Commissioner Of Central Excise v. Customs,Excise And Service Tax

In the High Court of Judicature at Madras Dated: 30.01.2015 Coram The Honourable Mr.JUSTICE R.SUDHAKAR and The Honourable Mr.JUSTICE R.KARUPPIAH Civil Miscellaneous Appeal No.176 of 2007 Commissioner of Central Excise, Pondicherry Commissionerate, Goubert Avenue, Beach Road, Pondicherry - 605 001.

.... Appellant / Petitioner Vs.

1. Customs, Excise & Service Tax Appellate Tribunal, Chennai, Southern Regional Bench, Chennai - 600 006.

2. M/s.Sri Bharati Mills, Mudaliarpet, Pondicherry - 605 004..... Respondents/Respondents APPEAL under Section 35G of the Customs Act against the order dated 02.06.2006 made in Final Order No.479 of 2005 on the file of the Customs, Excise and Service Tax Appellate Tribunal, Chennai. (Appeal No.94/2004 (P) dt.24.11.04 on the file of the Commissioner of Central Excise (Appeals) 26/1, Mahatma Gandhi Road, Chennai-34 against C.No.V/ch.52/15/20/2003 CX-ADJ dt.30.6.2004 on the file of the office of the Commissioner of Central Excise, Pondicherry. For Appellant : Mr.S.Thirumavalavan Standing Counsel For Respondent : No appearance - R2

J U D G M E N T

(Delivered by R.SUDHAKAR,J.) This Civil Miscellaneous Appeal filed as against the order of the Customs, Excise and Service Tax Appellate Tribunal was admitted by this Court on the following substantial questions of law: " 1. Whether the Tribunal is right in not considering the issue that the exercise of discretion in favour of the 2nd respondent/assessee in reducing the penalty imposed was unwarranted and uncalled for?

2. Whether the 2nd respondent/assessee is entitled for any special consideration as it is a Government of India enterprise especially when the 2nd respondent/assessee suppressed material facts to the Department and effect statutory compliance?

3. Whether the Tribunal erred in not appreciating that the 2nd respondent/assessee failed to discharge their statutory obligation in making a proper declaration inasmuch as their exists no mitigating circumstance to exercise discretion in reducing penalty?"

2. The brief facts of the case are as follows: The second respondent/assessee are the manufacturers of cotton yarn and man made yarn falling under Chapter 52 and 55 respectively of the First Schedule to the Central Excise Tariff Act, 1985. They removed modvat availed inputs without payment of duty, as stipulated under Rule 57F(3)(a)/Rule 57AB(I)(b) of the erstwhile Central Excise Rules 1944 and Rule 3(4) of Cenvat Credit Rules, 2001 during the period 06.04.98 to 28.12.01. Since they failed to raise invoices for the removal of such credit availed inputs as stipulated under the above-said Rules, show cause notice dated 31.3.2003 was issued to the assessee proposing to demand duty under Section 11A(1), interest under Section 11AB and penalty under Section 11AC of the Central Excise Act, 1944.

3. After analyzing the reply filed by the assessee in response to the show cause notice, the Adjudicating Authority adjudicated the case and made the following demand:

"I demand Rs.8,16,316/- (BED-Rs.7,10,708/- and AED - Rs.1,05,608/-) Rupees Eight Lakhs sixteen thousand three hundred and sixteen only) being the Central Excise duty payable on the inputs removed as such under Sub-section 2 of Section 11A of the Central Excise Act 1944 read with erstwhile Rule 12 of Cenvat credit Rules, 2001.

2. I also demand interest at the appropriate rate under Section 11AB of the Central Excise Act, 1944.

3. I also impose a penalty of Rs.8,16,316/- (Rupees Eight lakhs sixteen thousand three hundred and sixteen only) on M/s.Sri Bharathi Mills, Pondicherry under Section 11AC of the Central Excise Act, 1944."

4. Aggrieved by the said order of the Adjudicating Authority, the assessee filed an appeal before the Commissioner (Appeals), who upheld the order of the Adjudicating Authority demanding duty, except to reduce the penalty to the extent of Rs.1.00 lakh.

5. As against the said order of the Commissioner (Appeals) reducing the penalty, the Revenue preferred an appeal before the Tribunal. It is relevant to note that as against the order confirming the demand of duty, the assessee did not file any appeal before the Tribunal and hence, the said order of the Commissioner (Appeals) upholding the demand of duty had become final.

6. The Tribunal, after hearing both sides dismissed the appeal holding as follows:

"2. After examining the records and hearing both sides, I find that the lower appellate authority has sustained the findings recorded by the original authority

for imposing penalty on the respondents under Section 11AC. However, in the facts and circumstances of the case, the penalty (equivalent to duty) imposed by the original authority was held to be too high and the same was reduced as above. The appellant is aggrieved by this reduction of penalty. Learned Commissioner (Appeals) has examined the circumstances of the case and exercised his discretion in the matter of imposing penalty. I do not think that it is proper for this Tribunal to interfere with such exercise of discretion. It may not be an irrelevant consideration that the party penalised is a Public Sector Undertaking. Considering this and other aspects of the case, I find that learned Commissioner (Appeals) has reduced the penalty to a reasonable level in sound exercise of discretion.

It is settled law that the penalty prescribed under Section 11 AC is the maximum which is imposable under that provision on an offender and that a lesser penalty can be imposed on him, having regard to the peculiar circumstances of the case. It is from this settled position of law that the above discretion emanates and the same has been correctly exercised by the lower appellate authority.

3. In the result the appeal gets dismissed."

7. This order of the Tribunal is now under challenge in this appeal by the Revenue on the above-mentioned substantial questions of law.

8. Heard learned Standing Counsel appearing for the appellant and and perused the materials placed before this Court. Even though notice has been served on the second respondent, none appears for the second respondent.

9. 7. As is evident from the facts of the case, here is a case of adjudication invoking the extended period proviso to Section 11A

(1) of the Central Excise Act. In such circumstances, the decision of the Larger Bench of the Supreme Court in the decision reported in 2008 (231) E.L.T. 3 (S.C.) (Union of India V. Dharamendra Textile Processors) makes it very clear that penalty under Section 11AC is imposable.

10. While considering the pari materia provision, namely, Section 11AC of the Central Excise Act, the Supreme Court in the decision reported in 2008 (231) E.L.T. 3 (S.C.) (Union of India V. Dharamendra Textile Processors), held as follows: "26. In Union Budget of 1996-97, Section 11AC of the Act was introduced. It has made the position clear that there is no scope for any discretion. In para 136 of the Union Budget reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the Notes on Clauses also the similar indication has been given.

27. Above being the position, the plea that the Rules 96ZQ and 96ZO have a concept of discretion inbuilt cannot be sustained. Dilip Shroff's case (supra) was not correctly decided but Chairman, SEBI's case (Supra) has analysed the legal position in the correct perspectives. The reference is answered...."

11. The above-said decision was followed by the Supreme Court in the case of Union of India V. Rajasthan Spinning and Weaving Mills reported in JT 2009 (7) SC 314 = 2009 (238) E.L.T. 3 (S.C.), wherein, the Supreme Court held as follows:

"23. The decision in Dharamendra Textile must, therefore be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. That is what Dharamendra Textile decides.

24. It must, however, be made clear that what is stated above in regard to the decision in Dharamendra Textile is only in so far as Section 11AC is concerned. We make no observations (as a matter of fact there is no occasion for it!) with regard to the several other statutory provisions that came up for consideration in that decision.

25. In the light of the discussion made above it is evident that in both the appeals, orders were passed by the Tribunal on a wrong premise. In both the appeals, therefore, the impugned orders passed by the Tribunal are set aside and the matters are remitted to the respective Tribunals for fresh consideration, in accordance with law, and in the light of this judgment...."

12. Following the above-said decisions, this Court by order dated 12.12.2014 in C.M.A.No.1099 of 2008 allowed the appeal filed by the Revenue answering the questions of law with regard to the issue on penalty levied under Section 11AC of the Central Excise Act in favour of the Revenue.

13. In view of the categorical statement of law and taking note of the specific provision of Section 11AC of the Central Excise Act, we are of the view that the Tribunal is not justified in confirming the order of the Commissioner (Appeals), who reduced the penalty imposed under Section 11AC of the Central Excise Act. Such a mandate under the Statute cannot be given a go-by by the Tribunal. We therefore, answer the questions of law in favour of the Revenue.

14. In the light of the above, following the above-said decisions, the questions of law raised and admitted are answered in favour of the Revenue and against the assessee. Accordingly, the order of the Tribunal stands set aside and this Civil Miscellaneous Appeal stands allowed. No costs.

Sd/- Assistant Registrar Dated:17.2.15 True Copy Sub Assistant Registrar To

1. The Customs, Excise and Service Tax Appellate Tribunal, Chennai.

2. The Commissioner of Central Excise (Appeals), Chennai.

3. The Commissioner of Central Excise, Pondicherry. +1 cc to Mr.S.Thirumavalavan, Advocate,SR.4666. br(co) krd 21/2 C.M.A.No.176 of 2007