Commissioner of Central Excise vs Royal Creation

Heard the learned Counsel appearing for the Revenue and the learned Counsel appearing for the Respondent.

This appeal was admitted by an order dated 19-7-2007 to consider the following substantial question of law:

Whether in the facts and circumstances of the case, the Tribunal is right in reducing the mandatory penalty u/s 11AC of the Central Excise Act, 1944?

The factual matrix reveals that the show cause notice was issued against the Respondent-Assessee which was confirmed by an order-in-original 13-3-2003. The said order-in-original was subject matter of challenge before the Commissioner (Appeals). The Commissioner (Appeals) vide its order dated 30-6-2003 applied the provisions of Section 11AC of the Central Excise Act, 1944 considering the facts and circumstances of the case and went on to reduce penalty u/s 11AC. The said order was subject matter of challenge, not at the instance of the Respondent-Assessee but at the instance of the Appellant/Revenue, before the Tribunal. In other words, the order of Commissioner (Appeals) was accepted by the Respondent and that order has become final and conclusive against the Respondent to that extent. The Revenue before the Tribunal contended that the penalty could not have been reduced by the Commissioner (Appeals) u/s 11AC. The said contention was rejected by the Tribunal holding that there was no deliberate intention to evade excise duty because the unit was under the bona fide impression that they were not required to pay excise duty. This finding was recorded by the Tribunal only to sustain reduction in penalty u/s 11AC of the Central Excise Act, 1944.

Against the aforesaid order of the Tribunal, the Revenue is in appeal before us contending that the penalty could not have been reduced in exercise of powers u/s 11AC of the Central Excise Act, 1944.

The learned Counsel for the Revenue has relied upon the judgment of the Apex Court in case of Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, which is explained in subsequent judgment in case of Union of India (UOI) Vs. Rajasthan Spinning and Weaving Mills, . The learned Counsel for Revenue submits that the findings recorded by the Commissioner (Appeals) were not subject matter of challenge before the Tribunal at the instance of the Respondent-Assessee. Reliance is placed on the judgment of the Apex Court in case of Commissioner of Central Excise, Coimbatore Vs. EL.P.EM. Industries, wherein the Apex Court has ruled that if the specific finding of fact is not challenged in the grounds of appeal then the submissions contrary to those findings cannot be entertained by the appellate Court.

The learned Counsel for the Revenue, relying on the judgment in case of Dharamendra Textiles (supra), submits that the question of law framed above is required to be answered in favour of the Revenue since the adverse findings recorded against the Respondent by the first Appellate Authority has become final and conclusive.

Per contra, Mr. Baya, the learned Counsel for the Respondent submits that the show cause notice itself is bad in law and illegal. He further relied on the findings recorded by the Tribunal that there was no deliberate intention on the part of the Respondent-Assessee to evade the duty because they were under bona fide impression that they are not required to pay the duty. On this finding, the provisions of Section 11AC could not have been attracted or invoked. He submits that the Respondent is not within the net of the law laid down by the Apex Court in case of Dharamendra Textiles (supra).

In rejoinder, Mr. Pardeshi, learned Counsel for the Revenue submits that assuming for the sake of submission that the findings recorded by the Commissioner (Appeals) were self-contradictory in that eventuality, it was open for the Respondent to challenge the adverse findings. Having accepted adverse findings, the submission made by the Respondent cannot be considered. He submits that now the issue is squarely covered by the judgment of the Apex Court in case of Dharamendra Textiles (supra).

Having heard both the parties, the contentions canvassed by the Revenue needs to be accepted. The Commissioner (Appeals) has recorded the finding in paragraph No. 6 of its judgment that the lapse on the part of the Respondent was for a limited period ranging from June to August, 2001 because the subject provision was introduced in the budget for the year 2001-2002 which the Respondent could not notice. The amount of duty was paid even before the issuance of the show cause notice. As a matter of fact on this finding, Mr. Baya is right in contending that the provisions of Section 11AC could not have been invoked and the penalty could not have been imposed. However, the contradictory finding recorded by the Commissioner ought to have been challenged by the Respondent in the higher forum. The Revenue did challenge the findings of reduction of penalty which was sustained by the Tribunal in paragraph No. 4 of its order to the extent it was reduced. For want of challenge at the instance of the Respondent/Assessee, the Tribunal could not have set aside the order of the Commissioner (Appeals), which had become final and conclusive against the Respondent.

Needless to mention here that the law relating to the doctrine of res judicata was squarely attracted as the order passed by the Commissioner (Appeals) having become final and conclusive. It was* open for the Respondent to challenge the said order, however, they did not challenge the same as such they have to suffer consequences.

In the result, the question of law is answered in favour of the Revenue and against the Respondent-Assessee. The Appeal is, accordingly disposed of with no order as to costs.