MARCH 05, 2011

New look Sec 11AC of CEA, 1944 ignores crucial requirements and trespasses neighbouring interest provision

By A Netizen

THE DO letter F.No. 334/3/2011-TRU dated 28.02.2011 of the JS(TRU-I) in paragraph 6 of gives the details of the ‘Important Legislative Amendments' proposed by the Finance Bill, 2011.

Interestingly, it fails to make a mention of the substitution being made to the existing section 11AC of the CEA, 1944 concerning penalty for short-levy or non-levy in certain cases. Whether it is a purposeful omission or otherwise is not known.

Each clause of what the new section 11AC portends is sought to be explained in the passage below the relevant provision.

“ 11AC . (1) The amount of penalty for non-levy or short-levy or non-payment 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 wilful 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 subsection (10) of section 11A shall also be liable to pay a penalty equal to the duty so determined;

[This provision is akin to the 11AC in vogue inasmuch as penalty would be equal to the duty as determined u/s 11A(10) of the CEA, 1944.]

(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 subsection (10) of section 11A shall also be liable to pay a penalty equal to fifty per cent of the duty so determined;

[This is a beneficial provision inasmuch as if the transactions on the basis of which the duty being demanded by invoking the extended period of limitation are available in the specified records [ means records including computerized records maintained by the person chargeable with the duty in accordance with any law for the time being in force ] then the penalty liable shall stand reduced to fifty per cent of the duty so determined. The primary question that arises is that if the transactions are available in the specified records what prevented the Department from issuing the demand notices within the normal period of limitation. If the justification offered is that it is the era of self assessment and hence the misfeasance went un-noticed, in all possibility we may have a lengthy legal battle ahead.

(c) where any duty as determined under sub-section (10) of section 11A and the interest payable thereon under section 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;

[This clause is present in the current section 11AC and it lays down that if the assessee pays the duty determined along with the interest payable u/s 11AA ( newly proposed ) within a period of thirty days from the date of communication of order of the Central Excise officer, he would be required to pay a penalty of only twenty five per cent of the duty so determined. However, the major change is that this benefit is available to assessees covered by transactions referred to in clause (b) ONLY. Incidentally, the section does not stipulate that this “25% penalty is also to be paid within the mandatory period of thirty days” as was prescribed earlier .]

(d) where the appellate authority 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.

[ It is interesting to note that this provision seeks to accommodate only those cases where the APPELLATE authority modifies the amount of duty of excise determined by the Central Excise officer. There is no leeway granted to those instances when the TRIBUNAL or the COURT modifies the amount of duty of excise determined. It is also pertinent to note that this provision makes a mention that the penalty and even interest payable would be modified accordingly. As to wherefrom section 11AC ( proposed ) assumes powers for reduction of INTEREST payable is not forthcoming. Moreover, section 11AA(1) [ proposed ] in unambiguous terms by employing a non-obstante clause declares that notwithstanding anything contained in any judgment, decree, order or direction of the Appellate Tribunal or any court [ Appellate authority not included ] the interest on delayed payment would be required to be paid on the amount determined under section 11A of the CEA, 1944. Can it, therefore, be taken that the modification [reduction or otherwise] in penalty and interest would be allowed only when the Appellate authority modifies the determination and not on other occasions.]

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.

[In the days to come, this would become a much maligned and debatable provision since it confers a discretionary power to the Central Excise officer adjudicating the case – What would happen if either the assessee or the department have a different view point on this “ opinion ” is anyone's guess?]

(2) Where the amount as modified by the appellate authority 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 in respect of such increased amount.”.

[Here again, the authority referred to is only the APPELLATE authority and not the Appellate Tribunal or the Court . The manner of payment of “interest” is also being spoken of – but under what authority can manner of computing interest be referred to in a section concerning penalty is not clear. Shouldn't the new section 11AA be taking care of these issues?]

We would have welcomed that the sections had been re-drafted with CARE rather than improving their sequence and simplifying their language.