CX - It is not mandatory upon AA to draw attention of assessee to the benefit of reduced penalty under proviso to S. 11AC of CEA: High Court
By TIOL News Service
ALLAHABAD, AUG 21, 2017: DURING inspection of the factory premises, some discrepancy in the stocks of finished goods was detected by the CE officers.
Accepting the same, the assessee deposited CE duty of Rs.3,29,192/- on 05.01.2006.
Subsequently, a SCN dated 30.11.2006 was issued seeking appropriation of amount paid towards the duty and imposition of equivalent penalty u/s 11AC of the CEA.
The Assistant Commissioner passed an o-in-o dated 03.09.2007 confirming the duty demand and appropriating the amount paid. An equivalent penalty of Rs.3,29,192/- was also imposed u/s 11AC r/w Rule 25 of the CER.
Both the appellate authorities dismissed the appeal of the assessee, the Commissioner(A) on 05.11.2007 and CESTAT on 09.09.2010, leading to filing of the present appeal before the Allahabad High Court.
The appeal was admitted on 07.03.2013.
The High Court, after extracting Sections 11A(1), 11A(2B) and 11AC of the CEA, 1944 as they existed at the material time, made the following observations on the substantial question of law as framed -
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a) Whether the CESTAT was justified in imposing penalty under Section 11AC of the Act, ignoring the fact that the Appellant has voluntarily paid the amount of duty equivalent to cenvat credit availed on the shortage of inputs as such issuance of show cause notice itself is without jurisdiction in view Section 11A(2B) of the Central Excise Act, 1944.
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++ Sub-Section(1) of Section 11A of the Act indicates that it envisages recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded. It provides that in either of the above situation the Excise Officer may serve notice on the person chargeable with duty requiring him to show cause why he should not pay the amount of duty specified in the notice. It means that the notice referred to is in respect of realisation of the excise duty only and not the penalty.
++ Sub-Section (2B) of Section 11A of the Act provides that in cases where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded the person chargeable with the duty if pays the duty on the basis of his own ascertainment or on the basis of the adjudication by the Central Excise Officer before any notice is served upon him under Sub- Section (1) of Section 11A of the Act, the Central Excise Officer shall not serve any notice under Sub-Section (1) of the Act in respect of the duty so paid by him on receipt of information in respect of the duty so paid.
++ In simple words, the excise duty not levied or paid or short levied or short-paid or which is erroneously refunded if deposited before the issuance of show cause notice under Sub-Section (1) of Section 11A of the Act, the Central Excise Officer on receiving information of the said deposit shall not issue any show-cause notice as contemplated by Sub-Section (1) of Section 11A of the Act. The use of the expressions "in respect of the duty" and "in respect of the duty so paid" in Sub-Section (2B) of Section 11A of the Act clearly establishes that it refers to the notice for the purposes of realisation of the excise duty and the payment thereof. This is also clear from the language of Sub-Section (1) of Section 11A of the Act which requires issuance of show cause notice in respect of the excise duty only.
Conclusion: Section 11A of the Act has no application in respect of realisation of penalty, if any, imposed under Section 11AC of the Act.
Held: Imposition of penalty under Section 11AC of the Act is justified even though the duty of excise has been paid voluntarily by the assessee and the notice issued for imposing penalty was neither without jurisdiction or in violation of Section 11A(2B) of the Act, which in fact, was not applicable.
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b) Whether in the alternative, the CESTAT was justified in not considering that duty was paid much prior to the passing of the order by the adjudicating authority, as such there was no justification for imposing 100% penalty and at the most 25% penalty may have been imposed in view of the proviso to the Section 11AC of the Central Excise Act, 1944.
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++ There is no provision under the Act which places any obligation upon the adjudicating authority to first determine the penalty equal to 25% of the excise duty not levied or short levied or erroneously refunded and in the event it is not paid within 30 days to proceed to levy penalty of 100% of the deficient excise duty.
++ Section 11AC of the Act contemplates imposition of penalty equal to the amount of duty determined where a person liable to pay duty has not paid the duty levied or has short-paid the same or has been refunded any duty erroneously for any of the reasons specified therein with the intention to evade payment of duty.
++ The penalty leviable under Section 11AC of the Act is mandatory and not discretionary as has been held by the Apex Court in the case of Union of India Vs. Rajasthan Spinning and Weaving Mills - 2009-TIOL-63-SC-CX.
++ In the case at hand, the assessee had defaulted in the timely payment of excise duty of Rs.3,29,192/-. It may have been paid by it voluntarily of his own ascertainment before the issuance of the notice nonetheless there was no default in its timely payment and was paid only after the shortage was detected. Therefore, ex facie there was contravention of the provisions of the Act in the payment of duty which was held to be with the intent to evade duty so as to attract Section 11AC of the Act. Therefore, once Section 11AC of the Act was attracted, a penalty equal to the amount of the duty evaded as determined was payable.
++ The rebate in penalty is admissible on the deposit of not only the excise duty determined and the interest thereon but also 25% of the penalty so imposed within a period of 30 days of the service of the order.
++ There is no dispute that the assessee had deposited the duty determined and the interest even prior to determination of it by the Central Excise Officer but 25% of the penalty amount was not deposited by it within 30 days of the order which means it disentitled itself from the benefit of the reduced penalty as per the second proviso to Section 11 AC of the Act.
It was further noted that the decision of the Delhi High Court in the case of K.P. Pouches Pvt. Ltd. - 2008-TIOL-240-HC-DEL-CX, laying down that the adjudicating authority could have demanded 100% of the duty amount by way of penalty only if it had given an option to the assessee to pay 25% of the duty amount by way of penalty and since this was not done the authority was in error in demanding 100% of the duty by way of penalty, was clearly distinguished by the Division Bench of the Bombay High Court in Commissioner of Central Excise, Raigad Vs. Castrol India Ltd. - 2012-TIOL-464-HC-MUM-CX and followed with approval by the Division Bench of the Delhi High Court in Principal Commissioner of Service Tax, Delhi-II Vs. Tops Security Ltd. - 2015-TIOL-2751-HC-DEL-ST wherein it also held, following the decision of the Gujarat High Court in Commissioner Vs. Ratnamani Metals and Tubes Ltd. - 2013-TIOL-1124-HC-AHM-CX, that it is not mandatory upon the adjudicating authority to draw the attention of the assessee to the benefit of the reduced penalty under the proviso to Section 11AC of the Act.
Conclusion: The assessee not having deposited the said amount of 25% of the duty by way of penalty within 30 days of the communication of the order determining the duty and penalty, the assessee dis-entitled itself from the benefit of the reduced penalty.
Held: The benefit of the reduced penalty is available to the assessee only if he deposits the tax, interest and the amount of penalty within 30 days of the communication of the order of the adjudicating authority.
The appeal was dismissed.
In passing:
+ Also see - CX - No fault can be found in Commissioner (A) giving assessee option to pay reduced amount of penalty equivalent to 25% of duty so determined: High Court
+ It is seen that these provisos to section 11AC of the Act have been specifically inserted to ensure speedy recoveries of the disputed amount. It is an incentive given to the assessee that if he pays the duty amount along with interest, the penalty is reduced to 25% of the duty. This provision is beneficial to the Department as well as the assessee as rightly pointed out by Delhi High Court and, therefore, the assessee should be made aware of the option available to him. [F. No. 208/07/2008-CX-6, Dated: May 22, 2008]
+ Issuance of SCNs for levy of penalty in the cases where service tax is paid suo-moto by the assessee-reg - 4. … conclusion of proceeding in terms of sub-section (1A) and (3) of section 73 implies conclusion of entire proceedings under the Finance Act, 1994 [F.No. 137/167/2006-CX.4 Dated: October 03, 2007]
+ Closure of cases under Section 73(3) of the Finance Act of 1994 - Reg. Standing Order 01/2008, Dated: June 25, 2008]
(See 2017-TIOL-1599-HC-ALL-CX)
