Commissioner of C. EX., Chennai-IV vs Binny Engineering Ltd.

K. Ravichandrabaabu, J.—The Revenue is on appeal against the order passed by Customs, Excise and Service Tax Appellate Tribunal,

South Zonal Bench, Chennai in its Final Order Nos. 672 and 673 of 2008, dated 8-7-2008. The following are the substantial questions of law

raised in these two appeals:-

Whether the 2nd Respondent is right in holding that payment of duty prior to issue of Show Cause Notice is sufficient ground for setting aside

penalty imposed u/s 11AC in the face of express provisions in Section 11AC providing for mandatory levy of penalty when the conditions

specified therein are satisfied?

Whether on facts and in the circumstances of the case, the 2nd Respondent was right in law in refraining from imposing equal penalty u/s 11AC,

when imposition of penalty u/s 11AC is mandatory from 28-9-96 on the conditions prescribed therein being satisfied viz., suppression of facts with

intent to evade duty as in the present case?

Whether the 2nd Respondent is right in allowing the appeal filed by the 1st Respondent insofar as imposition of Interest u/s 11AB is concerned

when interest leviable is mandatory subsequent to 28-9-1996?

The assessee manufactures rough castings and clears on payment of duty. They also have a sister Unit where parts of Rice Mill machinery are

manufactured. Rice Mill machinery and parts are exempted from payment of duty. During the period from the month of January 1995 to December

1999, the assessee cleared rough castings to their Rice Mill Division without payment of duty. Therefore, a show cause notice was issued to the

assessee proposing to recover the duty and interest. It was also proposed to impose penalty for not paying the said duty and interest. Consequent

upon the issuance of show cause notice, the Original Authority made an order demanding the unpaid duty of Rs. 2,40,702/- and also imposed

equal amount of penalty u/s 11AC of Central Excise Act and another penalty of Rs. 25,000/- under Rule 173Q. However, the assessee paid the

duty amount on 28-1-2000, even before the issuance of the said show cause notice. The Commissioner while sustaining the demand of duty,

however modified the penalty u/s 11AC and payment of interest u/s 11AB by vacating the same for the period prior to 28-9-1996. He further

reduced the penalty to a sum of Rs. 10,000/- payable under Rule 173Q.

Aggrieved against the order of the Commissioner, the assessee filed an appeal before the Tribunal. The revenue also filed appeal seeking to

impose penalty for the period prior to 28-9-1996 and also for interest relating to the said period.

The Tribunal after finding that the assessee had paid the duty before issuance of the show cause notice and by observing that the assessee would

not be required to pay any penalty or interest, allowed the appeal filed by the assessee and dismissed the appeal filed by the revenue. Aggrieved

by the order of the Tribunal, revenue preferred these two appeals.

We have heard Mr. P. Mahaadevan, learned counsel for revenue as well as Mr. N. Murali, learned counsel appearing for the assessee.

Insofar as the question of payment of penalty is concerned, u/s 11AC of the Act, it has been held by the Hon''ble Supreme Court in the case of

Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, that it is mandatory and adjudicating authority has got no

discretion to levy lesser penalty. In the above decision, the Hon''ble Supreme Court, observed that ""object behind enactment of Section 271(1)(c)

read with explanations indicate that the said Section has been enacted to provide for a remedy for loss of revenue and the penalty under that

provision is a civil liability"". It was also observed that ""willful concealment is not an essential ingredient for attracting civil liability as is the case in the

matter of prosecution u/s 276C of Income Tax Act"".

However, in a subsequent decision of the Hon''ble Supreme Court reported in Union of India (UOI) Vs. Rajasthan Spinning and Weaving Mills,

, the above position was further clarified by holding that ""once the Section is applicable in a case, the Authority concerned 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"". In

Paragraph 34 of the said decision, the Hon''ble Supreme Court held that ""the decision in Dharamendra Textile - Union of India (UOI) and Others

Vs. Dharamendra Textile Processors and Others, must, therefore, be understood to meant that though 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 Authority

concerned 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"".

In Paragraph 32 of the said decision, the Hon''ble Supreme Court held as under:-

After referring to a number of decisions on interpretation and construction of statutory provisions, in E.L.T. paras 26 and 27 of the decision,

the Court observed and held as follows: (Dharamendra Textile case)

In Union Budget of 1996-1997, Section 11-AC of the Act was introduced. It has made the position clear, that there is no scope for any

discretion. In Para 136 of the Union Budget reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the

Notes on Clauses also the similar indication has been given.

Above being the position, the plea that Rules 96-ZQ and 96-ZO have a concept of discretion inbuilt cannot be sustained. Dilip N. Shroff

Karta of N.D. Shroff Vs. Joint Commissioner of Income Tax, Special Range Mumbai and Another, was not correctly decided but The Chairman,

SEBI Vs. Shriram Mutual Fund and Another, has analysed the legal position in the correct perspectives. The reference is answered.

From the above, we fail to see how the decision in Dharamendra Textile can be said to hold that Section 11-AC 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.

Therefore from the reading of the above decisions of the Hon''ble Supreme Court, it is clear that there must be a factual finding rendered by stating

that the act of the assessee attracts the conditions expressly contemplated u/s 11AC of the Act. From the reading of the order of the Tribunal, we

could see no such finding of fact with regard to such an intention on the part of the assessee was rendered. Therefore, in the absence of any factual

finding on that aspect, imposition of penalty cannot be sustained and therefore, the matter has to be remitted back to the Tribunal for rendering a

factual finding as to whether there was any intention on the part of the assessee in not paying the duty in time. In fact the Tribunal had rejected the

levy of penalty and interest only on the reason that assessee had paid the duty before issue of show cause notice. In our considered view such

reasoning of Tribunal cannot be sustained in the light of the decisions rendered by the Apex Court in Union of India (UOI) Vs. Rajasthan Spinning

and Weaving Mills, in the matter of Commissioner of Central Excise, Pune Vs. SKF India Ltd., in the matter of interest is concerned.

Accordingly, the appeals are allowed and the order of the Tribunal dated 8-7-2008 in Final Order Nos. 672 and 673 of 2008 is set aside and the

matter is remitted back to the Tribunal for rendering a finding on the question of mens rea on the part of the assessee in not paying the duty in time.

The questions of law are answered accordingly. The Tribunal shall reconsider the matter and pass orders in accordance with the decisions made in

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

Mills, and Commissioner of Central Excise, Pune Vs. SKF India Ltd., . No costs.