Commissioner of C. Ex. and Customs vs Rama Synsilk Mills P. Ltd.

K.A. Puj, J.—The Commissioner of Central Excise Customs, Surat has filed this Tax Appeal u/s 35G of the Central Excise Act, 1944 proposing to formulate the following substantial question of law for determination and consideration of this Court:

Whether in the facts and circumstances of the present case, the tribunal is justified and has committed a substantial error of law in reducing the mandatory penalty imposed u/s 11AC of the Central Excise Act, 1944 on the ground that the confirmed duty was deposited before issuance of the show cause notice?

This Court has issued notice for final disposal on 4-12-2009. Despite service of notice nobody appears on behalf of the respondent.

In this case, show cause notice was issued on 23-8-2005 proposing to levy Central Excise duty amounting to Rs. 6,05,324/- leviable on 32561.842 Kgs. of Polyester Texturized Yam, valued at Rs. 21,16,519/- and to recover interest at the appropriate rate on the amount of duty u/s 11AB of the Central Excise Act, 1944 and to impose penalty under Rule 25 of Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944. The Joint Commissioner of Central Excise and Customs, Surat-II, vide his order dated 24-4-2006 confirmed the duty demand of Rs. 6,05,324/-. The respondent-assessee, however, deposited the duty amount much before the issuance of show-cause notice and hence, the same was ordered to be appropriated. The Joint Commissioner has also imposed equivalent amount of penalty i.e. Rs. 6,05,324/- u/s 11AC of the Act.

Being aggrieved by the said order of the Adjudicating Authority, the respondent-assessee preferred an appeal before the Commissioner (Appeals) Surat, who vide his order dated 26-6-2006 held that penalty imposed and interest demanded in the Order in Original was not sustainable in view of the fact that the respondent assessee had already paid the duty at the time of search of premises and the illicit removal on 24-5-2003 i.e. before issuance of show-cause notice which was issued on 23-8-2005.

This order was carried in appeal by the Revenue before the CEGAT and the Tribunal vide its order dated 28-3-2008 confirmed the penalty equivalent to 25% of the duty amount, on the basis of first proviso to Section 11AC and after referring to the judgment of Delhi High Court in the case of Commissioner of Central Excise Vs. Malbro Appliances P. Ltd.,

Mr. Gaurang H. Bhatt, learned Standing Counsel appearing for the Revenue has submitted that the Tribunal has committed very serious error of law in reducing the mandatory penalty imposed u/s 11AC of the Act on the ground that the confirmed duty was deposited before issuance of show-cause notice. He has further submitted that though the duty was paid by the respondent-assessee before issuance of show-cause notice, the duty was paid after detection of the evasion of the department. The respondent had illicitly cleared the Polyester Texturised Yarn without preparing central excise invoices, without maintaining central excise records and without payment of central excise duty and the respondent had deposited the duty amount on 24-5-2003. The act of payment of duty prior to issuance of show-cause notice was not voluntary act but was a result of the search carried out and seizure effected by the department. The applicability of Section 11AC is not excluded at the threshold merely on deposit of the amount after being caught and before the issuance of the show-cause notice. The question will still remain as to whether the situation mentioned in Section 11AC exists and the same has to be determined irrespective of the deposit of duty prior to issuance of the notice. He has, therefore, submitted that wherever the duty is paid by the assessee in the case of clandestine removal of goods after detection of evasion of duty on their part by the department, the said payment of duty cannot be said to be voluntary so as to extend exemption from penalty on the defaulters.

Mr. Bhatt further submitted that while reducing the penalty to 25% of the duty amount, instead of mandatory penalty equivalent to the duty amount, the Tribunal has not at all considered the fact that the respondent-assessee had not availed of the first and second Proviso to Section 11AC of the Act. The respondent had paid the duty demanded before the issuance of the show-cause notice. The respondent had not, however, paid the interest due and also not paid the penalty. The duty was paid only after the clandestine removal was detected by the department. The equal penalty u/s 11AC can be varied only after the duty amount confirmed is increased or decreased in terms of the 3rd and 4th Proviso to Section 11AC of the Act. In view of the 1st, 2nd, 3rd and 4th Proviso to Section 11AC, it is clear that the said provisions are with reference to payment of penalty, that too, if paid along with interest and duty by the 30 day of communication of the order in original. The legislative intent of the said Provision is to reduce the litigation and expedite the recovery of the Govt, dues and as an incentive, the penalty is reduced to 1/4th of the duty provided the same is also paid within the period of 30 days. He has, therefore, submitted that the impugned order passed by the Tribunal is erroneous and hence, the substantial question of law proposed to be formulated by the Revenue is required to be formulated after the appeal being admitted by this Court.

We have considered the submissions made by Mr. Gaurang H. Bhatt and also perused the order passed by the authorities below. From perusal of the order passed by the Joint Commissioner, it appears that the Joint Commissioner has not dealt with the assessee''s submissions in their proper perspective. There was nothing incriminating or confessional in the statements given on behalf of the respondent-assessee to link directly or indirectly in the alleged offence nor was any personal involvement or any personal gain accruing to him out of the alleged offence. There was no exposition as to the manner in which the respondent had played a role in the alleged evasion of duty or in the alleged contravention of the provisions of the relevant law. The Commissioner (Appeals) after considering the rival submissions took the view that there was no justification in imposing penalty under Rule 173Q(i) read with Section 11AC of the Act and Rule 26 of the Central Excise Rules, 1944 and in demanding interest u/s 11AB of the Act. He accordingly allowed the appeal to the extent of setting aside penalty and interest and order in original was modified to that extent. In the appeal before the Tribunal, the order of the Commissioner (Appeals) was modified to the extent of sustaining the penalty equivalent to 25% of the duty amount on the ground that the duty has been deposited before issuance of the show-cause notice. If there is no evidence to prove the clandestine removal of the goods, the 1st Proviso to Section 11AC of the Act can certainly be pressed into service. It talks about the option to be given to the assessee to pay excise duty levied within 30 days from the date of receipt of the order and in that case, penalty u/s 11AC of the Act is reduced to 25% of the amount of the excise duty levied in the order passed by the Adjudicating Authority. Considering this aspect of the matter, the Tribunal sustained the levy of penalty to the extent of 25% of the duty amount on the ground that the entire duty was deposited before issuance of the show-cause notice. It is true that in the case of Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, the Apex Court took the view that the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the Section. Once the Section is applicable in a case, the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under Sub-section (2) of Section 11A of the Act. It is, however, equally true that the proviso 1st and 2nd to Section 11AC was not under consideration before the Court. Even in the case of Union of India (UOI) Vs. Rajasthan Spinning and Weaving Mills, , the case was pertaining to the period subsequent to the insertion of Proviso 1st and 2 to Section 11AC and the said Provisos are referred to in the judgment. After referring to Section 11AC with all the four provisos, the Court observed in para-17 of the judgment that the main body of Sub-section 1 lays down the conditions and circumstances that would attract penalty and the various provisos enumerate the conditions, subject to which and the extent to which the penalty may be reduced. While referring to the decision of the Dharamendra Textiles (supra), the Court observed that in almost every case relating to penalty, the said decision is referred to on behalf of the Revenue as if it laid down that in every case of nonpayment or short payment of duty, the penalty clause would automatically get attracted and the authority had no discretion in the matter. The Court further observed that there was no reason to understand or read that decision in that matter and further held that the decision in Dharamendra Textiles (supra) cannot be said to hold that Section 11AC would apply to every case of non-payment or short payment of duty regardless of the conditions expressly mentioned in the Section for its application. The Court, therefore, while setting aside the orders passed by the Tribunal remanded the matters back to the respective Tribunals for fresh consideration in accordance with law and in light of the said judgment.

In view of the above discussion, we are of the view that the order passed by the Tribunal retaining the penalty of 25% of the duty amount seems to be quite justified in view of the decision of the Delhi High Court in the case of K.P. Pouches (P) Ltd. Vs. Union of India (UOI), as well as the decision of the Punjab and Haryana High Court in the case of Commissioner of Central Excise, Rohtak v. J.R. Fabrics Pvt. Ltd. 2009 (238) E.L.T. 209 . We have also taken the same view in Tax Appeal No. 572 of 2007 Exotic Associates Vs. The Commissioner of Central Excise, with Tax Appeal No. 869 of 2007 decided on 18-11-2009. The said two appeals were filed by the assessee challenging the order of the Tribunal while confirming the levy of 100% penalty. While remitting the matters back to the Adjudicating authorities, we directed them to pass fresh order in light of the observations made therein after giving the assessee an option to pay the duty amount within 30 days by making it explicitly clear in the order itself. In the present case, the issue is with regard to levy of penalty equivalent to 25% of the duty amount. Since the respondent assessee has already paid the duty amount prior to the issuance of show-cause notice, there is no question of exercise of any option by the respondent - assessee and the assessee is straightway entitled to the benefit of the Proviso 1 & 2 to Section 11AC of the Act.

We, therefore, do not find any substance in this tax appeal and the appeal is accordingly dismissed.