By TIOL News Service

CHENNAI, AUG 17, 2017: FACTS of the case:

+ SCN alleged that the Assessee had clandestinely removed CTD Bars without payment of CE duty of Rs.12,53,255/- during the period January 2007 to January 2008.

+ The allegations in the SCN were upheld by order dated 15.05.2009 along with imposition of equivalent penalty and interest.

+ A sum of Rs.6,00,000/- was paid prior to the issuance of SCN and a further sum amounting to Rs.6,53,684/- was paid before adjudication. Both these amounts were adjusted towards the demand raised.

+ In appeal, the Commissioner (Appeals) confirmed the order of the Adjudicating Authority, save and except to the extent it pertained to imposition of penalty. Inasmuch as the lower appellate authority accorded an option to the Assessee of paying the penalty equivalent to 25% of the duty imposed with in a period of thirty (30) days of communication of the order passed by him .

+ Admittedly, the Assessee paid the penalty amount.

+ The Revenue had assailed this order dated 31.05.2010 before the Tribunal.

+ It was the contention of the Revenue that this option could not have been given by the Commissioner (Appeals) as it was a case of clandestine removal of goods.

+ The Tribunal accepted the stand of the Revenue and, therefore, the assessee is before the Madras High Court.

After considering the submissions and the facts involved, the High Court extracted section 11AC of the CEA, 1944 and inter alia observed thus -

++ A conjoint reading of the main provision with the first proviso would have us conclude that, in the ordinary course, where, duty has not been levied or paid, or has been short-levied and/or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act and the Rules made thereunder with the intent to evade the payment of duty, the Assessee is liable to pay penalty equivalent to 100% of the duty so determined.

++ The first proviso, however, carves out an exception to the main section - perhaps, to maximise the revenue, by holding out to the Assessee that, if, it were to accelerate the payment of dues, (i.e., duty and interest), by paying the same within the outer limit of thirty (30) days of the communication of the order of the Central Excise Officer, the penalty imposed would get reduced to 25% of the duty so determined.

The High Court added -

The question, which arises for consideration is, when does the period of thirty (30) days commence ? The other inter-related question, which arises, is does the period of thirty (30) days provided in the first proviso to Section 11AC, commence from the date of the Adjudication Order, or, the date, when, the Appellate Authority passes the order ?

And, after considering the submissions made on the subject matter by both sides, the High Court took the following view -

"5.5. The way, we look at the issue raised before us, has, in our view, got nothing to do with Section 2(b), or Section 12E of the 1944 Act. What is required to be considered, in our opinion, is whether the appellate proceedings can be considered as a continuation of the original proceedings ?. And therefore, would the Appellate Authority have the same powers, as the Original Authority ?. In our view, the answer has to be that, if, the original proceedings are challenged in appeal, the order of the Original Authority is in jeopardy, till such time, it attains finality, upon conclusion of the appellate proceedings. …In other words, duty, as determined under Section 11A(2) of the 1944 Act, will attain finality, only, if, it is sustained by the Appellate Authority. In this case, the Appellate Authority was the Commissioner (Appeals).Therefore, in the instant case, when, the Commissioner (Appeals) gave the option to pay penalty, albeit, for a reduced amount equivalent to 25% of the duty so determined, in our opinion, no fault could be found with such a direction."

Observing that the CESTAT had completely misunderstood the ratio of the judgement of the Bombay High Court in the case of Padmashri V.V.Patil S.S.K. Limited - 2007-TIOL-419-HC-MUM-CX inasmuch as what was decided therein was that there was no discretion vested in the Authorities to reduce the penalty below the minimum prescribed under the Act and the Court was not called upon to deal with the issue involved in the present case, the said judgment relied upon by the Tribunal while passing the impugned order was distinguished.

Noting that the judgement of the Division Bench of the Delhi High Court in K.P.Pouches (P) Ltd. - 2008-TIOL-240-HC-DEL-CX is apposite to the issue on hand, the High Court concluded that the order of the Tribunal cannot be sustained.

The impugned order was set aside and the appeal was allowed.

(See 2017-TIOL-1571-HC-MAD-CX)