CEA No. 5 of 2009 1
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH.
CEA No.5 of 2009
Date of decision 30 .4.2009
Commissioner of Central Excise Commissionerate, Rohtak ... Appellant
Versus
M/s J.R. Fabrics (P) Ltd. ... Respondents
CORAM: HON'BLE MR. JUSTICE M.M. KUMAR
HON'BLE MR. JUSTICE H.S. BHALLA
Present: Mr.Sanjeev Kaushik ,Advocate for the appellant
Mr. Jagmohan Bansal, Advocate for the respondent.
1. Whether Reporters of local papers may be allowed to see the judgement ?
2. To be referred to the Reporter or not ?
3. Whether the judgement should be reported in the Digest ?
M.M.KUMAR, J.
This is an appeal by the revenue filed under Section 35 G of the
Central Excise Act,1944 (for brevity ‘the Act’) challenging order dated
10.1.2008 passed by the Customs, Excise and Service Tax Appellate
Tribunal, New Delhi (for brevity ‘the Tribunal’). The revenue has claimed
that the following question of law would emerge from the said order of the
Tribunal:
” Whether CESTAT is correct in allowing the benefit of penalty
upto 25% of the duty amount in the case when the penalty so
determined was not paid by the party within the period of thirty
days which is the pre requirement to avail such benefit as per
the second proviso to Section 11 AC.?”
Brief facts of the case which are necessary for the disposal of the
controversy raised may first be noticed. The dealer- respondent M/s J.R.
CEA No. 5 of 2009 2
Fabrics (P) ltd. is engaged in the manufacture of unprocessed woven
fabrics, chenille fabrics and pile fabrics falling under Chapter 54, 55 and 58
of the Central Excise Tariff Act,1985.The dealer- respondent was registered
with the central excise department and was availing CENVAT credit
facility. It is conceded position that dealer- respondent was clearing its
fabrics without payment of duty which was detected when the officers of
central excise visited their factory on 13.2.2003. The non payment was
found on Chenille fabrics in respect of the period from 28.7.2001 to
28.2.2002 which was prior to the date of registration in March, 2002. The
dealer- respondent conceded their default and deposited the amount of duty
alongwith interesting amount to Rs. 5,10,995/- levied on the chenille fabrics
valued at Rs. 31,93,719/-. The aforesaid amount was paid even before the
issuance of show cause notice on 15.2.2003 and 18.2.2003.The dealer-
respondent also deposited a sum of Rs. 1,11,373/- on 27.10.2003 before
issuing of show cause notice. The dealer- respondent admitted their liability
vide their reply dated 13.3.2004 and also pointed out that the amount of
duty alongwith interest had already been paid which may be appropriated as
legally paid. Accordingly the Adjudicating Authority passed an order in
original on 30.4.2004 holding as under:
“1. Central Excise duty of Rs. 5,10,995/- (rupees five lacs
ten thousand nine hundred ninety five only) leviable on the
Chenille fabrics valued at Rs.31,93,719 cleared without
payment of duty is confirmed against M/s J.R.Fabrics (P) Ltd.,
Kundli under Section 11 A of Central Excise Act,1944 by
applying extended period of limitation and the aid duty which
has already been paid by them vide PLA entry No.50 dated
CEA No. 5 of 2009 315.2.2003 for Rs.6300/- and entry no.52 dated 18.2.2003 for
Rs.5,04,695/- is appropriated as legally paid.
2. I order for the payment of interest Rs.1,11,373/- as demanded
from the party for delayed payment of duty, under Section 11
AB of the Central Excise Act,1944. As the said interest has
already been paid by the party vides PLA entry No. 8 dated
27.10.2003 is appropriated as legally paid.
3.I impose a penalty of Rs.5,10,995/- on the party under Rule
25 of Erstwhile Central Excise (No.2) rules, 2001 read with
Section 11 AC and 38 A of the Act ibid;
4. I also impose a penalty of Rs. 1,00,000/- on Sh. Satish
Gupta, Managing Director of the party under Rule 26 of
Erstwhile Central Excise (No.2) Rules, 2001.”
The aforesaid order was challenged in appeal before the
Commissioner who modified the order in original by holding that there was
nothing on the record which could prove personal involvement of Shri
Satish Kumar, Managing Director of the dealer- respondent company so as
to attract the penalty of Rs. 1,00,000/- under Rule 26 of the Central Excise
(Part 2) Rules, 2001 or which could prove that he had made some personal
gain out of the Chenille fabrics which was the good in question. Thereafter
the dealer- respondent further preferred an appeal before the Tribunal. The
Tribunal has held that the dealer- respondent was liable to pay only 25
percent of duty amount as penalty by placing reliance on a judgement of the
Delhi High Court in the case of CCE v. Malbro Appliances Private Ltd.
2007(208) ELT 503. The view of the Tribunal reads thus:
“………. I find that it is clear case of suppression of fact with
CEA No. 5 of 2009 4intent to evade payment of duty and Section 11 AC would be
invoked in this case. The Hon’ble Delhi High Court in the case
of Malbro Appliances Pvt. Ltd. (supra) held that the assessee
paid duty before issue of show cause notice; the Tribunal
rightly worked out penalty amount to close to 25% of the duty
determined. Respectfully following the decision of the Hon’ble
High Court, penalty is reduced to Rs. 1,27,000/- i.e. 25% of the
duty amount as the respondent deposited duty before issue of
show cause notice. The appeal is disposed of in the above
terms.”
Mr. Sanjeev Kaushik, learned counsel for the revenue has vehemently
argued that provisions of Section 11 AC of the Act has now been interpreted
by Hon’ble the Supreme Court in the case of Union of India v. Dharmendra
Textile Processors 2008(231 )ELT 3(SC). According to the learned counsel
a plain reading of 2nd proviso to Section 11 AC of the Act would make it
clear that equal amount of duty found to be paid to the revenue is to be
realised as penalty and therefore the amount of 25% imposed by the
Tribunal as penalty is liable to be set aside.
Mr. Jagmohan Bansal, learned counsel for the dealer-
respondent has, however, submitted that the Tribunal has taken the correct
view and the judgement of Hon’ble the Supreme Court in Dharmendra
Textile’s case (supra) would not be applicable to the facts of the present
case. Learned counsel has drawn our attention to proviso to sub section 2 of
section 11 AC of the Act and argued that where duty is determined and the
interest payable thereon under Section 11 AB of the Act is paid within 30
days from the date of communication of the order of the officer determining
CEA No. 5 of 2009 5
such duty then the amount of penalty has to be 25% of the duty so
determined. He has further submitted that dealer- respondent has been
deprived of the opportunity to pay 25% of the duty because no benefit of the
proviso was extended to the dealer respondent by imposing penalty
equivalent to 25% of the duty amount. He has highlighted that once the
dealer- respondent has deposited the amount of duty as well as the interest
much prior to the date of assessment order drawn under section 11(2) of the
Act then there was no question of delay in depositing the amount of penalty
equivalent to 25% of the total duty. He has maintained that the adjudicating
authority as well as the first appellate authority had illegally insisted on
imposition of penalty equivalent to the amount of duty which has been
patently contrary to Ist proviso to Section 11 AC of the Act.
After hearing hearing learned counsel for the parties and
perusing the record with their able assistance we find that in order to
answer the question raised by the revenue it would be first necessary to read
Section 11 AC of the Act which is as under:
“11AC. Penalty for short-levy or non-levy etc., in certain
cases: Where any duty of excise has not been levied or paid or
has been short-levied or short-paid or erroneously refunded by
reasons of fraud, collusion or any willful mis-statement or
suppression of facts or contravention of any of the provisions
of this Act or of the rules made there under with intent to evade
payment of duty, the persons who is liable to pay duty as
determined under sub-section (2) of section 11A, shall also be
liable to pay a penalty equal to the duty so determined:
[Provided that where such duty as determined under sub
CEA No. 5 of 2009 6section (2) of section 11 A, and the interest payable thereon
under section 11 AB , is paid within thirty days from the date of
communication of the order of the Central Excise Officer
determining such duty, the amount of penalty liable to be paid
by such person under this section be twenty five percent of the
duty so determined:
Provided further that the benefit of reduced penalty under
the first proviso shall be available if the amount of penalty so
determined has also been paid within the period of thirty days
referred to in that proviso:
Provided also that where the duty determined to be payable is
reduced or increased by the Commissioner (Appeals), the
Appellate Tribunal or, as the case may be, the court, then, for
the purposes of this section, the duty, as reduced or increased,
as the case may be shall be taken into account:
Provided also that in case where the duty determined to be
payable is increased by the Commissioner (Appeal), the
Appellate Tribunal or, as the case may be, the court, then, the
benefit of reduced penalty under the first proviso shall be
available, if the amount of duty so increased the interest
payable thereon and twenty-five per cent of the consequential
increase of penalty have also been paid within thirty days of the
communication of the order by which such increase in the duty
takes effect.
Explanation: – For the removal of doubts, it is hereby declared
that-
CEA No. 5 of 2009 7
(1) the provisions of this section shall also apply to cases in
which the order determining the duty under sub-section (2) of
section 11A relates to notices issued prior to the date on which
the Finance Act, 2000 receives the assent of the President;
(2) any amount paid to the credit of the Central Government
prior to the date of communication of the order referred to in
the first proviso or the fourth proviso shall be adjusted against
the total amount due from such person.
A perusal of Section 11 AC of the Act shows that an amount equal to
the amount of duty as determined by the Central Excise Officer under
Section 11 A(2) of the Act is required to be paid by the assessee where any
duty of excise has not been (a) levied or paid or (b) has been short paid or
(c) erroneously refunded by the reason of fraud collusion or any willful mis-
statement or suppression of facts or (d) contravention of any of the
provisions of this Act or the Rules made thereunder with intent to evade
payment of duty. The aforesaid principal clause has four provisos. The first
two provisos postulate a concessional rate of penalty in case the amount of
duty as determined under sub section 11 A (2) of the Act and the interest
payable thereon under Section 11 AB of the Act stand paid within thirty
dates from the date of communication of the order of the officer determining
such duty. In such a case the amount of penalty has been stipulated to be
25% of the duty so determined.
The second proviso further imposes an obligation that the
benefits contemplated by first proviso are to be available if the amount of
penalty so determined has also been paid within a period of thirty days. In
other words, if the duty as determined under Section 11 A(2) of the Act by
CEA No. 5 of 2009 8
the Central Excise Officer is paid within thirty days then penalty equal to
the amount of duty is not required to be paid and the amount contemplated
in lieu of the penalty is 25 % of the total amount of excise duty determined
the officer concerned.
It would further be necessary to notice that 3rd proviso takes
care of a situation where duty determined to be payable is reduced or
increased by the Commissioner (appeals), Appellate Tribunal or by this
Court then duty as reduced or increased is required to be taken into
account. The provision takes care of fluctuation in the assessment of duty at
the appellate stage. However, in the present case there is no increase or
decrease in the assessment of duty of excise. The alteration has been
ordered by the Tribunal in the order of the Commissioner ( Appeals) by
reducing the amount of penalty to 25% of the total amount of duty of
excise assessed by the Assessing Authority. Therefore, we are of the view
that the appeal filed by the Revenue is liable to be rejected.
It is appropriate to notice that the period in question is
28.7.2001 to 28.2.2002 and there is no dispute that the proviso added by Act
No. X of 2000 is made applicable w.e.f. 12.5.2000 would apply which
provides that an amount equal to 25% of the amount of duty of excise would
be liable to be paid as penalty if the amount of duty of excise is paid within
thirty days from the date of communication of the order by the Central
Excise Officer.
When we examine the facts of the present case in the light of
the aforesaid provision, it becomes evident that the total amount of duty
amounting to Rs. 6,300/- was paid on 15.2.2003 and amount of Rs.
5,04,695/- was paid on 18.2.2003. Accordingly a total amount of excise
CEA No. 5 of 2009 9
duty of Rs. 5,10,995/- stood paid by 18.2.2003 whereas adjudicatory order
in original was issued on 30.4.2004. It is further appropriate to mention that
the dealer- respondent had also deposited interest of Rs.1,11,373/- on
27.10.2003 which has been appropriated by the order in original passed on
30.4.2004 (A.1).
The order in original also imposes penalty of Rs. 5,10,995/-
which is equal to the amount of duty of excise assessed by the Adjudicating
Authority. It is thus evident that acting on 2nd proviso the amount of penalty
to the extent of 25% could not have been deposited and order was passed by
the Adjudicating Authority in derogation of the express provision made by
the 2nd proviso and there was no opportunity for the dealer- respondent to
deposit 25% of the amount. Accordingly he challenged the order in appeal
where again the demand of penalty equivalent to duty of excise was
maintained (although some relief was given regarding personal penalty
imposed on Shri Satish Kumar, Managing Director). It was thereafter that an
appeal was filed and the Tribunal reduced the penalty to 25% of the total
amount of duty of excise as assessed by the concerned officer. The Tribunal
had primarily placed reliance on a judgement of the Delhi High Court in the
case of Malbro Applicances (Private) Ltd. (supra).
The conclusion reached by the Tribunal is correct. However, it
seems that the reasoning followed by the Tribunal is not in accordance with
the law. The amount of 25% imposed as penalty is not because any
discretion is vested in the Court or the Tribunal but because of 1st and 2nd
provisos incorporated by the Parliament( by Act No. X of 2000) w.e.f.
12.5.2000. Therefore, the Tribunal should not have committed the same
error that merely because the amount of duty has been deposited before the
CEA No. 5 of 2009 10
issuance of show cause notice that imposition of penalty becomes illegal or
lenient view was required to be taken.
The view taken by the Delhi High Court in Malbro Appliances
Private Ltd.’s case (supra) was also examined in detail by a Division Bench
of the same Court in the case of K.P.Pouches (P) Ltd v. Union of India
2008 (228) ELT 31. After reading Section 11 AC of the Act, the Division
Bench came to the conclusion that according to the proviso only 25% of the
duty of excise was payable. The facts of the present case are akin to the
facts of the Division Bench judgement in K.P.Pouches (P) Ltd. case (supra).
It has been held by the Division Bench that when the statutory authorities
are acting illegally and contrary to the 1st proviso to Section 11 AC of the
Act and therefore the assessee cannot be faulted to challenge the order
passed by the Assistant Commissioner which fault was also repeated by the
Commissioner (Appeals). The situation is the same in the present case. We,
therefore, respectfully agreeing with the view taken by the Division Bench
in K.P. Pouches (P) Ltd.’s case (supra) hold that the conclusion reached by
the Tribunal that the dealer- respondent was liable to pay penalty to the
extent of 25% of the amount of duty of excise determined by the officer
concerned.
The argument of the Revenue that the judgement in
Dharmendra Textile Processor’s case (supra) would apply and penalty equal
to the amount of duty of excise assessed by the Assessing Authority is to be
paid. We are afraid that such an argument would not be available because
judgement in Dharmendra Textile Processor’s case (supra) dealt with
Section 11 AC of the Act and has concluded the mandatory nature of the
penalty contemplated by the proviso . In para 26, reference has been made
CEA No. 5 of 2009 11
to the Union Budget of 1996-97, when Section 11 AC of the Act was
introduced. It was then clarified that there was no scope for any discretion
and the levy of penalty is of mandatory character. Hon’ble the Supreme
Court further placed reliance on the Notes on Clauses concluding that
similar indication has been given therein. It appears that provisos 1st and 2nd
which were added in the year 2000 were not the subject matter of
consideration before their Lordships in Dharmendra Textile Processors’
case (supra). Therefore, we find no substance in the contention raised on
behalf of the revenue especially in the face of express provision made by the
four provisos in the year 2000.
For the reasons afore-mentioned this appeal fails and the same
is dismissed. The dealer- respondent shall deposit the penalty equivalent to
25% of the duty of excise determined by the excise officer within 30 days
from the date of receipt of a copy of this order. A copy of this order shall be
given to the counsel for the dealer- respondent, after due attestation, under
the signature of the bench Secretary at the earliest.
Before parting it is necessary to observe that the Tribunal is
required to take into account the correct rationale of law as per statutory
provisions rather than following the judicially condemned approach. A
copy of this order be also sent to the Tribunal.
(M.M.Kumar)
Judge
(H.S. Bhalla )
30.4.2009 Judge
okg