Exotic Associates vs The Commissioner of Central Excise

K.A. Puj, J.—Since both Tax Appeals - one filed by the assessee and other one filed by the revenue, are arising out of the same order of the CESTAT and since both these appeals are heard together, the same are being disposed of by this common judgment and order.

Tax Appeal No. 572 of 2007 is filed by the assessee. This appeal was admitted on 04.05.2007 and following substantial questions of law were formulated by the Court at the time of admission of the appeal:

Whether penalty was liable to be imposed on the assessee in case where part amount of duty had been deposited by the assessee before issue of show-cause notice?

Whether it was mandatory to impose penalty equal to amount of duty alleged to have been evaded, or discretion to impose less penalty or no penalty was vested in the authorities u/s 11AC of the Act?

Tax Appeal No. 869 of 2007 is filed by the Commissioner, Central Excise, Ahmedabad - 1, Ahmedabad. This appeal is admitted on 17.01.2008 and following substantial question of law was formulated by this Court:

Whether or not in view of Section 11AB inserted with effect from 28.09.1996 vide Section 76 of Finance (No.2) Act, 1996 (33 of 1996) interest is leviable on the amount of Central Excise duty eavded for a period subsequent to 28.09.1996 till 11.05.2001?

Heard Mr. Hardik Modh, learned advocate appearing for the assessee and Mr. Ankit Shah for Mr. Y.N. Ravani, learned Standing Counsel for the Revenue, in both the appeals.

The brief facts giving rise to the present Tax Appeals are that the assessee is engaged in manufacture of clearance of chemicals like Sodium Cynate, Cuprous Chloride, B.D.S.A., etc. falling under Chapter Head Nos. 28 & 29 of the Schedule to the Central Excise Tariff Act, 1985, and had a registration under the Central Excise Act, 1944. On the basis of Special Intelligence information, the Unit of the assessee at Ahmedabad was visited and searched on 18.02.2000 by a group of officers of Preventive Wing of Central Excise Commissionerate Ahmedabad - 1. After necessary inquiry and investigation, a show-cause notice was issued on 09.04.2002 calling upon the assessee as to why the Central excise duty amounting to Rs. 5,99,500/- on finished goods valued at Rs. 43,04,935/- manufactured and cleared illicitly should not be recovered under the proviso of Section 11A(1) of the Act. The assessee was also called upon to show-cause as to why central government duty amounting to Rs. 97,063/- involved on inputs should not be recovered. The assessee was further asked to show-cause as to why penalty u/s 11AC of the Act and erstwhile Rule 173Q of the Central Excise Rules, 1944 should not be imposed. The assessee was further asked to show-cause as to why interest at the prescribed rate should not be charged and recovered from them under provisions of Section 11AA of the Act.

After considering the reply given by the assessee and after adjudicating the whole issue, order in original was passed by the Additional Commissioner, Ahmedabad on 30.09.2002 demanding a duty of Rs. 5,95,500/- on finished goods valued at Rs. 43,04,935/- from the assessee and also demanding the central excise duty of Rs. 97,063/- involved on the inputs under Proviso to Section 11A(1) of the Act. The Additional Commissioner has also imposed penalty of Rs. 6,96,563/- u/s 11AC read with Rule 173Q of the erstwhile Central Excise Rules, 1944 and levied interest at the prescribed rate u/s 11AB of the Act.

Being aggrieved by the said order, the assessee preferred an appeal before the Commissioner (Appeals), Central Excise, Ahmedabad, who vide his order dated 07.07.2005 confirmed the demand, penalty and interest raised and/or charged by the Additional Commissioner.

Being further aggrieved by the decision of the Commissioner (Appeals), the assessee preferred an appeal before the CESTAT. The Tribunal vide its order dated 27.10.2006 observed that the assessee has not disputed the duty payment before the Tribunal and confined its challenge to the levy of penalty as well as interest. As far as imposition of penalty is concerned, the Tribunal has observed that the question of waiver of the mandatory penalty does not arise, especially, in light of a specific provision by way of the Explanation to Section 11A(2B) of the Act. Merely because somebody has paid the evaded duty by resorting to clandestine removal, prior to issue of the show-cause notice, waiver of penalty should not be justified as the same will make the evasion risk-free and will treat the evader more kindly than the genuine tax payer, which is neither warranted nor envisaged. The Tribunal, however, has accepted the submission of the assessee to the effect that since the entire demand relates to the period of 1997 to 2000, no interest is leviable in respect of the demand prior to 11.05.2001. Accordingly, the Tribunal has confirmed the levy of penalty and set aside the order with regard to charging of interest u/s 11AB of the Act.

Being further aggrieved by the order of the Tribunal, the assessee has come up before this Court raising the dispute with regard to confirmation of penalty and the department with regard to deletion of the interest.

So far as the discretion to be exercised by the Additional Commissioner with regard to levy of penalty u/s 11AC is concerned, the issue has no longer remained res integra. The Apex Court in its decision in the case of Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, has taken the view that if the contention of the learned Counsel for the assessee is accepted that the use of the expression �assessee shall be liable� proves the existence of discretion, it would lead to very absurd result. In fact, in the same provision, there is an expression used i.e. �liability to pay duty�. It can by no stretch of imagination be said that the adjudicating authority has even discretion to levy duty less than what is legally and statutorily leviable.

The question, however, requires consideration of this Court in light of the Proviso to Section 11AC which talks about an option to be given to the assessee to pay the Excise duty levied within 30 days from the date of receipt of order and in that case, penalty u/s 11AC of the Act is reduced to 25% of the amount of Excise Duty levied in the order passed by the adjudicating authority. For that purpose, it is worthwhile to have a close look at the provisions of Section 11AC of the Act. It deals with penalty for short levy or non-levy etc. in certain cases. It reads as under:

11AC Penalty for short levy or non levy of duty in certain cases:

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, 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 11A, shall also be liable to pay a penalty equal to the duty so determined.

Provided that where such duty as determined under sub-section (2) of Section 11A, and the interest payable thereon u/s 11AB, is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such duty, the amount of penalty liable to be paid by such person under this Section be twenty-five percent of the duty so determined.

Provided further that the benefit of reduced penalty under the first proviso shall be available if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso.

Provided also that where the duty determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the Court, then for the purposes of this Section, the duty, as reduced or increased, as the case may be shall be taken into account.

Provided also that in case where the duty determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the Court then the benefit of reduced penalty under the first proviso shall be available, if the amount of duty so increased, the interest payable thereon and twenty five percent, of the consequential increase of penalty have also been paid within thirty days of the communication of the order by which such increase in the duty takes effect.

This very question has come up before the Delhi High Court in the case of K.P. Pouches (P) Ltd. Vs. Union of India (UOI), wherein the Court after discussing the controversy between the parties in paragraph 27 of the judgment has observed that to obviate any similar situation from arising in future, the adjudicating authority in its adjudication order under the Act should explicitly set out the options available to the Assessee u/s 11AC of the Act. Once the chances are made known to the assessee and it still does not take advantage of the first Proviso to Section 11AC of the Act, it will be entirely at its own peril. The Court, therefore, held that it would be beneficial both from the point of view of the revenue as well as the assessee, if the options available to the assessee are mentioned in the adjudication order itself.

Pursuant to the above judgment of the Delhi High Court, the Central Excise department has issued Circular on 22.05.2008 wherein it is clarified that in all the cases wherein penalty u/s 11AC of the Act is imposed, the provisions contained in the first and second Proviso to Section 11AC should be mandatorily mentioned in the order in original itself by the adjudicating authority.

The Punjab & Haryana High Court is also faced with the similar situation and in its judgment in the case of Commissioner of Central Excise, Rohtak v. J.R. Fabrics Private Limited 2009 (238) ELT 209 P&H, the Court took the view that it is appropriate to notice that the period in question is 28.07.2001 to 28.02.2002 and there is no dispute that the proviso added by the Act No. X of 2000 is made applicable with effect from 12.05.2000, which provides that an amount equal to 25% of the amount of duty of excise be paid as penalty if the amount of duty of excise is paid within 30 days from the date of communication of the order by the Central Excise Officer. In that case, the order in original also imposes penalty which is equivalent to the amount of duty of excise assessed by the adjudicating authority. The assessee was, however, not given any option as to whther he wants to pay the duty within 30 days from the date of the adjudication order. The Court, therefore, took the view that the conclusion reached by the Tribunal that the assessee was liable to pay penalty to the extent 25% of the amount of duty of excise demanded by the officer concerned. While arriving at this conclusion, the Court has also considered the decision of the Apex Court in the case of Dharmendra Textile (Supra) and observed that the provisos first and second which were added in the year 2000 were not the subject matter of consideration before their Lordships in Dharmendra Textile Processor''s case (Supra). The Court, therefore, did not find any substance in the contention raised on behalf of the revenue, especially, in the face of express provision made by the four provisos in the year 2000.

Considering the above judgment of the Delhi High Court as well as Punjab & Haryana High Court and further considering the impugned order of the Tribunal, we are of the view that the matter requires to be considered a fresh in light of the above decisions of the Delhi High Court as well as Punjab & Haryana High Court. It is an admitted position that the assessee was not given any option as to whether he wants to pay the duty demand within 30 days from the date of the adjudication order and in that case, he has to pay only 25% of the penalty. Since this aspect was not considered by the authorities below, we are of the view that interest of justice would better be served if the matter is remanded to the adjudicating authority with a direction to frame an order denovo after giving the assessee an option to pay duty amount within 30 days by making it explicitly clear in the order itself that if the assessee wants to avail such option, he is permitted to do so.

In the above view of the mater, we allow the appeal filed by the assessee for statistical purpose and remand the matter to the Additional Commissioner to pass a fresh order in light of the observations made hereinabove. It is, however, made clear that looking to the peculiar facts of the case, the Court has adopted this course and it shall not be treated as precedent.

The questions referred to us are answered accordingly.

So far as the appeal filed by the revenue is concerned, the Tribunal has deleted the interest only on the ground that the demand relates to the period of 1997 to 2000 and on that count, it was held that no interest is leviable in respect of demand prior to 11.05.2001. It is, however, contended before us that while taking the said view, the Tribunal has only considered the provisions of sub-section (2) of Section 11AB brought on the Statute Book by the Act 14 of 2001 with effect from 11.05.2001. Prior to the said provision, Section 11AB was inserted by Section 76 of Finance (No.2) Act of 1996 with effect from 28.09.1996. It appears that the Tribunal relied on the non-applicable provisions, namely, amended Section 11AB. This amended Section 11AB would not apply to the cases where Section 11AB was inserted by Section 76 of Finance (No.2) Act, 1996, effective from 28.09.2006 and demand related to a period subsequent thereto, i.e. between the period from 28.09.1996 and 11.05.2001. Sub-section (2) of Section 11AB specifically states that the provision of Sub-section (1) of Section 11AB shall not apply to cases where the duty had become payable on the date on which Finance Act, 2001 received the assent of the President. It was, therefore, open and permissible to levy interest u/s 11AB for the period subsequent to 28.09.1996 under the unamended provision of Section 11AB of the Act.

Since the demand relates to the period subsequent to 28.09.1996 and the earlier provision of Section 11B was not considered by the Tribunal, the impugned order of the Tribunal is set aside on this point and remand the matter to the Adjudicating Authority to decide the whole issue with regard to charging of interest keeping in mind the provisions contained in unamended Section 11AB of the Act.

This appeal filed by the revenue is accordingly answered.

In the result, both the appeals stand disposed off.