Central Excise - CESTAT cannot reduce mandatory penalty: Supreme Court
By TIOL News Service
NEW DELHI, FEB 22, 2017: FACTS: The respondent-a Limited Company is engaged in the manufacture of parts of Railways and Tramways stock classifiable under Chapter 86 including smoothing Reactors falling under Chapter 85.04 of the Schedule to the Central Excise Tariff Act, 1985.
By order dated 25.02.2003, the adjudicating authority confirmed the demand of duty for Rs.2,05,291 /- along with interest under Section 11-AB of the Central Excise Act, 1944. The authority also imposed a penalty of Rs. 2,06,000/- under Section 11-AC of the Act read with Rule 173-Q of the Rules.
Aggrieved by the order, the respondent(assessee) filed appeal before the Tribunal. The respondent, however, did not challenge the demand of duty but confined their challenge only to imposition of penalty and, in particular, its quantum. According to the respondent, having regard to the totality of the facts and circumstances of the case, at best, nominal amount of penalty could be levied on the respondent but not the one imposed.
By impugned order dated 05.11.2003, the Tribunal partly allowed the respondent's appeal and reduced the amount of penalty from Rs. 2,06,000/- to Rs. 50,000 /-.
Against this order of the Tribunal, the Revenue is in appeal before the Supreme Court.
Revenue Contention :
None appeared for the respondent. The Revenue argued:
1. keeping in view the law laid down by the Supreme Court in Union of India & Ors . Vs. Dharamendra Textile Processors & Ors., - 2008-TIOL-192-SC-CX-LB, which unfortunately was not taken note of by the Tribunal though it has direct bearing over the issue in question, the impugned order cannot be said to be legally sustainable and is, therefore, liable to be set aside and that of the adjudicating authority restored.
2. Tribunal had no jurisdiction to reduce the quantum of amount of the penalty imposed by the adjudicating authority on the respondent under Section 11-AC of the Act read with Rule 173-Q of the Rules in the light of the law laid down in Dharamendra Textile Processors's case and, more so, when in principle, neither the respondent questioned the grounds for its imposition and nor the Tribunal found any fault in the imposition.
3. In the light of the law laid down in the case of Dharamendra Textile Processors, there was no discretion left with the Tribunal to reduce the quantum of penalty amount once it held that a case for penalty is made out.
Supreme Court Findings:
Agreeing with the Revenue, the Supreme Court observed,
As rightly argued by the learned counsel for the appellant, the issue urged herein was examined by three judge Bench of this Court in Union of India & Ors. Vs. Dharamendra Textile Processors & Ors. It was a reference made to examine the correctness of the two earlier decisions of this Court rendered in Dilip N. Shroff vs. Joint Commissioner of Income Tax, Mumbai & Anr., - 2007-TIOL-96-SC-IT and Chairman, SEBI vs. Shriram Mutual Fund & Anr., - 2006-TIOL-72-SC- SEBI. Their Lordships examined the issue in detail and held that the law laid down in the case of Dilip N. Shroff is not correct whereas the law laid down in the case of SEBI (supra) is correct.
Applying the aforementioned law to the facts of this case, we are of the considered opinion that the Tribunal erred in reducing the amount of penalty from Rs.2,06,000 /- to Rs.50,000 /-. Indeed, the Tribunal, in our opinion, failed to take into consideration the law laid down in the case of Dharamendra Textile Processors which the Tribunal was bound to take while deciding the appeal and instead the Tribunal wrongly placed reliance on its own decision in the case of Escorts JCB Ltd. vs CCE - 2002-TIOL-26-CESTAT-DEL. We also find that the Tribunal gave no justifiable legal reasons for reducing the penalty amount.
In the light of foregoing discussion, we are unable to concur with the reasoning and the conclusion arrived at by the Tribunal. They are not legally sustainable and, therefore, deserve to be set aside.
The Revenue appeal succeeds and is accordingly allowed. Impugned order is set aside and that of the order passed by the adjudicating authority is restored.
(See 2017-TIOL-84-SC-CX)
