Commissioner of Cus. and C. Ex. vs Premier Polytronics Pvt. Ltd.

R. Sudhakar, J.�These appeals are filed by the department assailing the Final Order Nos. 268-270 of 2008, dated 26-3-2008 passed by the Central Excise and Service Tax Appellate Tribunal, Chennai [2008 (228) E.L.T. 619 (Tri.-Chen.)], by raising the following questions of law:

(i) Whether the Tribunal is correct in holding that the law is settled regarding the waiver of penalty in cases involving payment of duty before issuance of show cause notice when suppression of facts with the intention to evade payment of duty has been proved beyond doubt without attributing adequate reasons substantiating the decision when the Supreme Court and also CESTAT already rendered rulings, to the contrary, as in the case of Sony India Ltd. Vs. Commissioner of Central Excise, Delhi, ; Patiala Strips (P.) Ltd. - 2004 (168) ELT. 267 (Tri.-Del) ; Deepak Spinners Ltd. - 2005 (179) ELT 93 (Tri.-Del.) ; Diamond Industries, 2006 (195) ELT 236 (Tri.-Del.) and Parmarth Steel & Alloys (P) Ltd. - 2007 (78) RLT 249 (CESTAT-Del.)?

(ii) Whether the Tribunal is correct in waiving the penalty imposed under Section 11AC of the Central Excise Act and demand of interest under Section 11AB of the Central Excise Act by the Commissioner on the basis of settled law on the impugned case involving suppression of facts with intention to evade payment of duty when legislature''s intention is to the contrary by virtue of explanation to Section 11A(2B) of the Central Excise Act, 1944?

1.1 The facts in a nutshell are as under: The first respondent/assessee is a manufacturer of various items of Auxiliary Textile Machines and they were availing Modvat credit attributable to the inputs.

1.2 During the course of verification of accounts of the assessee, it was noticed that some of the inputs and capital goods purchased by the assessee, on which Modvat credit was availed, were diverted for use in the Research and Development Section, Service Station and Field Service, etc., without reversing the credits during the period from April, 1995 to March, 2000. The total amount of Modvat credit found to have been wrongly availed was Rs. 26,58,407/-. However, these credits were reversed by the assessee during the course of the audits.

1.3 Later on, the assessee found that there were certain credits to the tune of Rs. 12,55,743/- (Rs. 1,78,157/- + Rs. 10,77,586/-), which ought not to have been reversed and accordingly, they made two refund claims before the Deputy Commissioner on 3-5-1999. The Deputy Commissioner issued show cause notices dated 15-2-2000 and 16-2-2000 proposing to reject a part of the refund claims. The assessee submitted their reply and thereafter, the claim of refund was adjudicated and orders were passed by the Deputy Commissioner on 30-6-2000 and 27-7-2000 partially rejecting the refund claims.

1.4 Assailing the said orders passed by the Deputy Commissioner, the assessee preferred two appeals and the department also preferred two appeals before the Commissioner of Central Excise (Appeals). The Commissioner of Central Excise (Appeals), by orders dated 28-2-2002 and 1-3-2002, allowed the appeals filed by the assessee and dismissed the appeals preferred by the department.

1.5 Challenging the order dated 28-2-2002 passed by the Commissioner of Central Excise (Appeals), the Department filed appeals before the Tribunal in Appeal Nos. E/278 & 279/2002.

1.6 In the meanwhile, the Commissioner of Central Excise issued a show cause notice to the assessee on 20-12-2000 as against the diversion of inputs on which Modvat credit was availed. The operative portion of the said show cause notice reads as under:

"6. M/s. Premier Polytronics Ltd., are therefore, directed to show cause to the Commissioner of Central Excise, 6/7, A.T.D. Street, Race Course Road, Coimbatore - 18 as to why:

(i) Rule 57I(i)(ii) and Rule 57U(2) (now Rule 57AH) of Central Excise Rules, 1944 read with proviso to Section 11A(1) of Central Excise Act, 1944 should not be invoked to demand the Modvat credit to the tune of Rs. 26,67,927/- (Rupees twenty six lakhs sixty seven thousand nine hundred and twenty seven only) which has been irregularly availed for the extended period;

(ii) the credit of amount of Rs. 26,52,055/- should not be demanded under Rule 57-I(ii) (presently Rule 57AH) of the Central Excise Rules, 1944 and the credit amount of Rs. 15,872/- should not be demanded under Rule 57U(2) (presently Rule 57AH) of the Central Excise Rules, 1944 read with Section 11A of the Central Excise Act, 1944;

(iii) an amount of Rs. 24,27,393/- which has already been paid by the assessees as explained above should not be appropriated towards the above demands;

(iv) a penalty should not be imposed on them under Rule 57-1(4) (now Rule 57AH) and 57U(6) (now Rule 57AH) of the Central Excise Rules, 1944 read with Section 11AC of the Central Excise Act, 1944 and under Rule 173Q of the Central Excise Rules, 1944 for the above said contraventions;

(v) interest should not be demanded on delayed payment of duty under Rule 57-1(3), Rule 57U(8) (presently Rule 57AH) read with Section 11AB of the Central Excise Act, 1944."

1.6 After considering the reply submitted by the assessee, Commissioner of Central Excise, by order dated 8-11-2001 held under:

"1. I disallow the credit and demand the equivalent credit amount of Rs. 26,52,055/- (Rs. twenty six lakhs fifty two thousand and fifty five only) under Rule 57I(i)(iii)/57AH(2) of the Central Excise Rules, 1944 and the credit of Rs. 15,872/- (fifteen thousand eight hundred and seventy two only) under Rule 57U(3) of Central Excise Rules, 1944/57AH(2) as revalidated under Section 38A of the Central Excise Act, 1944 read with first proviso to Section 11A of the Central Excise Act, 1944. I appropriate the amount of Rs. 24,27,393/- (twenty four lakhs twenty seven thousand three hundred and ninety three only) already paid by the assessee. Hence, the balance amount of Rs. 2,40,534/- (as detailed in the worksheet to the show cause notice) is demanded now and hence it is payable by the assessee.

I impose a penalty of Rs. 25,00,000/- (Rs. twenty five lakhs only) under Rule 57-1(4), 57U(6), 57AH(2), 173Q of the Central Excise Rules, 1944 as revalidated under Section 38A of the Central Excise Act, 1944 read with Section 11AC of the Central Excise Act, 1944.

I also demand appropriate interest on the delayed payment of above duty already paid and payable under Rule 57-I(5)/57U(8)/57AH as revalidated under Section 38A of the Central Excise Act, 1944, read with Section 11AB of the Central Excise Act, 1944."

1.7 Assailing the said order passed by the Commissioner of Central Excise, the assessee preferred appeal in Appeal No. E/68/2002 before the Tribunal.

1.8 The Tribunal considered all the three appeals together and by common order dated 26-3-2008 dismissed the appeals filed by the department and partly allowed the appeal filed by the assessee.

1.9 Aggrieved by the said order passed by the Tribunal, the department has filed these appeals on the questions of law, referred supra.

We have heard the learned Counsel on either side and perused the order passed by the Tribunal and the authorities below.

The learned Standing Counsel for the department fairly concedes that the questions of law have been wrongly framed. The issues, which are relevant for consideration in these appeals are dealt with hereunder.

Imposition of Mandatory Penalty

4.1 The main plank of the argument advanced by the learned Standing Counsel appearing for the department is that the Tribunal erred in setting aside the penalty on the ground that mandatory penalty need not be levied if duty was paid prior to issuance of show cause notice.

4.2 To buttress the said argument, he placed reliance on the decisions of the Supreme Court in Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, and Union of India (UOI) Vs. Rajasthan Spinning and Weaving Mills, , wherein it has been held that once order is passed under Section 11A(2) of the Central Excise Act, invocation of Section 11AC of the Central Excise Act is automatic and no discretion is vested on the authorities to reduce penalty.

Per contra, the learned Counsel for the first respondent pleaded that there are certain periods during which penalty proceedings cannot be initiated in view of Notification No. 14/96-C.E. (N.T.) , dated 23-7-1996 .

6.1 The said issue now stands resolved by a Larger Bench decision of the Supreme Court in Union of India and Others v. Dharamendra Textile Processors and Others - Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, , wherein it was held that penalty under Section 11AC of the Central Excise Act is mandatory and there is no element of discretion. The relevant portion of the said decision reads as under:

"26. In Union Budget of 1996-97, Section 11AC 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 the Rules 96ZQ and 96ZO have a concept of discretion inbuilt cannot be sustained. Dilip Shroffs case (supra) was not correctly decided but Chairman, SEBI''s case (supra) has analysed the legal position in the correct perspectives. The reference is answered...."

6.2 Similar view was taken by the Supreme Court in Union of India (UOI) Vs. Rajasthan Spinning and Weaving Mills, . It is apposite to refer to Paragraphs 23 to 25 of the said decision, which read as under:

"23. The decision in Dharamendra Textile must, therefore, be understood to mean 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 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. That is what Dharamendra Textile decides.

It must, however, be made clear that what is stated above in regard to the decision in Dharamendra Textile is only in so far as Section 11AC is concerned. We make no observations (as a matter of fact there is no occasion for it!) with regard to the several other statutory provisions that came up for consideration in that decision.

In the light of the discussion made above it is evident that in both the appeals, orders were passed by the Tribunal on a wrong premise. In both the appeals, therefore, the impugned orders passed by the Tribunal are set aside and the matters are remitted to the respective Tribunals for fresh consideration, in accordance with law, and in the light of this judgment...."

6.3 This issue was also considered by this Court in Commissioner of Central Excise Vs. Eurotherm Del India Ltd., , wherein it was held as under:

"4. The Department''s contention before the Tribunal was that whether the lower Appellate Authority was right in setting aside the mandatory penalty under Rule 57-1(4) of the Central Excise Rules, 1944 and Section 11AC of the Central Excise Act, 1944 for the entire period subsequent to 28-9-1996. The Tribunal did not venture to examine this question but merely stated that it need not interfere with the decision of the lower Appellate Authority.

We have perused the grounds of appeal filed by the Revenue before the Tribunal, from which it is seen that the Department has contested the matter regarding imposition of penalty prior to the date of introduction of the said provision, viz., 57-1(4) of the Central Excise Rules, 1944 and thereafter. Therefore, the Revenue having raised such a ground before the Tribunal, the Tribunal ought to have considered the issue and rendered a finding. Without doing so, the Tribunal merely observed that they need not interfere with the decision of the lower Appellate Authority as regards the penalty for the brief period from 23-7-1996 to 28-9-1996 when the contention of the Department that post 28-9-1996 also the Department was entitled to levy penalty and that the period covered for adjudication was from 1-4-1994 to 30-9-1998. Hence, this question requires consideration of the Tribunal.

Accordingly, the matter is remitted back to the Tribunal directing it to consider the question of levy of penalty under Rule 57-1(4) of the Central Excise Rules, 1944 for the period post 23-7-1996 in accordance with law after giving opportunity to both sides."

6.4 Following the decision of the Supreme Court in Dharamendra Textile Processors and Others, referred supra, this Court in Commr. of C. EX., Chennai-I Vs. Drums and Barrels Madras Pvt. Ltd., held as under:

The issue raised in the appeal is directly and substantially covered by the recent decision of the Hon''ble Apex Court in Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, .

In the instant case, the Tribunal after having found that the respondent company has accepted the removal of inputs, without expunging the credit, proceeded to reduce the monetary penalty imposable under Rule 173Q of Central Excise Rules, 1944. The Hon''ble Apex Court in the decision cited supra held that it is a well settled principle in law that the Court cannot read anything into a statutory provision or a stipulated condition which is plain and unambiguous and the language employed in a statute is the determinative factor of legislative intent. The Rule provides for mandatory penalty equivalent to amount of duty which cannot be interfered with and the Apex Court has further held that there is no discretion vested with the authority. The Order-in-Original confirms.

(i) the demand of Rs. 1,64,687/- under Rule 57-1 of Central Excise Rules, 1944, the demand of Rs. 1,91,681/- against the clearances Modvat credit availed capital goods, i.e., Mobile crane, to their de-coiling plant situated outside their manufacturing premises under Rule 57U of Central Excise Rules, 1944;

(ii) impose a total penalty of Rs. 2,86,368/- as equal to the sum total of the above confirmed demands under Rules 57-1 & 57U of Central Excise Rules, 1944;

(iii) impose a penalty of Rs. 25,000/- under Rule 173Q of the Central Excise Rules, 1994 on M/s. Drums and Barrels (Madras) Pvt. Limited and

(iv) direct the assessees to pay interest at appropriate rates as provided in the Modvat Rules.

While Rule 173Q provides for discretion with the authority with regard to the quantum of penalty. In the same case, the Supreme Court observed in Paragraph 7 that, where the outer limit of penalty is fixed, which indicates the scope of discretion, Rules 57-I provides for imposition of a penalty equal to the credit so dissolved and therefore, as regards the imposition of penalty under Rule 57-I in a sum of Rs. 1,64,687/- could not have been reduced. Whereas, since the discretion is vested with the authority to reduce the penalty under Rule 173Q, that is not interfered with. The civil miscellaneous appeal is allowed to the extent indicated above."

6.5 In the light of the law enunciated in the decisions referred supra, the decision of the Tribunal holding that mandatory penalty is not leviable cannot be accepted and accordingly set aside and the matter is remanded to the Tribunal to reconsider this issue afresh in the light of the decisions referred supra and Notification No. 14/96-C.E. (N.T.), dated 23-7-1996 .

Refund claims - Non-speaking order

The next plea raised by the learned Standing Counsel appearing for the department is that the Tribunal by a non-speaking order has dismissed their appeals challenging the partial grant of refund claims by the Deputy Commissioner in favour of the assessee.

7.1 It is seen from the records that the Deputy Commissioner on 30-6-2000 and 27-7-2000 partially rejected the refund claims made by the assessee. Assailing the said orders passed by the Deputy Commissioner, the assessee preferred two appeals and the department also preferred two appeals before the Commissioner of Central Excise (Appeals). The Commissioner of Central Excise (Appeals), by orders dated 28-2-2002 and 1-3-2002, allowed the appeals filed by the assessee and dismissed the appeals preferred by the department. Aggrieved by the order dated 28-2-2002 passed by the Commissioner of Central Excise (Appeals), the Department filed appeals before the Tribunal in Appeal Nos. E/278 & 279/2002. However, the Tribunal, by order dated 26-3-2008 impugned in these appeals, dismissed the appeals observing as under:

"2. After examining the records and hearing both sides, we think we should dispose of the Revenue''s appeals after enjoying the fun arising therefrom. The department issued two show cause notices, each of which proposed to reject partly a refund claim of the assessee. The assessee''s objections to this proposal were rejected and the Assistant Commissioner upheld the department''s proposal. In the result, the refund claims filed by the assessee were stood partly rejected as proposed in the respective show cause notices. Against the Orders-in-Original, the assessee had a grievance and the Revenue had none. The assessee filed appeals and the same were allowed on merits by the Commissioner (Appeals). The Revenue also filed "appeals" against the Orders-in-Original even in the absence of grievance and the Appellate Authority rightly rejected those appeals. The Revenue however, chose to perpetuate the fun by filing further appeal with the Tribunal and there are Appeal Nos. E/278 & 279/2002, which we dismiss."

7.2 We find that there is absolutely no reason given by the Tribunal as to why Appeal Nos. E/278 & 279/2002 were dismissed. It is a cursory order. As the order passed by the Tribunal in Appeal Nos. E/278 & 279/2002, is bereft of reasons and analysis, the same is set aside and the matter is remanded to the Tribunal for passing a reasoned order.

7.3 In the result, these appeals are allowed by way of remand to the Tribunal. On remand, the assessee is also entitled to raise all the objections on the merits of the department''s claim. No costs.