Commissioner of Central Excise and Customs vs R.R. Omerbhay Pvt. Ltd. (formerly Elite Tradex Pvt. Ltd.)

D.B. Bhosale, J.—Heard learned Counsel for the parties. Admit on the following substantial question of law:

Whether on the facts and in the circumstances of the case, the CESTAT was justified in deleting the penalty levied u/s 11AC of the Central Excise Act, 1944 by holding that the show-cause notice issued for levying penalty u/s 11AC was itself bad in law being in contravention of Section 11A(2B) of the Central Excise Act, 1944 ?

The Respondent / Assessee during the period from 1.4.2003 to 30.4.2003 manufactured and cleared refined oil valued Rs. 99,99,683/-without payment of duty claiming exemption under notification No. 8/2003-CE dated 1.3.2003. The exemption under the said notification is subject to the condition that the aggregate value of clearances of all excisable goods for home exemption do not exceed Rs. 300/- lakhs in the preceding year. Admittedly, the value of excisable goods manufactured and cleared by the Assessee during the year 2002-03 was Rs. 5507/-lakhs. Since the value of clearances of all excisable goods during the relevant financial year was more than Rs. 300/-lakhs, it is the case of the Revenue that the Assessee is not entitled for exemption under the said notification.

In these circumstances, when the clearances in the preceding year were far in excess of the limit prescribed, whether the Assessee was justified in availing the benefit of the exemption for the period from 1-4-2003 to 30-4-2003 is the question. During the course of investigation, statement of the Plant Manager was recorded on 23-9-2003 and 12-1-2004 wherein he admitted that the exemption was wrongly availed. Accordingly, on 21-1-2004 the Assessee paid the duty with interest thereon u/s 11AB of the Excise Act.

Thereafter, by the show-cause notice dated 26-12-2005, the Assessee was called upon to show cause as to why penalty should not be levied u/s 11AC of the Central Excise Act, 1944 (for short "the Act") on the ground that the Assessee had practiced fraud with intent to evade payment of duty. On adjudication, the Assessing Officer confirmed the duty demand but declined to impose penalty u/s 11AC, on the ground that duty and interest was paid before issuance of the show-cause notice.

On appeal filed by the Revenue, the Commissioner of Central excise (Appeals) held that the penalty was leviable and accordingly imposed penalty u/s 11AC of the Central Excise Act.

The Assessee filed further appeal before CESTAT and by the impugned order, the Tribunal set aside the penalty on the ground that the show-cause notice dated 26-12-2005 was issued in violation of Section 11A(2B) of the Central Excise Act. According to the Tribunal, once duty and interest is paid before issuance of the show-cause notice u/s 11A(1) of the Act, then, u/s 11A(2B) no show-cause notice can be issued for either demanding duty or penalty.

It would be advantageous to reproduce the relevant observations of the Tribunal in paragraph 5, which read thus:

The show cause notice on this case, which was issued long after the payment of duty by the Appellant, proposed, inter alia, to appropriate the payment made by the Appellant towards duty on the goods cleared by them in the month of April 2003. This proposal made in the show cause notice was in breach of the injunction contained in Sub-section (2B) of Section 11A. Had there been any short payment of duty even after the payment made by the Appellant in January 2004, the department would have been justified in issuing the show cause notice in respect of the duty short paid. This situation certainly was not obtaining in this case. Therefore, the requirement u/s 11AC on an amount of duty having to be determined under Sub-section (2) of Section 11A was not satisfied in this case. Where this essential requirement was not satisfied, allegation of suppression, contravention of rules with intent to evade payment of duty etc. would turn out to be irrelevant. Thus, in the instant case, Section 11AC of the Central Excise Act was erroneously invoked against the Appellant. In this scenario, the penalty on the Appellant has to be set aside.

(Emphasis supplied)

The Tribunal, in our opinion, has committed grave error of law in making the aforesaid observations overlooking the Explanation 1 to Section 11A(2B) of the Act. The Explanation I specifically provides that nothing contained in Sub-section 2B shall apply where the duty was not levied or was not paid or was short levied or was short paid or was erroneously refunded by reason of fraud, collusion or any willful mis-statement 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. In other words, Section 11A(2B) would not apply where there is fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of the Act or the Rules made therein with intent to evade payment of duty. Thus, the bar contained in Section 11A(2B) would not apply where it is found that the Assessee has practiced fraud ... with intent to evade payment of duty.

In the present case, the fraud / suppression is alleged by the Revenue right from inception i.e. the stage of issuance of the show cause notice. In these circumstances, Explanation 1 to Section 11A(2B) would be squarely attracted in the present case. Therefore, irrespective of the fact that the Assessee had paid duty and interest before issuance of the show-cause notice, in view of the allegation that the Assessee had effected the clearances with an intention to evade payment of duty by fraudulently claiming benefit of the exemption Notification, the issuance of the show-cause notice on 26-12-2005 would be valid. The Tribunal, therefore, ought to have examined whether the Explanation I to Sub-section 2B of Section 11A is applicable in the present case. The finding that the proposal made in the show cause notice was in breach of injunction contained in Sub-section 2B of Section 11A is erroneous and can not be sustained. The Tribunal ought to have either confirmed the findings recorded by the Commissioner on the point of suppression / fraud and intention to evade the duty or examined the said question independently if the findings recorded by the Commissioner (Appeals), in the opinion of the Tribunal, were perverse. Accordingly, the decision of the Tribunal to the extent it holds that the show-cause notice was invalid in view of Section 11A(2B) of the Act cannot be sustained.

The question then to be considered is, whether there was fraudulent intention to evade duty ? Since the CESTAT has not given any finding on the above question, we deem it proper to set aside the order of the CESTAT and restore the appeal to the file of the CESTAT for consideration of the above issue.

Accordingly, we set aside the impugned judgment of the Tribunal dated 28-7-2009 and direct the Tribunal to decide the question as to whether there was fraudulent intention to evade payment of duty and accordingly pass appropriate order on the appeal filed by the Assessee against the order of the Commissioner of Central Excise (Appeals).

The appeal is disposed off by answering the question accordingly, keeping all contentions open including the applicability of the decision of this Court in the case of C.C.E. v. Ram Aluminium P. Ltd. (2009) EQ (BOM) 895 decided on 30-6-2000 and applicability of the circular No. 733/49/2003-CX dated 6.8.2003. No costs.

Order accordingly.