Tilrode Chem P. Ltd. vs Commissioner of Central Excise

N. Kumar, J.—This appeal is preferred by the assessee challenging the order passed by the Tribunal, which has declined to consider the request of the appellant for the benefit of reduced payment of penalty in terms of the proviso to section 11AC of the Central Excise Act, 1944. The facts are not in dispute. The assessee is a private limited company, undertaking the manufacturing activity on job-work basis for M/s. Pfizer Limited. They are also manufacturing and selling the said formulations to M/s. Smithkline Beecham and were filing classification lists as also price lists from time to time as applicable during the relevant period and were clearing the goods on payment of appropriate duty. They have filed RT-12 returns on a regular basis and have been following the attendant Central excise formalities. The officials of the respondent conducted search of the premises of the assessee. The statement of various authorised persons was recorded. Based on the said investigation, a show-cause notice was issued proposing to demand an amount of Rs. 81,60,716 on various grounds. The assessee filed its reply rebutting and denying all the allegations in the show-cause notice. The Commissioner of Central Excise by Order-in-Original No. 5/2003 BNG-II, dated March 31, 2003, confirmed the duty demand to the extent of Rs. 46,00,500 out of the total demand of Rs. 81,60,716 as proposed in the show-cause notice. He also demanded interest and imposed penalties on the above said confirmation of duty payment. Further, a personal penalty of Rs. 2,00,000 was also imposed on the managing director of the assessee-company. Aggrieved by the same, the assessee and the managing director preferred the appeals. The Tribunal allowed the appeals and remitted the matter back to the adjudicating authority to examine the issue afresh and pass an appropriate order. After remand, the adjudicating authority rejected the submissions of the assessee and again confirmed the duty along with interest and penalties. Again appeals were filed. The Tribunal by a stay order dated September 3, 2004, directed the assessee to pre-deposit an amount of Rs. 30 lakhs within a period of three months. However, the assessee deposited only a sum of Rs. 10 lakhs in two installments and filed a miscellaneous application for waiver of the balance amount and the same was allowed. The Tribunal passed the final order dated August 30, 2006 by which the assessee was called upon to pay a penalty of ten per cent of the duty besides the duty confirmed in the said order. Aggrieved by the said order, the Department preferred an appeal to the High Court. The assessee also preferred a counter appeal challenging the imposition of penalty. The High Court, by an order dated March 26, 2010, allowed the appeal of the Revenue and remanded the matter back to the Tribunal to reconsider the issue of penalty in view of the decision of the hon''ble Supreme Court in the case of Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, . After such remand the Tribunal heard the parties and dismissed the appeal. The Tribunal was of the view that the contentions of the assessee, i.e., entitlement of the benefit of reduced penalty as provided in the proviso of section 11AC is untenable as the High Court has directed the Tribunal to decide the case in accordance with the law and as per the judgment of the Supreme Court in Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, , where it is held that the penalty payable is equal to the duty and there is no discretion left to the authority to reduce the penalty. Aggrieved by the said order, the present appeal is filed.

The learned counsel for the appellant assailing the impugned order contends that the case of the assessee before the Tribunal was not that they are liable to pay only 25 per cent of the penalty. Their case was, in view of the judgment of the apex court in the case of Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, , when once the condition in the proviso to section 11AC of the Central Excise Act is fulfilled, the authority has no jurisdiction to reduce the penalty which is equal to the duty payable. However, the proviso provides that if the assessee pays the penalty within 30 days from the date of the order notwithstanding the fact that the penalty payable is equal to that of the duty, statute has given him a concession of duty of 25 per cent. The assessee is entitled to the said benefit and the same is not considered by the Tribunal.

Per contra, the learned counsel appearing for the Revenue submitted that the penalty has not been paid in 30 days. It is paid in installment and therefore, the assessee is not having the benefit of the said proviso and no case for interference is made out. Therefore, the substantial questions of law that arises for our consideration are as under:

Whether the assessee is not entitled to the benefit to the proviso to section 11AC of the Act, if the payment of penalty as determined is paid within the time stipulated therein?

Whether the assessee is not entitled to adjustment of excess tax paid towards liability of reduced penalty?

The apex court in the case of Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, , interpreting sections 11A and 11AC of the Act, has held that the penalty is a civil liability. Willful concealment is not an essential ingredient for attracting the civil liability as is the case of prosecution u/s 276C of the Act. The provision levying penalty is mandatory. There is no scope for any discretion and therefore, there is no discretion left with the authorities to reduce the amount of penalty prescribed under the statute, when once the conditions mentioned therein is satisfied, the penalty payable is equal to that of the duty. There is no quarrel to the said proposition of law. What the assessee contends is, though the penalty is equal to that of the duty, after imposition of such penalty, if the penalty is paid within 30 days from the date of the order, the statute gives the benefit of payment of 25 per cent of the said amount of the penalty imposed. It is in the nature of the incentive to the assessee. Instead of fighting the litigation, challenging the order of penalty, if he acquiesces with the said order, promptly pays the penalty within 30 days, liability of payment of 75 per cent of the penalty would be discharged. In fact, the Punjab and Haryana High Court had an occasion to consider this proviso in the case of Commissioner of Central Excise Commissionerate Vs. J.R. Fabrics (P) Ltd., , wherein considering the proviso, it has held as under (page 571 of 2 GSTR):

A perusal of section 11AC of the Act shows that an amount equal to the amount of duty as determined by the Central excise officer u/s 11A(2) of the Act is required to be paid by the assessee where any duty of excise has not been (a) levied or paid or (b) has been short paid or (c) erroneously refunded by the reason of fraud collusion or any willful misstatement or suppression of facts or (d) contravention of any of the provisions of this Act or the Rules made thereunder with intent to evade payment of duty. The aforesaid principal clause has four provisos. The first two provisos postulate a concessional rate of penalty in case the amount of duty as determined under sub-section 11A(2) of the Act and the interest payable thereon u/s 11AB of the Act stand paid within thirty dates from the date of communication of the order of the officer determining such duty. In such a case the amount of penalty has been stipulated to be 25 per cent of the duty so determined.

The second proviso further imposes an obligation that the benefits contemplated by the first proviso are to be available if the amount of penalty so determined has also been paid within a period of thirty days. In other words, if the duty as determined u/s 11A(2) of the Act by the Central excise officer is paid within thirty days then penalty equal to the amount of duty is not required to be paid and the amount contemplated in lieu of the penalty is 25 per cent of the total amount of excise duty as determined by the officer concerned.

It would further be necessary to notice that the third proviso takes care of a situation where duty determined to be payable is reduced or increased by the Commissioner (Appeals), Appellate Tribunal or by this court then duty as reduced or increased is required to be taken into account. The provision takes care of fluctuation in the assessment of duty at the appellate stage. However, in the present case there is no increase or decrease in the assessment of duty of excise. The alteration has been ordered by the Tribunal in the order of the Commissioner (Appeals) by reducing the amount of penalty to 25 per cent of the total amount of duty of excise assessed by the assessing authority. Therefore, we are of the view that the appeal filed by the Revenue is liable to be rejected.

They have also observed at paragraph 15, that when the judgment of the apex court in Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, , was pressed into service with the provisos of sub-sections (1) and (2) of section 11AC of the Act, which were added in the year, 2000, was not the subject matter of consideration before the apex court in Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, .

Section 11AC of the Act, reads as under:

11AC. Penalty for short-levy or non-levy of duty in certain cases.--(1) The amount of penalty for non-levy or short-levy or nonpayment or short-payment or erroneous refund shall be as follows:

(a) where any duty of excise has not been levied or paid or short-levied or short-paid or erroneously refunded, by reason of fraud or collusion or any willful misstatement 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 (10) of section 11A shall also be liable to pay a penalty equal to the duty so determined;

(b) where details of any transaction available in the specified records reveal that any duty of excise has not been levied or paid or short-levied or short-paid or erroneously refunded as referred to in sub-section (5) of section 11A, the person who is liable to pay duty as determined under sub-section (10) of section 11A shall also be liable to pay a penalty equal to fifty per cent of the duty so determined;

(c) where any duty as determined under sub-section (10) of section 11A and the interest payable thereon u/s 11AA in respect of transactions referred to in clause (b) is paid within thirty days of the date of communication of order of the Central excise officer who has determined such duty, the amount of penalty liable to be paid by such person shall be twenty-five per cent of the duty so determined;

(d) where the appellate authority or Tribunal or court modifies the amount of duty of excise determined by the Central excise officer under sub-section (10) of section 11A, then, the amount of penalties and interest payable shall stand modified accordingly and after taking into account the amount of duty of excise so modified, the person who is liable to pay duty as determined under sub-section (10) of section 11A shall also be liable to pay such amount of penalty or interest so modified.

Explanation.--For the removal of doubts, it is hereby declared that in a case where a notice has been served under sub-section (4) of section 11A and subsequent to issue of such notice, the Central excise officer is of the opinion that the transactions in respect of which notice was issued have been recorded in specified records and the case falls under sub-section (5), penalty equal to fifty per cent of the duty shall be leviable.

(2) Where the amount as modified by the appellate authority or Tribunal or court is more than the amount determined under sub-section (10) of section 11A by the Central excise officer, the time within which the interest or penalty is payable under this Act shall be counted from the date of the order of the appellate authority or Tribunal or court in respect of such increased amount.

In fact, subsequently by the Finance Act 2011, the earlier section 11AC has been substituted by the new section. The difference is that the benefit given to an assessee in the proviso is now made as a part of the main section.

From the aforesaid provisions, it is clear that the non-payment of duty attracts interest and equal amount of penalty. But if there is prompt payment of duty and interest, within the time prescribed under the proviso to section 11AC of the Act, the assessee has the benefit of reduced payment of penalty as stipulated therein. Whether the assessee is entitled to the said benefit is a question of fact which has to be gone into on the basis of the materials placed by the assessee before the authorities. Here the Tribunal was in error in refusing to look into the said material on the ground that the High Court has issued a direction to consider the case keeping in mind the judgment of the apex court in Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, , as extracted above. The effect of the proviso was not gone into in Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, by the apex court. In Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, , it has been held that if the conditions prescribed in the section are satisfied, penalty is automatic. There is no discretion left in the authorities to reduce the penalty and imposition of penalty is mandatory. But if the duty is paid within the time prescribed under the proviso, the statute extends the benefit of reduced penalty, to the assessee who pays the duty and interest in terms of the order. Therefore, the Tribunal was not justified in declining to go into the said question on the ground that the apex court has prohibited the authority from going into said question. Therefore, the order requires to be interfered with. Similarly, if the assessee has paid excess payment, the excess payment should be adjusted towards the amount due and after deduction, no duty is payable or no interest is payable, the question of imposing penalty would not arise at all. Penalty is leviable only for non-payment of duty and interest and in terms of the orders of assessment. If the excess paid amount is taken into account, adjusted towards the duty, the question of imposing penalty would also not arise. That factor also should be gone into by the authority and appropriate orders should be passed on the basis of the materials available on record. In that view of the matter, the order passed by the Tribunal is contrary to law and is liable to be set aside. Accordingly, we pass the following order:

ORDER

(a) The appeal is allowed.

(b) The impugned order is set aside.

(c) The substantial questions of law framed are answered in the favour of the assessee and against the Revenue.

(d) The matter is remanded to the Tribunal for fresh consideration, keeping in mind the observations made in this order.

Ordered accordingly.