Commissioner of C. Ex. and Customs vs Saurashtra Cement Ltd.

K.A. Puj, J.—Since common issue is involved in all these five tax appeals, the same are heard together and are being disposed of by this common judgment and order.

In Tax Appeal Nos. 1126, 1345, 1462 and 1463 of 2009, notice was issued by this Court for final disposal on 8-7-2010, whereas the Tax Appeal No. 1131 of 2009 is placed for the first time for admission hearing.

Mr. R.M. Chhaya, learned Senior Standing Counsel appears on behalf of the revenue in four tax appeals, whereas Mr. Gaurang Bhatt, learned On appeal from 2008 (126) ECC 146 Standing Counsel appears on behalf of the revenue in Tax Appeal No. 1131 of 2009. Pursuant to the notice, Mr. Paresh M. Dave, learned advocate appears on behalf of the Respondent in first four tax appeals.

For the sake of convenience, facts are taken from Tax Appeal No. 1131 of 2009.

It is the case of the Appellant that the Respondent Assessee has cleared excisable goods without payment of duty in time. The delay in payment of duty in all these matters is about 25 to 56 days. Accordingly, show cause notices were issued for demanding Central excise duty u/s 11AC of the Central Excise Act, 1944 along with interest u/s 8(3) (sic) of the Act and penalty under Rule 25 of the Rules. The said show cause notice was adjudicated by the adjudicating authority and duty demand was confirmed and order was passed to recover interest under Rule 8(3) of the Rules and also imposed penalty of equal amount of duty demanded, under Rule 25 of the Rules. This amount of penalty is varied in all matters depending upon the quantum of duty as well as the period of default.

Being aggrieved by the orders passed by the adjudicating authority, the Respondent challenged the said orders before the Commissioner (Appeals). The Commissioner (Appeals) confirmed the demand of duty as well as the interest as ordered in Order-in-original. However, in respect of penalty, the Commissioner (Appeals) has reduced the penalty to Rs. 5 lakhs in Tax Appeal No. 1131 of 2009. Insofar as all other matters are concerned, the Commissioner (Appeals) has confirmed the orders passed by the adjudicating authority.

Being aggrieved by the orders of the Commissioner (Appeals), the Respondents have challenged the said orders before the Tribunal. The Tribunal has passed one consolidated order in four matters and reduced the penalty to Rs. 5,000/- 2008 (126) ECC 146 By separate order, the Tribunal has also reduced the penalty from Rs. 5 lakhs to Rs. 5,000/- in the case of Tank-rate India Ltd. (Tax Appeal No. 1131 of 2009). Orders passed in all these five cases are under challenge before this Court in the present tax appeals.

The revenue has proposed the following substantial question of law for determination and consideration of this Court.

Whether, in the facts and circumstances of the case, the Hon''ble Tribunal is right in holding that the Respondent will attract penalty under penal provisions of Rule 27 of the Central Excise Rules, 2002 and not under Rule 25 of the Central Excise Rules, 2002, and, that, the invocation of Rule 25 of the Central Excise Rules, 2002 for imposition of penalty for delayed deposit of duty, is not in accordance with law?

Since almost similar question is proposed in all the five tax appeals, there is no need to reproduce the same.

Mr. R.M. Chhaya, learned Senior Standing Counsel appearing for the Appellant, submitted that the impugned orders passed by the Tribunal are not legal, proper and correct and hence, the appeals are required to be admitted by this Court. He has further submitted that the Tribunal has seriously erred in appreciating the provisions of Rule 8(1) of the Central Excise Rules, 2002 ("the Rules" for short), while passing the impugned order and therefore, the impugned orders are bad and illegal and the same are, therefore, required to be quashed and set aside. He has further submitted that the Respondent herein had defaulted in payment for more than a month and therefore, the Respondents have violated the provisions of Rule 8(1) and 8(3) of the Rules. He has further submitted that the duty liability stands discharged only when an Assessee pays the amount by the specified date. Further, a grace period of a month is provided in the Rules to pay the duty along with the interest after the specified date. The Respondents have not followed either of the provisions of Rule 8 and have cleared the said goods without payment of duty, and thereby contravened the said Rule and attracted the exemplary penalty. He has further submitted that when the goods are deemed to be cleared without payment of Central excise duty, the penalty provision under the Central Excise law is applicable. It is submitted that the Tribunal has relied upon the decisions in the case of M/s. Condor Power Products P. Ltd., (2007 (210) E.L.T. 137 (Tit-Delhi), M/s. Automotive India (Raipur) Pvt. Ltd., (2006 (203) E.L.T. 402 (Tri.-Delhi)) and CCE, Allahabad v. R.K. Cigarettes (P) Ltd., (2007 (79) RLT 804 (CESTAT - Delhi) : 2007 (213) E.L.T. 367 (T) which are not applicable to the facts of the present case. He has further submitted that, in the present case, the Respondents appears to be habitual offenders and are well aware that they would not be able to fulfill the obligations for payment of duty by the due date and hence, the Respondents have contravened the provisions of Rule 25. He has further submitted that the Tribunal has erroneously come to the conclusion that there was no contravention of the Rules as referred to in Clauses (a), (b), (c) and (d) of Rule 25 by the Respondent and therefore, invocation of Rule 25 for imposition of penalty for the delayed deposit, is not in accordance with law. He has, therefore, submitted that the appeals filed by the Appellant against the order of the Tribunal require consideration and hence, these appeals may be admitted.

Mr. P.M. Dave, learned advocate for the Respondent, on the other hand, has strongly urged that the Tribunal has correctly taken the view in the matter and rightly arrived at the conclusion that Rule 25 has no application and whatever penalty is levied, that has been levied under Rule 27, whereby the penalty was restricted to Rs. 5,000/- only. He has invited Court''s attention to paragraph 5 of the Tribunal''s order, wherein each clause of Rule 25 was discussed and the Tribunal came to the conclusion that there was no contravention of any of these clauses and ultimately, the Tribunal came to the conclusion that invocation of Rule 25 for imposition of penalty for delayed deposit of duty is not in accordance with law. He has further submitted that the opening words of Rule 25 are "Subject to the provisions contained in Section 11AC....", and hence, he refers to the provisions contained in Section 11AC which says that, "Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any willful mis-statement or suppression of facts....", in that case only, penalty shall be leviable equal to the duty so determined. He has submitted that in the present case, there is no allegation that there was an intention to delay the payment. It is only because of the stringent financial circumstances, the payment was delayed, otherwise the duty was paid along with interest @ 24%. It is therefore submitted that the Tribunal has rightly held that Rule 25 of the Rules is not applicable.

In support of his submissions, he relied on the following decisions:

(a) The decision in the case of Commissioner of Central Excise Vs. Andhra Cements Limited, Durga Cement Works,

(b) The decision in case of Supreme Industries Ltd. v. CESTAT, New Delhi, 2007 (214) E.L.T. 187 (M.P.).

(c) The decision in case of Superintendent of Central Excise v. Sance Pharmaceuticals 2009 (247) E.L.T. 136 (Ker.).

(d) The decision in case of Union of India (UOI) Vs. Rajasthan Spinning and Weaving Mills,

Based on the above factual as well as legal position, Mr. Dave has submitted that the appeals should not be admitted as no substantial question of law arises out of the impugned order of the Tribunal.

We have considered the rival submissions of the parties and have also gone through the orders passed by the authorities below. We have also gone through the relevant statutory provisions and the case law cited before us.

For appreciating the controversy between the department and Assessee, it is necessary to have a close look at the relevant provisions of Central Excise Act as well as Rules. The dispute centers around the applicability of Rule 25 of the Central Excise Rules. It reads as under:

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.

The Tribunal considering Rule 25 has observed in its order that Rule 25 provides for imposition of penalties which shall not exceed the duty on the excisable goods, when there is contravention of the nature referred to in Clause (a), Clause (b), Clause (C) or Clause (d). The Tribunal found that Clause (a) of Rule 25 refers to removal of excisable goods in contravention of any of the provisions of the Rules. When goods were removed, no excise duty was required to be paid at that point of time. As such, it cannot be said that the contravention of the nature mentioned in the said clause has been committed by the Assessee. Clause (b) is to the effect that the manufacturer does not account for any excisable goods manufactured by him. The said clause does not stand contravened inasmuch as the goods were duly reflected in the statutory records. Similarly, Clause (c) does not stands contravened inasmuch as the Assessee has not manufactured goods without applying for registration. Clause (d) refers to contravention of any of the provisions of the Rules with intent to evade payment of duty. Excisable goods were entered in records, cleared on Central Excise invoices and duty was also paid subsequently, though belatedly along with interest. As such, the said Clause (d) is also not contravened. After analyzing and examining all these four sub-clauses of Rule 25, keeping in mind the facts of the case, the Tribunal held that the invocation of Rule 25 for imposition of penalty for delayed deposit of duty is not in accordance with law.

It is also to be borne in mind that Rule 25 starts with the word "Subject to the provisions of Section 11AC...". Section 11AC of the Central Excise Act deals with penalty for short levy or non-levy of duty in certain cases. It says that where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by reasons of fraud, collusion or any willful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the Rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under Sub-section (2) of Section 11AC, shall also be liable to pay a penalty equal to the duty so determined. For the purpose of invoking Section 11AC of the Act, the condition precedent is that the duty has not been levied, or paid or short-levied or short-paid or the refund is erroneously granted by reasons of fraud, collusion or any willful misstatement or suppression of facts. If these ingredients are not present, penalty u/s 11AC cannot be levied. Since Rule 25 can be invoked subject to the provisions of Section 11AC of the Act, as a natural corollary, the ingredients mentioned in Section 11AC are also required to be considered while determining the question of levying of penalty under Rule 25 of the Central Excise Rules.

This issue has come up before the Andhra Pradesh High Court in case of Commissioner of C. Ex. Guntur v. Andhra Cements Limited (supra) wherein the Court has taken the view that as per Rule 25(d) of the Rules subject to the provisions of Section 11AC of the Act, if any producer, manufacturer, registered person of a warehouse or a registered dealer, contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty, he is liable to pay the penalty in terms of Rule 25 of the Rules. The Court further observed that a bare perusal of this Rule would suggest that evasion of payment of duty is not sufficient to impose penalty on a producer or manufacturer. There should be an element of intention to evade payment of duty. Unless the authorities come to the definite conclusion that there was an intention to evade the payment of duty, a penalty cannot be imposed. Considering the facts before the Andhra Pradesh High Court, the Court observed that there is a finding of the Tribunal that the circumstances were beyond the control of the Respondent-company as the matter was pending before BIFR, and as such, the amounts could not be deposited by the Respondent-company within time and as soon as it was in a position to make the payment, the Respondent-company made the payment not only of the duty, but also the interest calculated under Rule 8(3) of the Rules. The Court, therefore, come to the conclusion that the Tribunal has correctly interpreted Rule 25 of the Rules and the penalty cannot be imposed on the Assessee company.

A similar issue has come up before the Kerala High Court in the case of Superintendent of Central Excise v. Sance Pharmaceuticals (supra). The Court in that case was concerned with issuance of show-cause notice and levy of penalty under Rule 173GG of erstwhile Central Excise Rules, 1944. The Division Bench of the Kerala High Court while confirming the order and judgment of the learned single judge, setting aside the penalty, has held that the learned single judge has correctly applied the law laid down by the Apex Court that penalty should not be imposed in absence of willful intention to evade payment of tax or duty, as the case may be. The Court further held that it is trite law that even the statute provides for imposition of penalty when there is failure to pay duty within the statutorily prescribed period, such imposition of penalty should be preceded by a finding that there was a willful default as such and in the case before the Kerala High Court, the deficit duty had been paid along with interest even before the issuance of the show-cause notice. The appellate authority had also found absence of any intention to evade payment of duty. The Court, therefore, took the view that the orders of penalty were not sustainable and rightly interfered with by the learned single judge.

Even in the case of Supreme Industries Limited v. CESTAT, New Delhi (supra), the Madhya Pradesh High Court took the view that enforcement of penal clause to be done subject to strict proof of intention to evade payment of duty. In the case before the Madhya Pradesh High Court, there was no material to show that there was intention to evade duty. The goods manufactured were not subject to quality control test and were kept on hold. The goods were to be cleared by quality control department and only thereafter were to be sent to packing department after quality control test was concluded. Merely because in statement, the Commercial Manager of Petitioner in that case has stated that goods were manufactured, that by itself cannot be a ground for holding that goods were ready for despatch to customer. The Court, therefore, took the view that confiscation and penalty is not sustainable under Rule 173Q of erstwhile Central Excise Rules, 1944.

The Apex Court judgment in the case of Union of India (UOI) Vs. Rajasthan Spinning and Weaving Mills, also supports the case of the Respondent Assessee. The Apex Court after reproducing Section 11AC in the judgment, took the view that the main body of Section 11AC lays down the condition and circumstances that would attract penalty and the various proviso enumerate the condition, subject to which and the extent to which the penalty may be reduced. The Court further took the view that the penalty provision of Section 11AC would come into play only after recording a finding that the escaped duty was the result of deception by the Assessee by adopting a means as indicated in Section 11AC. The penalty u/s 11AC is punishment for an act of deliberate deception by the Assessee with the intent to evade duty by adopting any of the means mentioned in that section. The Court further held that Section 11AC would not apply to every case of non-payment or short payment of duty regardless of the conditions expressly mentioned in the section for its application.

It is also relevant to mention here that applicability of Rule 25 is subject to the provisions of Section 11AC of the Act. The term "subject to" in the context assumes some importance. The Apex Court in the case of Commnr. of Central Excise, Bhavnagar Vs. Saurashtra Chemicals Ltd., after referring to its earlier decisions observed that the term "subject to" is an expression whereby limitation is expressed. It is further observed that the expression "subject to" must be given effect to.

In K.R.C.S. Balakrishna Chetty and Sons and Co. Vs. The State of Madras, the Apex Court took the view that on a proper interpretation of Section 5 of Madras General Sales Tax Act, 1939, the expression "subject to" only means that the exemption under the licence is conditional upon the observance of the conditions prescribed and upon the restrictions which are imposed by and under the Act whether in the rules or in the license itself; that is, a licensee is exempt from assessment as long as he conforms to the conditions of licence and not that he is entitled to exemption whether the conditions upon which the license is given are fulfilled or not. The use of the words "subject to" has reference to effectuating the intention of the law and the correct meaning, is "conditional upon". The observance of conditions of licence is necessary for the availability of exemption u/s 5. Where the licensee contravenes the conditions of the licence or Act or the rules, he becomes liable to pay the tax, notwithstanding that a license is issued to him u/s 5.

In view of the above discussion and legal position emerging therefrom, we have no hesitation in confirming the orders passed by the Tribunal and dismissing all these Appeals filed by the Revenue, by holding that there was no intention on the part of the Respondent Assessee to evade any payment of duty. It is only because of stringent financial condition, that the duty could not be paid in time and as soon as liquidity was available, duty was paid along with interest. The Tribunal has, therefore, rightly come to the conclusion that penalty could not be levied under Rule 25 of the Rules and for the alleged default, the penalty was restricted to Rs. 5,000/- in each matter under Rule 27 of the Rules. We, therefore, hold that no question of law, much less any substantial question of law arises out of the orders passed by the Tribunal.

We, therefore, dismiss all these five Appeals without any order as to costs.