IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH.
CEA No. 17 of 2006
Date of Decision: December 16, 2009
Commissioner Central Excise, Ludhiana
...Appellant
Versus
M/s Garg Concast Ltd.
...Respondent
CORAM: HON'BLE MR. JUSTICE M.M. KUMAR
HON'BLE MR. JUSTICE JASWANT SINGH
Present: Mr. H.P.S. Ghuman, Senior Standing Counsel,
(Indirect Taxes), for the appellant.
Mr. Rajesh Garg, Advocate,
for the respondent.
1. To be referred to the Reporters or not? Yes
2. Whether the judgment should be reported in Yes
the Digest?
M.M. KUMAR, J.
This order shall dispose of CEA Nos. 10 and 17 of 2006
because common question of law and facts are involved. However,
the facts are being referred from CEA No. 17 of 2006. These appeals
have been filed by the Revenue under Section 35G of the Central
Excise Act, 1944 (for brevity, ‘the Act’). In C.E.A. No. 10 of 2006,
the order dated 7.9.2005, passed by the Customs, Excise and Service
Tax Appellate Tribunal, New Delhi (for brevity, ‘the Tribunal’) is the
subject matter of challenge, whereas in C.E.A. No. 17 of 2006, the
CEA No. 17 of 2006 2
order dated 13.7.2005, passed by the Tribunal has been challenged.
The Tribunal in the aforementioned orders has taken the view that the
amount of penalty under Section 11AC of the Central Excise Act,
1944 (for brevity, ‘the Act’) could be reduced in the facts and
circumstances of a particular case and accordingly it could has either
dropped the penalty or have reduced the same. The Tribunal has also
opined by placing reliance on its larger bench judgment in the case of
CCE v. Machino Montell (I) Ltd., 2004 (168) ELT 466, holding
that where the duty has been deposited by the dealer-assessee before
issuance of show cause notice by the revenue then neither penalty
could be imposed nor any interest could be demanded. Accordingly,
the revenue has claimed by filing these appeals under Section 35G of
the Act that the following substantive question of law would arise for
determination of this Court:
“Whether penalty under Section 11AC of the Central
Excise Act, 1944, in cases where any duty of excise has
not been levied or paid or has been short-levied or short
paid by reasons or fraud, collusion or any willful
misstatement 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, is
mandatory or discretionary in nature?”
Brief facts as culled out from CEA No. 17 of 2006 are
that the premises of the dealer-assessee was searched by the officers
of the revenue on 23.8.2005. An envelop containing a sum of Rs.
CEA No. 17 of 2006 3
23,060/-, bearing the name ‘Balraj Garg’ was recovered from the
pocket of Shri Mohammad Ikhlaq, who was the director of the dealer-
assessee. The same was seized under Section 110 of the Custom Act,
1962 (for brevity, ‘the Custom Act’) on the presumption that the
amount of cash represented the sale proceeds of ingots cleared
without payment of Central Excise Duty. The search team upon
physical verification of stock found that there was shortage of
finished goods and raw materials. The statement of Shri Mohammad
Ikhlaq was recorded under Section 14 of the Act wherein he stated
that the envelop containing money was given to him by one Shri
Phool Chand informing that the same was to be handed over to Shri
Balraj Garg and the money was part of the payment in respect of
clearances effected by them without issuing invoices. Shri
Mohammad Ikhlaq also admitted the shortage of finished goods and
raw material; the same were removed by them clandestinely from the
factory without payment of duty and without cover of Central Excise
invoice. It was sold in local market. He also explained that the
shortage has occurred on account of use of raw material in the
manufacture of steel ingots, which were cleared without accounting
for in the statutory records and without payment of Central Excise
duty. He also admitted the factum of manufacture and clearance of
200 MT of ingots without payment of duty and other shortcomings.
A show cause notice under Section 121 of the Custom
Act was issued to the dealer-assessee for confiscation of seized cash
amounting to Rs. 23,060/- and for recovery of duty amounting to Rs.
CEA No. 17 of 2006 4
5,52,484/- under Section 11A along with interest under Section 11AB
as well as proposing penalty under Section 11AC of the Act.
On the basis of the aforesaid show cause notice, the
Joint Commissioner-cum-Adjudicating Authority held that there is
categorical admission by Shri Mohammad Ikhlaq, the Director of M/s
GCL in his statement in writing that a khaki envelope containing an
amount of Rs. 23,060/- was recovered from his pocket, which was
given to him by Shri Phool Chand, who had informed him to hand
over the same to Shri Balraj Garg, Director of M/s GCL. The
amount was part of the payment in respect of clearance effected by
them without issuing invoices and without payment of duty. The
Order-in-Original further noticed that the shortage of finished goods
and raw material was also admitted, which have been tabulated as
under:-
Sr. Description of Recorded Material Difference
No. goods Balance as Physically
per records found
1. Alloy Steel 54.310 MT 46.050 MT (-) 8.260 MT
Ingots
2. Ferro Alloys 19.066 MT 11.300 MT (-) 7.760 MT
3. Imported scrap 140.855 120.46 MT (-) 20.855 MT
MT
4. Sponge Iron/ 216.835 193.240 MT (-) 23.595 MT
indigenous scrap MT
In respect of shortage of 8.260 MT Alloy Steel Shri
Mohammad Ikhlaq had stated that the goods were removed by them
clandestinely from the factory without payment of duty and without
CEA No. 17 of 2006 5
cover of Central Excise invoice, which were sold in the local market.
The purchaser from the local market included M/s Garg Forging and
M/s Nandan Auto Tech., Kanganwal Road, Ludhiana. The shortage
is stated to have accrued on account of use of raw material in the
manufacture of steel ingots which were cleared without accounting
for in the statutory records and without payment of Central Excise
Duty. The Order-in-Original, dated 3.6.2004, also noticed the details
which reads thus:-
” Also considering that 3200 kg of ingots are
manufactured from 120 kg of ferro alloys, 207.09 MT of
steel alloys ingots should have been manufactured from
the 7.766 MT of ferro alloys found short, in his statement
dated 23/24-8-2003, Sh. Mahammad Ikhlaq has also
admitted of having manufactured and cleared 200 MT of
ingots without payment of duty. The scrap found short
would accordingly have also got consumed in this
manufacturing activity. As per invoice nos. 209 dated
23-8-2003, 203 dated 21-8-2003, 200 dated 18-8-03, 199
dated 18.08.03, 198 dated 17-8-03, 197 dated 17-8-03,
196 dated 16-8-03 the alloy steel ingots have been self
assessed by M/s GCL @ Rs. 16034.48 PMT (ex-duty).
Taking this value the assessable value of alloy steel
ingots weighing 207.09 MT works out to Rs. 3320580/-.
The Excise duty on this @ 16% comes out to Rs.
531292.80, rounded off to Rs. 531293/-. Further duty
CEA No. 17 of 2006 6liability also arises on 8.26 MT of ingots found short.
This duty liability would work out to Rs. 21,191/- on the
same basis as above. He voluntarily to the duty involved
on the finished goods and raw material found short. His
voluntarily debiting Rs. 5 lacs, is his admission of his
guilt.”
Accordingly, in view of the aforesaid categorical
findings the following order was passed:-
“i) I confirm the seizure of Rs. 23060/- representing
the sale proceeds of goods removed clandestinely
without payment of Central Excise Duty.
ii) I confirm the demand of Rs. 5,52,484/- (Rs. Five
lac fifty two thousand four hundred and eighty four
only) and the same be recovered from them under
Section 11A of the Central Excise Act, 1944 and
amount of Rs. 5.00 lacs already deposited is
adjusted against the duty liability.
iii) I order charging of interest under Section 11AB.
iv) I impose penalty of Rs. 5,52,484/- (Rs. Five lac
fifty two thousand four hundred and eighty four
only) under Section 11AC of the Act read with
Rule 25 of the Rules.
v) I impose a penalty of Rs. 1,50,000/- (Rs. One lac
fifty thousand only) on Sh. Balraj Garg under Rule
26 of the Rules.
CEA No. 17 of 2006 7
vi) I impose a penalty of Rs. 1,00,000/- (Rs. One lac
only) on Sh. Mahammad Ikhlaq under Rule 26 of
the Rules.
vii) I impose a penalty of Rs. 50,000/- (Rs. Fifty
thousand only) on Sh. Phool Chand under Rule 26
of the Rules.”
On further appeal, the Commissioner (Appeal) reduced
the penalty to Rs. 2,00,000/- although demand of Rs. 5,52,484/- for
payment of duty was upheld. The Tribunal, in the impugned order
reduced the penalty further to Rs. 50,000/- by observing as under:-
“6. The perusal of the records also reveals that rupees
five lakh, out of the duty amount were deposited
by the appellants before issuance of the show
cause notice and the balance amount was deposited
by the appellants in terms of the Stay Order of the
Commissioner (Appeals). In C.C.E. Delhi-III vs.
Machino Montell (I) Ltd. Reported in 2004 (168)
E.L.T. 466, it was held by the Larger Bench of the
Tribunal that where the duty has been deposited
before issuance of the show cause notice by the
assessee, neither the penalty can be imposed nor
any interest can be demanded. Since the
appellants have deposited substantial amount of
duty before issuance of the show cause notice, the
penalty of rupees two lakh is on higher side and
CEA No. 17 of 2006 8the same is reduced to rupees 50000/-. However,
the penalty on the Director of the Company is set
aside in the light of the above detailed facts.
Accordingly, the impugned order stands modified
in the above terms. The appeals of the appellants
stand disposed of.”
The question whether the amount of penalty under
Section 11 AC could be reduced is now stand settled by the judgment
of Hon’ble the Supreme Court in the case of Union of India v.
Dharamendra Textile Processors, 2008 (231) E.L.T. 3 (S.C). It has
been categorically held that there is no discretion vested in the
Assessing Officer to reduce the amount of penalty. It is mandatory
for him to impose the penalty equivalent to the amount of duty
attempted to be evaded. The aforesaid judgment has again come up
for consideration before Hon’ble the Supreme Court in the case of
Union of India v. M/s Rajasthan Spinning & Weaving Mills, 2009
(238) E.L.T. 3 (S.C.). Reiterating and explaining the view taken in
the Dharamendra Textile’s case (supra), in para 23 of the judgment
following observations have been made:-
“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
CEA No. 17 of 2006 9quantifying the amount and penalty must be imposed
equal to the duty determined under sub-section 92) of
Section 11A. That is what Dharamendra Textile
decides.” (emphasis added)
When we apply the aforesaid judgment to the facts of the
present appeals there is not an iota of doubt that the Commissioner
(Appeals) and the Tribunal clearly fell in error in reducing the amount
of penalty contemplated by Section 11AC of the Act. From the facts
of the present case no doubt is left that there was fraudulent and
clandestine removal of goods with the intention to evade duty and
Section 11AC of the Act would, therefore, be attracted to the facts of
the present case. Therefore, there is no escape from the conclusion
that penalty equivalent to the amount of duty was imposable.
Accordingly, the appeal is allowed and the view taken by the Tribunal
as well as the Commissioner (Appeals) is set aside to the extent it has
reduced the amount of penalty. It is, thus, held that the amount of
penalty has to be equivalent to the amount of duty determined by the
Order-in-Original, dated 3.6.2004. The question of law is answered
in favour of the revenue and against the dealer-assessee.
(M.M. KUMAR)
JUDGE
(JASWANT SINGH)
December 16, 2009 JUDGE
Pkapoor