The Commissioner Of Central ... vs M/S Haldiram Marketing Ltd.
2010 Latest Caselaw 4999 Del

*           IN THE HIGH COURT OF DELHI AT NEW DELHI
                         {CEAC 27 OF 2005}

%                            Judgment delivered on: October 29,2010

The Commissioner of Central Excise                 ....Appellant

                        Through    Mr. Satish Kumar, Sr. Standing
                                   Counsel with Mr. Antrik Sarkar,
                                   Advocate
                    Versus

M/s Haldiram Marketing Ltd.                        ....Respondent

                        Through    Mr. Shekhar Vyas, Advocate

CORAM:-

      HON'BLE MR. JUSTICE A.K. SIKRI
      HON'BLE MR. JUSTICE SURESH KAIT

      1.    Whether Reporters of Local newspapers may be
            allowed to see the Judgment?
      2.    To be referred to the Reporter or not?
      3.    Whether the Judgment should be reported in the
            Digest?

A.K. SIKRI,J. (ORAL)

1. The Revenue has filed this appeal against the orders of

Customs, Excise & Service Tax Appellate Tribunal dated 30th August,

2004 which was passed in the appeal preferred by the respondent

herein. This appeal was admitted on the following substantial

question of law:-

"Whether a penalty imposed u/s 11 AC can be less than the amount of duty determined to be payable u/s 11 92) of the Central Excise Act, 1944?"

2. The question has arisen in the following factual background.

M/s Haldiram Marketing Ltd. (hereinafter referred to as "the

party"), B-1/H-8, Mohan Co. Operative Industrial Estate, Mathura

Road, New Delhi-110044 were engaged in the manufacture of

cookies, pastries and biscuits etc. falling under chapter heading 19 of

the first schedule of the Central Excise Tariff Act, 1985.

3. During a visit by the Central Excise officers on a specific

information, it was noticed that there were various machines which

were being used in the manufacture of sweet meats of different

types. Besides, electric baking ovens were also installed which were

being used for making cookies, biscuits, pastries, breads, pizza base

etc. These were being produced with the aid of power by way of

being baked in those ovens. The respondent was not registered with

Central Excise. The Director of the respondent informed that the

stated items were being manufactured under the brand name of H.R.

Haldiram's (logo) and that brand name "Haldiram" was owned by M/s

Haldiram India Pvt. Ltd., B-I/H-8, MCIE, New Delhi. It was further

stated that the biscuits/pastries were sold in plain white paper box

laminated on the inner side with polythene coating, after which the

same were put in a polythene bag bearing the brand name and logo

of "Haldiram". The visiting Central Excise officers had seized 40 Kgs.

of biscuits valued at ` 4800/-

4. From the statement of the Director of the respondent, the

appellant took the view that the party was engaged in the

manufacture and clandestine removal of excisable branded goods

with intention to evade Central Excise Duty. The respondent had no

obtained the Central Excise registration under Rule 174 of erstwhile

Central Excise Rule, 1944 for the manufacture of said excisable

goods. They had also cleared these goods without issuance of proper

Central Excise invoices and without maintaining proper Central

Excise records. As such it was considered that they appeared to

have contravened the provisions of erstwhile Rules, 9,52 (A), 53,

273(G) & 174 of Central Excise Rules, 1944.

5. Notification No. 8/2000-CE and 9/2000-CE both dated 1.3.2000

envisaged that the exemption contained in these notifications shall

not apply to specified goods bearing a brand name or trade name

(whether registered or not0 of another person. Since the respondent

was engaged in the manufacture of goods in the brand name of

another person, and as such they were liable to pay duty on the said

branded goods.

6. A show cause notice C.No. CE-13/Prev/MOD-II/ Seizure-cum-

offence/HR/21/2000/833 dated 5.2.01 was issued to the respondent

proposing confirmation of duty amounting to ` 4,11,190/- confiscation

of 40 Kgs. of biscuits seized by the visiting Central Excise Officers,

under Rule 173 Q (1)(b) of the Central Excise Rules, 1944 for

imposition of penalty on the respondent under Section 11AC read

with Rule 173 (Q) of Central Excise Rules, 1944 and for imposition of

penalty on Sh. M.L. Aggarwal, Director of the party under Rule 209A

and recovery of interest under Section 11AB of the Central Excise

Act, 1944.

7. The case was adjudicated by the Additional Commissioner vide

Order-in Original No. 147/2001 dated 31.12.2001. The adjudicating

authority had confirmed the demand of ` 4,11,190/- under Section

11A of the Central Excise Act, 1944. Since the duty had already been

deposited by the respondent, it was appropriated to the Govt.

account. 40 Kgs. of biscuits valued at ` 4800/- which were seized by

the visiting Central Excise officers were ordered to be confiscated.

However option to redeem the same was given to the respondent on

payment of redemption fine of ` 500/-. The adjudicating authority

had also imposed a penalty of ` 4,11,190/- on the respondent under

Section 11AC read with Rule 173 Q of the Central Excise Rules, 1944.

He had also imposed personal penalty of ` 10,000/- of Sh. M.L.

Aggarwal, Director of the respondent.

8. Aggrieved by the orders of the adjudicating authority, the

respondent had filed an appeal before the Commissioner, Central

Excise (appeals). The Ld. Commissioner (appeals) vide her Order-in-

Appeal No. 03-CE/20/04 dated 20.01.2004 had upheld the order of

the adjudicating authority. The Ld. Commissioner (A) had however

ordered that the duty proposed to be demanded shall have to be

abated from the cum duty price actually received and liable to be

received as a consideration for sale of goods and directed the

jurisdictional Assistant Commissioner to re-quantify the duty demand.

The Department had filed an appeal before CESTAT against the

orders of the Commissioner (appeals) on cum-duty-price aspect

which is still pending.

9. Aggrieved by the orders of the Commissioner (Appeals), the

party M/s Haldiram Marketing Ltd. had also filed an appeal before

CESTAT. The CESTAT vide its final Order No. 607-08/04-NB © dated

30.08.2004, has upheld the demand of duty. The respondent in their

appeal before the CESTAT had contended that no penalty could be

imposed under section 11AC and no interest demanded under

Section 11AB when the duty amount had been paid, and had prayed

for setting aside the orders of Commissioner (A) to this effect. The

CESTAT has, however, reduced the mandatory penalty from `

4,11,190/- to ` 20,000/- and also set aside the penalty imposed upon

the Director of the respondent.

10. It is in this backdrop the question of law which was framed is as

to whether it was open to the CESTAT to reduce the mandatory

penalty specified in Section 11AC of the Act. In so far as this

question is concerned, it stands decided authoritatively by the

Supreme Court in the case of Union of India Vs. Dharamendra

Textile Processors, 2008 (231) E.L.T. 3 (S.C). It is categorically

held by the Apex Court in the said case that the quantum of penalty

specified under Section 11AC of the Central Excise Act, 1944 cannot

be reduced by the authorizes and no discretion in this behalf is

vested with the adjudicating authorities. It is further held that mens

rea is not an essential ingredient thereunder. The operative portion

of the judgment delineating the aforesaid principle is extracted

below:-

"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. The mater shall now be placed before the Division Bench to deal with the matter in the light of what has been stated above, only so far as the cases where challenge to vires of Rule 967Q(5). In all other cases the orders of the High Court or the Tribunal, as the case may be, are quashed and the matter remitted to it for disposal in the light of present judgments. Appeals except Civil Appeal Nos. 3388 of 2006, 3397 of 2003, 3398-99 of 2003, 4096 of 2004, 4316 of 2007, 4317 of 2007, 5277 of 2006, 675 of 2007, 1420 of 2007 and appeal relating to SLP (C) No. 21751 of 2007 are allowed and the excepted appeals shall now be placed before the Division Bench for disposal".

11. We may also point out at this stage that this judgment came

up for discussion before the Supreme Court in Union of India Vs.

Rajasthan Spinning & Weaving Mills, 2009 (238) E.L.T. 3 (S.C.).

After taking note of the judgment in Dharamendra Textile (supra),

the Apex Court specifically rejected the contention of the department

to the effect that once it was found that there was a case of non-

payment or short payment of duty, the penalty clause would

automatically get attracted and the authority has no discretion in

the matter. It was clarified by the Supreme Court that the pre-

conditions stipulated under Section 11AC of the Act, namely, non-

payment or short payment of duty was the result of fraud, collusion

or any willful mis-statement, suppression of the facts, or

contravention of any provisions of this Act or the Rules made there

under with the intent to evade payment of duty, had also to be

satisfied. The court thus held that once these conditions are

satisfied, the penalty as prescribed under Section 11AC of the Act

had to be imposed and in that event there was no discretion with the

authority to impose lesser penalty than what is prescribed in the

aforesaid provision.

12. Having regard to this law laid down by the Supreme Court in

the aforesaid two judgments, we answer the question in the negative

i.e. the penalty imposed under Section 11AC of the Act cannot be

less than the amount determined to be payable under Section 11A

(2) of the Central Excise Act, 1944 as Section 11AC laid down in such

circumstances 100% penalty is to be imposed. There would not be

any discretion with the CESTAT to reduce the penalty. The order of

the Tribunal reducing the penalty, therefore, has to be set aside.

13. At the same time we find that the Tribunal or even the

Commissioner (A) did not go into the question as to whether the

condition laid down under Section 11AC of the Act were satisfied or

not. It appears from the perusal of the orders passed by the

adjudicating authorities that the assessee had taken a plea that non-

payment was bona fide as the assessee was under the impression

that the goods being not branded were not excisable.

14. In these circumstances, while setting aside the impugned order

we remit the case back to the CESTAT to take a view as to whether

the conditions stipulated under Section 11AC of the Act were

satisfied in the present case or not.

15. We make it clear that this question would be gone into by the

CESTAT only if such a plea was raised by the assessee in the grounds

of appeal before the Tribunal.

16. The party shall appear before the Tribunal on 23rd November,

2010.

(A.K. SIKRI) JUDGE

(SURESH KAIT) JUDGE OCTOBER 28, 2010 skb