified in reducing the amount of penalty levied u/s 11AC of the Act in view of the fact that the payment of duty prior to issuance of show cause notice was not a voluntary action on the part of the Assessee but was a result of the search and seizure action carried out and seizure effected by the department. It was also contended that in the present case penalty has been imposed under Rule 25 of the Rules and as such the provisions of Section 11AC of the Act could not have been invoked for the purpose of reducing the penalty.

As can be seen from the impugned order of the Tribunal, the Tribunal, keeping in view the fact that the entire duty amount was deposited prior to issuance of the show cause notice held that proviso to Section 11AC of the Act would be attracted and accordingly imposed penalty to the extent of 25% of the duty amount and confirmed the interest.

Thus, whereas the Commissioner (Appeals) had set aside the entire penalty, the Tribunal by resorting to the provisions of Section 11AC of the Act has enhanced the penalty to 25% of the amount imposed by the Adjudicating Authority. On behalf of the revenue it has been contended that the penalty in the present case has been imposed under Rule 25 of the Central Excise Rules, 2002 (the Rules), hence, the provisions of Section 11AC of the Act would not be applicable and as such the Tribunal was not justified in invoking the same. For the purpose of examining this contention it would be germane to refer to the provisions of Rule 25 of the Rules, which read thus:

RULE 25. Confiscation and penalty. - (1) Subject to the provisions of Section 11AC of the Act, if any producer, manufacturer, registered person of a warehouse or a registered dealer, -(a) removes any excisable goods in contravention of any of the provisions of these rules or the notifications issued under these rules; or (b) does not account for any excisable goods produced or manufactured or stored by him; or (c) engages in the manufacture, production or storage of any excisable goods without having applied for the registration certificate required u/s 6 of the Act; or (d) contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty, then, all such goods shall be liable to Confiscation and the producer or manufacturer or registered person of the warehouse or a registered dealer, as the case may be, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention of the nature referred to in Clause (a) or Clause (b) or Clause (c) or Clause (d) has been committed, or [rupees two thousand], whichever is greater.

(2) An order under Sub-rule (1) shall be issued by the Central Excise Officer, following the principles of natural justice.

On a plain reading of Rule 25 of the Rules it is apparent that under the said rule penalty not exceeding the duty on the excisable goods in respect of which the contravention of the nature specified thereunder has been committed or rupees two thousand, which ever is greater can be imposed. The Adjudicating Authority has imposed penalty of Rs. 1 Lakh, whereas the Tribunal has imposed penalty to the extent of 25% of the said amount by invoking the provisions of Section 11AC of the Act. Though, strictly speaking, in the facts of the present case, the provisions of Section 11AC of the Act may not be applicable, however, under Rule 25 of the Rules the authority has discretion as regards the amount of penalty to be levied. Accordingly, the Adjudicating Authority in exercise of its discretion has imposed penalty of Rs. 1 Lakh, and the Tribunal in exercise of its discretion has enhanced the penalty which had been deleted by the Commissioner (Appeals) to 25% of the amount levied by the Adjudicating Authority, though of course by resorting to the provisions of Section 11AC of the Act. Thus, in either case it is exercise of discretion by the Adjudicating Authority as well as by the Tribunal as regards the quantum of penalty to be imposed. Merely because the Tribunal has fallen back upon the provisions of Section 11AC of the Act for the purpose of reducing the penalty to 25% of the amount imposed by the Adjudicating Authority, the same does not give rise to any question of law so as to warrant interference.

The appeal is, accordingly, dismissed.