M/S Chandra Metal Enterprises vs Dy. Commissioner Central Excise ...
2015 Latest Caselaw 2801 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

AFR    
 
Court No.37
 

 
Central Excise Appeal No. 190 of 2013
 

 
M/s Chandra Metal Enterprises..........Appellant
 

 
                                            Vs. 
 
      Deputy Commissioner, 
 
      Central Excise, Agra 	                    ...... Respondent
 

 
 
 
Hon'ble Tarun Agarwala, J.

Hon'ble Surya Prakash Keserwani, J.

(Per: Tarun Agarwala, J.)

We have heard Sri Suyash Agrawal, the learned counsel for the appellant and Sri Ashok Singh, the learned counsel fort the Department.

The present appeal is directed against the order of the Tribunal by which the appeal of the revenue was allowed. The short question, which arises for consideration in this appeal is whether the appellant was entitled to the first and second proviso to Section 11AC of the Central Excise Act, 1944 with regard to the payment of penalty to the tune of 25%. This question has been settled by a decision of this Court dated 09.08.2012 in Central Excise Appeal Deffective No. 23 of 2012, M/s Kotsons Ltd. Vs. Asstt. Commissioner, Central Excise and another as well as a decision of this Court dated 30.09.2015 in Civil Misc. Writ Petition (Tax) No. 1661 of 2009, M/s Chandra Kamal Corporation and another Vs. Union of India and others.

In the instant case, the operrative portion of the order in original is extracted hereunder:

"I confirm the demand of Central Excise duty amounting to Rs. 93,112.00 (BED-Rs.69,600.00+ Education Cess-Rs. 1392.00+Secondary & Higher Education Cess-Rs. 696.00, under Section 11A(1) of the Central Excise Act, 1944 and as they have already deposited the said Central Excise duty vide GAR-7 No. 013 dated 15.07.2009, the same is appropriated.

I further impose a penalty to the duty amount i.e. Rs. 93,112/- upon M/s Chandra Metal Enterprises, E-24, Foundry Nagar, Hathras Road, Agra, under Rule 25 of Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944 for surreptitious removal of the goods in this case.

I also confirm the interest demanded under the provisions of Section 11AB Central Excise Act, 1944."

From the aforesaid, it is clear that the penalty equal to the duty amount of Rs. 93,112.00 was imposed. It is also clear that the duty had already been deposited prior to the issuance of the show cause notice. We also find that the Superintendent,Central Excise, Agra had issued an order dated 01.08.2013 in which it was indicated that the appellant had deposited a sum of Rs.23,278.00 i.e. 25% of the penalty.

In K.P. Pouches (P) Ltd. vs. Union of India, 2008 (228) E.L.T. 31, the entire duty amount was paid well before the show cause notice. The adjudicating authority while determining the duty directed the assessee to pay 100% of the duty amount by way of penalty. The Delhi High Court held, that where the assessee had deposited the entire duty amount well before the show cause notice, the assessee was liable to pay only 25% of the duty amount as penalty and that the adjudicating authority could not demand more than 25% of the duty amount by way of penalty, in view of the first proviso to Section 11AC of the Act. Based on the said order of the Delhi High Court, the Central Board of Excise and Customs issued a circular dated 22.5.2008. For facility, the said circular is extracted hereunder:

"F. No.208/07/2008-CX-6

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs

***

New Delhi dated the May 22 , 2008

To

The Chief Commissioner of Central Excise (All)

The Chief Commissioner of Customs and

Central Excise (All)

The Director Generals (All)

The Commissioner of Central Excise (All)

The Commissioner of Central Excise (Appeals)

(All)

Subject: Observation of Delhi High Court regarding first proviso to section 11AC .

Sir/Madam,

A reference has been received by the Board inviting its attention to the Delhi High Court judgment in the case of K.P. Pouches (P) Ltd [2008-TIOL-240-HC-DEL-CX]. In para 27 of the order, the High Court has opined that the adjudication authority should explicitly state the option available to the assessee under section 11AC of the Act in its adjudication order.

2. The matter has been examined . The first and second proviso to section 11AC of the Act read as follows;

"Provided that where such duty as determined under sub-section (2) of section 11A, and the interest payable thereon under section 11AB, 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 persons under this section shall 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: "

It is seen that these proviso 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.

3. In view of the points as discussed above, Board has decided that in all the cases, wherein penalty under section 11AC of the Act is imposed, the provisions contained in first and second proviso to section 11AC should be mandatorily mentioned in the Order-in-Original itself by the adjudicating authority.

4. The field formation may be suitably informed .

Yours faithfully ,

( Rahul Nangare )

Under Secretary to the Government of India"

The Central Board of Excise and Customs clarified that the proviso to Section 11AC was specifically inserted to ensure speedy recovery of the disputed amount and consequently an incentive was given to the assessee that, if he pays the duty and interest within the stipulated period, then penalty was reduced to 25% of the duty. The Board clarified that the said proviso was beneficial not only for the Department but also to the assessee. The Delhi High Court in K.P. Pouches (supra) held that the assessee should be informed of the option in the adjudication order itself.

Similarly in Exotic Associates vs. Commissioner of Central Excise, 2010 (252) E.L.T. 49 (Guj.), the Gujrat High Court held that the adjudicating authority in its adjudication order should explicitly set out the options available to the assessee under Section 11AC of the Act and if the assessee thereafter does not take advantage of the first proviso to Section 11AC of the Act, it would be entirely at its own peril.

In Commissioner of Central Excise and Customs, Surat-II vs. Gopal Fiber, 2010 (256) E.L.T. 10, the Gujrat High Court after considering the circular dated 22.5.2008 held, that wherever penalty under Section 11AC of the Act was imposed, the provisions contained in first and second proviso of Section 11AC should be mandatorily mentioned in the order passed by the adjudicating authority.

Similar view was again reiterated in Commissioner of Central Excise and Customs, Surat-I vs. Bhagyodaya Silk Industries, 2010 (262)E.L.T. 248 (Guj.).

In the light of the aforesaid, the adjudicating order requires the quantification of the penalty to be made in terms of the first and second proviso of Section 11AC of the Act so that an incentive is given to the assessee to pay the duty and interest within the stipulated period in order to avail payment of duty at reduced rate of 25%, failing which, the total amount of penalty becomes payable. This option was not given in the instant case and, therefore, to that extent the order in original imposing penalty is in violation of the first proviso to Section 11AC of the Act.

We also find that the quantum of penalty so determined was equivalent to 100% of the duty payable. This is not in consonance with the first proviso to Section 11AC of the Act. The first proviso to Section 11AC of the Act mandates that 25% of penalty would be payable by the assessee, if duty and interest so determined is paid within the stipulated period of 30 days. In the instant case, duty had already been paid before the issuance of show cause notice. The appellant was therefore entitled to pay 25% penalty only.

In the light of the aforesaid, the order in original of the Assessing Authority quantifying the penalty amount to 100% of the duty is incorrect and is not in consonence with the provisions contained in proviso (1) and (2) to Section 11AC of the Act. Since 25% of the penalty had already been paid by the assessee, the order in original passed by the Deputy Commissioiner, Central Excise, Agra is modified to the extent that since the duty had already been deposited prior to the show cause notice, the appellant was only entitled to pay 25% of the duty as penalty. The appeal is allowed. The question of law is answered, accordingly.

Dt. 30.09.2015

MAA/-

  (Surya Prakash Kesarwani,J.)       (Tarun Agarwala,J.)