Customs, Excise and Gold Tribunal - Tamil Nadu
Hindustan Motors Ltd. vs Cce on 22 January, 2002
Equivalent citations: 2002(82)ECC156, 2002(148)ELT203(TRI-CHENNAI)
ORDER Jeet Ram Kait, Member (T)
1. This appeal has been filed by M/s. Hindustan Motors Ltd. against the order of the Commissioner of Central Excise, Chennai by which he has confirmed the duty demand of Rs. 54,20,188 under Rule 9(2) read with Section 11A(1) of the CE Act, 1944. He has also imposed a penalty of equal amount under the provisions of Rule 173Q of the CE Rules, 1944. He has also ordered adjustment of Rs. 1,43,614 and another sum of Rs. 52,76,574 already paid by the appellants against the duty confirmed.
2. The brief facts of the case as recorded in the Order-in-Original of the Commissioner are extracted hereinbelow:
M/s. Hindustan Motors Limited, Trivellore (HML for short) are manufacturers of dumpers classifiable under heading 87.04 and 87.05, its parts, under 87.08 and loaders, excavators, crawlers etc., under heading 84.29 and its parts, under heading 84.31 of the Central Excise Tariff. HML were availing Modvat under Rule 57A of the Central Excise Rules on the inputs. During the course of special audit, conducted at HML during the period 8.12.93 to 31.3.94, by the officers of Central Excise, the following discrepancies came to notice.
2. HML procured the required raw material and component parts through imports and indigenous sources and also manufactured components. While placing orders for the inputs, depending on their nature and source of supply, the Purchase Order (CPO) was given a distinct code number and received at the warehouse under the goods receipt inspection report (GRIR), in different series. Then they were issued to different shop floors for manufacture against the stores requisition slips (SRS). Some of these inputs were sent to the job workers for further processing under the then Rule 57F(2) challans along with the material despatch challans (MDC). The CPO to the job worker would bear Code No. 1/21 and on receipt from the job workers, a GRIR would be prepared and the goods issued to different shop floors under a SRS. The warehouse was equipped with a computer wherein the different transactions were keyed in under the following Codes:--
________________________________________________________________________________________________ SI. No. Code Nature of item ________________________________________________________________________________________________ i PH Shop made items ii PS Bought out, Modvat availed inputs, 57F (2) Job worked items etc. iii PF Imported item ________________________________________________________________________________________________
3. HML were having a unit selling spare parts inside the factory, known as Parts Distribution Central (PDC). On receipt of customer's orders (POS), an Inter Stores Transfer Voucher (ISTV) was sent by PDC to the warehouse and the items transferred to PDC. In case the item was not available in the warehouse, it was withdrawn from the shop floors. Invoices were raised by PDC with different Code Nos., denoting the source of supply. For the bought out components purchased by PDC exclusively, POS were prefixed with Code Nos. 1/23 & 1/24. For the exclusive imports, the POS would bear the Code No. 2/24. These items were first received at warehouse and after inspection transferred to PDC. In PDC, the receipt of these items were fed into the computer and then taken into stock with Code: SH, ST or SF, denoting the source of receipt. Besides these, the items received at warehouse for production, whether eligible to modvat or not and diverted to PDC would bear the Code PS.
4. For inputs received back from job workers under Rule 57F(2), it was noticed that some quantities were sent to the shop floor and some diverted to the PDC for sale. While diverting such items to PDC, instead of mentioning the original suppliers' details, job workers' details were shown. It would appear that this was done deliberately to conceal the fact that Modvat had been availed of on these items. Further, for some items like, gears, shafts, pinions etc. fetching very high prices, the part numbers were changed at PDC and goods sold under a new part number by preparing a document called the Stock Conversion Note (SCN), which would bear the parent part numbers and the changed part number with prefix SN, ST, SH or SF, denoting the sources of receipt. In the "transaction listing" at PDC, in the receipt column, the SCN numbers were shown against changed part numbers. The description of these items, however, remained unchanged. During the years 1989-90 to 1993-94 (up to 12/93), HML did not appear to have paid duty of Rs. 73,15,582 on job worked goods. Against this liability, HML paid a sum of Rs. 52,76,574.
5. On comparison of RG 23A PTII Registers with the Private Records of HML, it appeared that HML had followed two types of clearances of Modvat inputs on which credit had been availed. In respect of the clearances of imported Modvat inputs e.g. 0' Ring, Seal, etc. to other factories, HML had cleared these inputs under GP-1 on payment of duty to the extent of original credit taken. In respect of other type of clearances, it appeared that HML had transferred the inputs under ISTVs to PDC just by expunging of the credit taken at the time of receipt of inputs. Subsequently these items were sold under invoices at enhanced value over and above that of the original GP-1 value, without discharging the duty on the basis for the selling price. Thereby HML appeared to have contravened the provisions of Rules 57F(1)(ii) of Central Excise Rules, 1944. For the period 1989-90 to 1991-92, it appeared that even the credit that was taken at the time of receipt had not been expunged while diverting the inputs to PDC. Even during 1992-93 HML had not expunged Modvat credit in respect of some of the Modvat inputs diverted to PDC, for which, on being pointed out by Special Audit Group, HML debited (on 5.3.94) an amount of Rs. 1.13 lakhs vide SI. No. 5962 in RG 23A Part 11 account, being the credit that was not expunged at the time of transfer to PDC. The duty payable on the clearance of Modvat availed inputs sold as such at enhanced value for the last 5 years from 1989-90 to 1993-94 (up to December 93) works out to Rs. 1,01,58,298.
6. In his statement dt. 6.5.94, K.V. Hariharan, Accounts Manager stated that he was one of the authorised signatories for the purpose of Central Excise since February 1992; that no permission had been obtained under Rule 51 A for trading activities inside the factory premises; that PDC was engaged in procurement of parts, storage and sales as after sales support to customers; that purchase orders were placed by PDC directly on vendors; that on receipt of material, GRIR were issued by PDC, based on which the Finance Department released payment to vendors; that planning for procurement for spare parts sales was done by PDC; that PDC received orders for spare parts from dealers and customers and supplied them subject to availability of parts; that PDC raised invoices for parts supplied to customers; that PDC purchases parts from abroad as well as from vendors in India; that PDC documents all receipt of material at their end; that whenever duty paid material was received, the Gate Pass was sent to the Finance Department who did not avail Modvat credit on them; that whenever PDC required an item urgently for warranty or sale purposes, it initiated Inter Stores Transfer Voucher (ISTV for short); that this document enabled PDC to receive stock of such items from warehouse, where parts required for production were stored; that one copy of the ISTV was sent to the Finance Department who reversed the credit availed on the part being transferred to PDC and returned ISTV copy to warehouse and PDC with remarks; Central Excise/Sales Tax formalities completed; that warehouse on receipt of ISTV copy from the Finance, physically transferred the stock to PDC; that such transferred items were viewed by the company as items on which Modvat Credit had not been availed; that PDC sometimes required some job worked items to be sent to customers on sales basis or for warranty replacement to equipment supplied earlier; that, in such cases, PDC raised ISTV for transfer of such items form Production Warehouse; that all transfers from production stock to PDC were based on Part Nos. and description; that certain components were regularly job worked for production purposes; that whenever situation arose, transfer to PDC was resorted to; that all discounts were passed on to buyers entirely; that since the duty was being paid on the job worked items for the first time, the discount given to customers were taken into consideration for arriving at the assessable value; that on normal sale, duty was paid on list price up to 31.3.94.
7. In his further statement dt. 9.5.94, Hariharan explained that changes in Part Nos. took place to denote the processing done and further process required to finish a part; that when two different Part Nos. were assembled into a new assembly, a separate Part No. was allotted; that all items sold out of PDC had distinctive Part Nos. whether job worked or bought out; that Part Nos. sold for the first time may or may not figure in the latest price list; that such prices were communicated to the customers separately and included in the next printed price list; that transfer of parts to PDC was done after reversing the credit earlier availed; that such items were treated as non-Modvat availed stock; that such removal were not construed to be under Rule 57F (1) (ii); that it being along standing practice, no permission was taken, no duty paid and no CL/PL filed that in respect of inputs diverted during 1989-90,1990-91 & 1991-92, separated reversals had not been shown in the RG23A Part II records but proportionate credit in respect of individual Part Nos. was reversed when such items were received subsequently, by taking short credit.
8. From the above, it appeared that HML had diverted the processed inputs received under Rule 57F(2) from the job workers for spare sales under document ISTVs and, in some cases, changed the Part Nos. of the individual item, thereby treating them as non-Modvat inputs or exclusively bought out components and cleared them without payment of duty. Thereby, it appeared that they had suppressed the transactions under ISTVs with intent to evade duty. With reference to Rule 57F(1)(ii), it appeared that they had suppressed the clearance of Modvat inputs to PDC and that they sold the inputs at the higher value, after reversing the original credit availed of and without paying duty on the enhanced value and without observing Central Excise formalities under Rule 57F(1)(ii). It thus appeared that HML had deliberately indulged in evading payment of duty on such processed and unprocessed Modvat inputs and hence proviso to Section 11A(1) of the Central Excises Act, 1944 was invocable for demanding the duty of Rs. 1,74,73,880 and HML were liable to penal action under Rule 173Q
3. Aggrieved by this order of the Commissioner, the appellants have come in appeal before us on the ground that the Commissioner has erred on facts in invoking the provisions of Section 11A(1) for demand of duty as well as for imposition of penalty. The appellants contend that the there is no case for imposition of penalty as they have suo motu discharged the burden of payment of duty on their own volition well before the proceedings were initiated against them. They contend that the Commissioner should have found that the issue of show cause notice in respect of this matter more or less was required to be done by way of regularizing the process for the deposits and payments already made prior to initiation of any proceedings and therefore, penalty was unjustified. They further submitted that the Commissioner has erred in law in ignoring and not giving effect to the various judgments pronounced by the High Courts and the Hon'ble Supreme Court with regard to this question i.e. no penalty is leviable where the assessee themselves have discharged the duty liability on their own volition prior to initiation of any so called proceedings.
4. The representative appearing on behalf of the appellants contended that they have received that after sale service parts and supplied to their purchasers and they did not take Modvat Credit on such receipts, that on few occasions when the Parts Distribution Centre (PDC) did not have stock of certain spares, they indented them from the warehouse; that spares were transferred to PDC in the condition in which they were received after expunging the Modvat credit taken on them. They contended that while selling the parts the appellants kept margins on costs to defray expenses like carrying cost, establishment cost and maintenance of PDC and hence the parts were sold at prices more than the purchase cost. This was only a trading activity and did not involve any manufacturing operations. They had made applications to the Assistant Commissioner for relaxation of Rule 57F(1)(ii) procedures and specifically informed that Modvat inputs were to be removed after expunging duty; that on some such occasions the Assistant Commissioner has advised them to approach the Range Supdt. who on certain occasions had granted relaxation of Rule 57F(1)(ii) procedures and granted them permission to clear the inputs and that they disclosed the Modvat credit expunged on account of stock transfer to PDC in their RT 12 returns. They contended that with reference to query for the department, they had given clarification on the question of assessable value by submitting copies of correspondence and that they had approached the department for registering PDC as a warehouse during the month of June 1992 but were advised that such registration was not required; that the inputs on which Modvat Credit had been availed were cleared from the factory under Rule 57F in the same shape and form in which they had originally been received; that the Assistant Commissioner X division had issued a notice on 21.3.95 and adjudicated it on 19.2.96 without imposing any penalty and recorded that the existence of PDC was within the knowledge of the department and hence the longer period of limitation would not apply. They further contended that the Modvat Rules provided for reversal of the credit to the extent of duty paid on the inputs at the time of clearance from the factory for domestic consumption and alleged that under the pretext of reclassification, the department had demanded duty over and above the duty paid on inputs; that attempts to reclassify would not be sustainable as these inputs were cleared as such; that hence the demand of Rs. 1,04,58,228 would not stand. In this connection they relied upon the decision in the case , , , , 1991 (56) ELT 57(T) which according to them would support their contention that duty both on the inputs cleared would be equal to the Modvat Credit availed on them. They also submitted that in respect of the clearances made under Rule 57F(2), they made the first payment during 11/1993 as soon as they realised the error and the entire amount of Rs. 54,20,188 due for the past period was paid before 31.3.94 and the department was kept informed of this lapse vide their letters dated 28.4.94 and 10.12.94. They contended that they are a big factory and lot of departments are working and in the process they forgot to reverse the Modvat Credit due to inadvertance. These irregularities were detected by the audit during the period 8.12.93 to 31.3.94 in respect of the clearances under Rule 57F(2) and as soon as they realised 'he error, the entire amount of duty of Rs. 54,20,188 due for the past period was paid before 31.3.94. In view of the above facts, the representative argued that no mens rea could be alleged against them. They contended that the allegation that sale of these items were without any documentation was incorrect as they were maintaining detailed information recovering each and every item sold. It was their contention that the wholesale price alone should be the basis for payment of duty; that the price on which duty might have been paid in the past could not be the oasis and that the normal discount given by the appellants to their wholesale dealer should be allowed while determining duty liability. In the fact of these submissions they made before the Commissioner, they had requested that the sum of Rs. 20,39,008 paid by them on this account be refunded.
5. On the question of penalty, they relied upon the decision of the Govt. of India in the case of Dhampur Sugar Mills 1990 (46) ELT 400 (GOI) and several other judgments including the majority view held in the judgment of this Tribunal in the case of R.S. Graphics v. CCE., Chennal decided on 28.11.2000 and prayed for a lenient view.
6. The Commissioner after going through the facts of the case and the arguments of the defence while relying upon several judgments of the Tribunal observed that in such cases, only the credit availed is to be reversed and there was no case for re-determining the assessable value, revising the classification or changing the rate of duty and treating the goods as if manufactured in the factory and held that demand of duty of Rs. 1,01,58,298 was not tenable.
7. The learned DR invited our attention to para 15 of the impugned order wherein the Commissioner has held that the appellants have admitted that they did not pay duty when processed goods received from job workers were diverted from the warehouse to PDC and they had paid duty of Rs. 54,20,188 on this account. The Commissioner further held that though the appellant claim that they detected the lapse themselves and the first instalment was paid before the arrival of the audit party, it is on record that RT 12 returns, invoices and other Central Excise documents did not show such clearances. The appellants also admitted that first intimation about these clearances which pertained to the period 1989-90 to 1993-94 up to 12/93 was given to the department on 28.4.94 and 10.12.94, much after the audit had pointed out about the clandestine clearances and after a lapse of about 5 years and as such their mala fide is established and they would be liable to penalty under Rule 173Q apart from payment of duty of Rs. 54,20,188. The learned DR therefore, argued that in the face of the findings given by the learned Commissioner, the penalty has been rightly imposed and the impugned order is sustainable and should be confirmed in its entirety. The learned DR also pointed out that the majority view arrived at in the case of R.S. Graphics was not applicable to this case as the facts are distinguishable since in the case of R.S. Graphics penalty as imposed on the appellants therein in spite of the fact that there was bona fide belief that they were not required to pay any duty. On this aspect also there is no dispute as the Govt. of India, as far back as 1978 in the case of Allibhoy Sharufalluy & Co. 1978(2) ELT 145 had taken a decision that printed cartons are dutiable as products of the Printing industry. This judgment was reiterated by the High Court of Karnataka in the case of Rollatainers Ltd. v. UOI and Anr. . In the case of Vijay Containers the Hon'ble Supreme Court retained its judgment in the case of Rollatainers v. CE 1994 (72) ELT 792 by holding that printed cartons are not to be regarded as product of printing industry. This was the position till the issue was declared by the judgment of the Supreme Court in that case. It was also on record that controversy did exist through out the period the item was also exempted on account of these judgments. The department was fully aware of the judgments in favour of the assessee and manufacturers carrying on such activity of printing laminating and bunching were being granted with exemption and no duty was being collected. The appellants in that case were filing RT 12 returns and were giving full information to the department and nothing was suppressed from the assessing officer. The learned Member (J) while recording a contra judgment from the learned Member (T) in the case of R.S. Graphics quoted a number of judgments in that case and in all those judgments it was held that no penalty is required to be levied since during the clearance of the goods the assessees were under the bona fide belief that the goods were not dutiable and had been clearing the goods without any intention to evade payment of duty. Learned Member (T) Shri S.S. Sekhon, while agreeing with the learned M(J) has also quoted lot of judgments to support the view expressed by learned M(J) and conceded that from the facts of that case from the show cause notice and paper book, he found that there was no demand for duty and the show cause notice was issued for imposition of penalty. The show cause notice itself observed that the assessee had submitted RT 12 returns for the period from 1/98 to 3/98 with the Range office mentioning about the past clearances and duty was discharged by them from 93-94 to 97-98. Learned MO(T) Shri S.S. Sekhon also quoted the judgment of the Hon'ble Supreme Court In the case of HMM holding that penalty was not Imposable unless the department was able to sustain Its demand made In the show cause notice. Learned M(T) Shri S.S Sekhon while considering the detailed reasoning of the order recorded by learned M(J) agreed with the findings holding that the ruling of the Hon'ble Apex Court as adopted by learned M(T) Shri V.K. Agrawal In the case reported In which was a case under the Income Tax Act, a direct tax Act and the case of 1996 (12) RLT 364 (SC) which was a case of penalty under Section 23(1) of the FERA Act, 1947, a regulating Act is not applicable to a proceedings under the Central Excise Act, 1944, since penalty under the 'direct tax' would be civil obligation and distinct from penalties under 'indirect tax' like the Central Excise law. The crux of the judgment in that case is that the assessee had bona fide belief that they were not required to pay any duty and the Central Board of Excise and Customs has also ruled that no duty was required to be paid by the assessee. Later on only, the Central Board of Excise & Customs changed their views and held that Printed cartons are dutiable.
8. We have carefully considered the submissions made before us by both the sides, gone though the impugned order and perused the evidence available on record. This is a case where the assessee has paid the entire duty of Rs. 54,20,188 due for the period after the irregularities were detected during the audit from 8.12.93 to 31.3.94. The appellants claim that they have paid duty before 31.3.94 on their own volition whereas the irregularity was detected by the Special audit during the period between 8.12.93 & 31.3.94, pertaining to the period 1989-90 to 1993-94 up to December 1993. The main thrust of the arguments of the defence is that inasmuch as they have paid the duty on their own volition as soon as they realised their lapses, no mala fide could be alleged against them and hence penalty under Rule 173Q of the CE Rules, 1944 cannot be imposed. We find that the appellants are a big Company where they have a well organized system in regard to the various activities undertaken which includes, accounting, submission of reports such as RT 12 returns, clearance of the goods, reversing the Modvat credit in time if not admissible, and they also knew that the goods are liable to Central Excise duty and they paid the duty leviable thereon. In such circumstances their argument that they "forgot" to reverse the Modvat Credit in time that too for 5 years for the period 1989-90 to 1993-94 up to December 93, does not have any force. Further, the Commissioner has clearly alleged in Para 5 and recorded in para 15 of the impugned order that though they claim that they detected the lapse themselves and the first instalment was paid before the arrival of the audit team, it is on record that the RT-12s, invoices and other Central Excise records did not show such clearances and that the appellants debited on 5.3.94 amount of Rs. 1.13 lakh in RG-23A Para II and admitted that the first intimation about these clearances was made to the department on 28.4.94 almost after a lapse of 5 years and that too after the audit detected the evasion during audit from 8.12.93 to 31.3.94. Hence their mala fide is established and they would be liable to penalty under Rule 173Q apart from payment of duty. This position has not been controverted by the appellants. Hence, their claim that they paid the entire duty well before the detection of the lapses by the Special Audit is incorrect and not in consonance with the evidence available on record. In the face of the evidence as available on record, we are not inclined to agree with the contention of the appellants that they have on their own volition paid the duty. On the other hand it is a case where the duty has been paid after a lapse of five years and that too on detection of the lapses by the audit. It cannot be said that the violation committed by the appellants in this case is venial or technical in nature. This is a case where existence of mens rea is established. In this case there was an intend to evade payment of duty but for the detection by the Special Audit party. The appellants merely submitted that they forgot to reverse the credit. As already pointed out above, it is hard to believe that in a Company of the size and type of the appellants, there are even remote chances of the appellants forgetting for about five years to perform the statutory duty cast on them. The appellants have pressed into service the majority view expressed in the case of Graphics v. CCE, Chennai decided on 5.9.2000 in Appeal No. E/2739/98/MAS, in support of their plea for setting aside the penalty imposed on them. The facts in the present case are not pari materia with the facts in the cited case inasmuch as in M/s. Graphic case, as could be seen from the facts mentioned above and as rightly pointed out by the learned DR in his submissions recorded above. Hence this case law would not support the appellants. The Hon'ble Supreme Court in the case of Zunjarrao Bhikaji Nagarkar v. UOI decided on 6.8.1999 in para 19 of the order distinguishes in what circumstances penalty is not imposable as was held by them in the case of Hindustan Steel Ltd. v. State of Orissa . In that case, the Company had an honest and genuine belief that the Company was not a dealer, whereas in paragraphs 30, 31, 35 & 36 which are extracted herein below, the Hon'ble Apex Court held that penalty under Rule 173Q is mandatory and is not discretionary, only the amount of penalty that can be imposed by the adjudicating authority is discretionary, but imposition of penalty under Rule 173Q is imperative and mandatory.
30. Two principal issues arise for our consideration--(1) if levy of penalty under Rule 173Q was obligatory and (2) was there enough background material for the Central Government to form a prima facie opinion to proceed against the officer on the charge of misconduct on his failure to levy penalty under Rule 173Q. Appellant has contended that it is only now after insertion of Section 11AC in the Act that levy of penalty has become mandatory and that it was not so under Rule 173Q. This contention does not appear to be correct. In both Rule 173Q and Section 11AC the language is somewhat similar. Under Rule 173Q "such goods shall be liable to confiscation" and the person concerned "shall be liable to penalty" not exceeding three times the value of excisable goods or five thousand rupees whichever is greater. Under Section 11AC the person, who is liable to pay duty on the excisable goods as determined "shall also be liable to pay penalty equal to the duty so determined". What is the significance of the word "liable" used both in Rule 173Q and Section 11AC? Under Rule 173Q apart from confiscation of the goods the person concerned is liable to penalty. Under Section 11AC the word "also" has been used but that does not appear to be quite material in Interpreting the word "liable" and if liability to pay penalty has to be fixed by the adjudicating authority. The word "liable" in the Concise Oxford Dictionary means, "Legally bound, subject to a tax or penalty, under an obligation". In Black's Law Dictionary (sixth edition), the word "liable" means, "bound or obliged in law or equity; responsible; chargeable; answerable; compellable to make satisfaction, compensation, or restitution.... Obligated; accountable for or chargeable with. Condition of being bound to respond because a wrong has occurred. Condition out of which a legal liability might arise.... Justly or legally responsible or answerable".
31. When we examine Rule 173Q it does appear to us that apart from the offending goods which are liable to confiscation the person concerned with that shall be liable to penalty up to the amount specified in the Rule. It is difficult to accept the argument of the appellant that levy of penalty is discretionary. It is only the amount of penalty which is discretionary. Both things are necessary : (1) goods are liable to confiscation and (2) person concerned is liable to penalty. We may contrast the provisions of Rule 173Q and Section 11AC with Section 271 of the Income-Tax Act, 1961. This Section, prior to amendment in 1988, stood as under:
271. Failure to furnish returns, comply with notices, concealment of income, etc.--(1) If the Income Tax Officer or the Appellate Assistant Commissioner or the Commissioner (Appeals) in the course of any proceedings under this Act is satisfied that any person--
(a) has failed to furnish the return of total income which he was required to furnish under Sub-section (1) of Section 139 or by notice given under Sub-section (2) of Section 139 or Section 148 or has failed to furnish it within the time allowed and in the manner required by Sub-section (1) of Section 139 or by such notice as the case may be, or
(b) has without reasonable cause failed to comply with a notice under Sub-section (1) of Section 142 or Sub-section (2) of Section 143 or fails to comply with a direction issued under Sub-section (2A) of Section 142, or
(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,--
(i) in the cases referred to in Clause (a),--
(a) in the case of a person referred to in Sub-section (4A) of Section 139, where the total income in respect of which he is assessable as a representative assessee does not exceed the maximum amount which is not chargeable to income-tax, a sum not exceeding one per cent of the total income computed under this Act without giving effect to the provisions of Sections 11 and 12 for each year or part thereof during which the default continued;
(b) In any other case, In addition to the amount of the tax, if any payable by him, a sum equal to two per cent of the assessed tax for every month during which the default continued.
Explanation.--In this clause "assessed tax" means tax as reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C.
(ii) in the cases referred to in Clause (b), in addition to any tax payable by him, a sum which shall not be less than ten per cent but which shall not exceed fifty per cent of the amount of the tax, if any, which would have been avoided if the Income returned by such person had been accepted as the correct income;.
(iii) in the case referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income
35. Penalty to be imposed has to be in commensurate with the gravity of the offence and the extent of the evasion. In the present case, penalty could have been justified. Appellant was, however, of the view that imposition of penalty was not mandatory. He could have formed such a view. Under Section 325 Indian Penal Code, a person found guilty "shall be punished with imprisonment of either description for a term which may extend to seven years and shall also be liable to fine". Section 63, IPC provides that where no sum is expressed to which a fine may extend, the amount of fine to which the offended is liable is unlimited, but shall not be excessive. A single Judge of the Patna High Court in Tetar Gope v. Ganauri Gope AIR 1968 Patna 287 took the view that expression "shall also liable to fine" in Section 325 IPC does not mean a sentence of fine must be imposed in every case of conviction in that case. He said:
Such an expression has been used in the Penal Code only in connection with those offences where the Legislature has provided that a sentence of imprisonment is compulsory. In regard to such offences, the legislature has left the discretion in the Court to impose also a sentence of fine in appropriate cases in addition to the imposition of the sentence of imprisonment which alone is obligatory.
36. We do not think that the view expressed by the Patna High Court is correct as it would appear from the language of the section that sentence of both imprisonment and fine are imperative. It is the extent of fine which has been left to the discretion of the Court. In Rajasthan Pharmaceuticals Labs. Bangalore and Ors. v. State of Karnataka this Court has taken the view that imprisonment and fine both are imperative when the expression "shall also be liable to fine" was used under Section 34 of the Drugs and Cosmetic Act, 1940. In that case, this Court was considering Section 27 of the Drugs and Cosmetics Act, 1940, which enumerates the penalties for the manufacture, sale, etc., of drugs and Is an under--
Whoever himself or by any other person on his behalf manufacture for sale sells, stocks or exhibits for sale or distributes--
(a) any drug--
(i) ....
(ii) without a valid licence as required under Clause (c) Section 18 shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to ten years and shall also be liable to fine:
Provided that the court may, for any special reasons to be recorded in writing impose a sentence of imprisonment of less than one year....
9. In view of the matter, we are of the considered view that penalty has been rightly imposed on the appellants and we see no reasons to interfere with the order of the lower authority. Accordingly, the impugned order is upheld and the appeal is rejected.
S.L. Peeran, Member (J)
1. With due regards and respect to My Learned Brother Member (Technical), I have to record my separate order in this case for the reason that my present brother was unwilling to have a discussion on the matter on the ground that he has already signed the order. In the system in which we are working, an order is not complete till it is signed by both the Members. An order prepared by Learned Members is always considered to be a draft one and placed for consideration for the other Member so that they can discuss, if necessary, in detail the points together and come out with a common, crystalised order to avoid any difference of opinion. There are circumstances, when there could be oversight and mistake in reading the points or application of law. For that purpose, a healthy discussion is a normal pratice of the Tribunal. To close the door for discussion on the ground that the order has been signed and that it is not proper to have any discussion and Presiding Member may record his own order, in my humble opinion, is not the practice of the Tribunal. My persuasion having been failed in this regard, I am compelled to record the order to discern the grounds and to bring out correct facts, so that justice is rendered without fear or favour.
2. This matter had been gone into in great detail at the time of considering the pre-deposit of amounts by the then Bench comprising of then Vice President and Member (Judicial). It is necessary to bring out the contents of the said order so that to bring out an impression that was created even at the time of recording the said order when the appellants were put to terms to pre-deposit only Rs. 10 lakhs in the matter. The findings recorded in paras 2 to 4 is reproduced herein below:
2. Shri Ramasubramaian, the learned Consultant for the appellants has pleaded that some omission and mistake had occurred in the factory because of changes of clerical staff and certain goods which should have been cleared on payment or certain goods in respect of which Modvat Credit should have been reversed were taken out of the factory without compliance with the law as above. He has pleaded that while the lower authority has held non-payment of duty was detected by the audit party, the fact remains that the appellants themselves detected the lapse and came forward to pay the duty. He has pleaded that the appellants on their own reckoned the duty liability as Rs. 74,59,196 and paid the same even prior to the drawal of the proceedings against the appellants. Be that as it may, he pleaded that the appellants were not liable to levy of penalty at 100% based on the latest amendment of law and penalty should have been levied taking into consideration the bona fides of the appellant and their conduct in the matter in their coming forward to pay the duty after coming to know of their lapses which resulted in non-payment of duty earlier. He has pleaded that as it is, there is excess payment of Rs. 20,39,008. He has pleaded that as the lower authority has not rightly interpreted the law regarding levy of penalty inasmuch as the amended provisions of law for mandatory penalty under Section 11AC could not be invoked. In this connection he referred us to the ruling of the Hon'ble Supreme Court in the case of Braj Mohan v. Commissioner of Income Tax, New Delhi, 198 ITR 20 wherein the Hon'ble Supreme Court has held as under:
The case of the assessee is that an assessment proceeding for the determination of the total income and the computation of the tax liability must ordinarily be made on the basis of the law prevailing during the assessment year, and inasmuch as concealment of income is concerned with the income relevant for assessment during the assessment year, any penalty imposed in respect of concealment of such income must also be governed by the law pertaining to that assessment year. We are unable to accept the contention. In our opinion, the assessment of the total income and the computation of tax liability is a proceeding which, for that purpose, is governed by entirely different considerations from a proceeding for penalty imposed for concealment of income. And this is so notwithstanding that the income concealed is the income assessed to tax. In the case of the assessment of income and the determination of the consequent tax liability, the relevant law is the law which rules during the assessment year in respect of which the total income is assessed and the tax liability determined. The rate of tax is determined by the relevant Finance Act. In the case of a penalty, however, we must remember that a penalty is imposed on account of the commission of a wrongful act, and plainly it is the law operating on the date on which the wrongful act is committed which determines the penalty. Where penalty is imposed for concealment of particulars of income, it is the law ruling on the date when the act of concealment takes place which is relevant. It is wholly immaterial that the income concealed was to be assessed in relation to an assessment year in the past.
He pointed out that the Hon'ble Supreme Court has clearly held that since penalty is imposed on account of the commission or wrongful act, and it is the law operating on the date on which the wrongful act is committed which determines the penalty. He therefore, pointed out that the Commissioner had the discretion for the purposes of levy of penalty taking into consideration the facts and circumstances of each case relating to non-payment of duty and the conduct and bona fides of the assassee. In this case he has pleaded that the penalty levied equal to the duty due to be paid could not have been levied. He therefore, prayed that the Collector should have levied only a nominal amount as penalty.
3. Heard Shri S. Murugandi, the learned DR. He has pleaded that the goods were admittedly cleared without payment of duty and without compliance with the requirement of law and but for the audit of the appellants factory, the appellants would have got away with the evasion of duty. The amount being large, a heavy penalty is called for.
4. We have considered the pleas made by both the sides. We find that the appellants are not disputing payment of duty and they have also paid the duty amount as demanded in terms of the impugned order. In fact as per the record, they have paid over Rs. 20 lacs over and above the duty which was required to be paid. The plea taken by the appellants is that there was some omission and mistakes committed by the Clerical staff in the matter of removal of goods. We observe that the appellants are a major manufacturing unit and they have an organised set up and it is expected that they would work out their system in the manner that large scale removal of goods without payment of duty does not take place. The appellants' unit has been in existence for a long time. Under the SRP scheme, lot of faith is reposed in the assessee and it is expected that they organise our their internal operations in a manner that due compliance with the law is ensured. The appellants, therefore, cannot be allowed to take advantage of their own omission of this magnitude. The removal of the goods without payment of duty has been detected on the audit of the appellants unit. In this background, prima facie, we find that there is no infirmity in the order of the lower authority that the appellants are liable to penalty. Taking into consideration however, the judgment of the Hon'ble Supreme Court cited supra and the fact that duty has already been paid we hold that ends of justice would be served if the appellants are called upon to pre-deposit a sum of Rs. 10.00 lakhs (Rupees Ten Lakhs) on or before 31.3.97 and report compliance on 31.3.97. Ordered accordingly In case there is any excess amount which is stated to have been paid over and above the duty which was required to be paid, the pre-deposit could be adjusted from that amount. The appellants can approach the concerned departmental authorities in this regard. Subject to above, pre-deposit of the balance amount is waived and its recovery stayed pending appeal. The matter will be called on 31.3.97 for reporting compliance.
5. The basic fact that is required to be brought out in this matter is to find out as to whether there was inadvertence at the time of clearing the said part numbers by the appellants themselves during the period April' 93 to Sept' 93 and whether it was noticed by appellants themselves and whether they paid the amounts on their own initially and took up the job of verifying the details of five years prior to 1993-94 to find out the details as arisen in this regard and deposited the sums. It is the appellants case that they on their own wrote a letter on 10,12.93 to the Superintendent of Central Excise, Sri perumbudur, Tlruvallur District, noticing the lapses on their part In clearing certain part numbere without reversing the modvat credit and depositing the amounts Rs. 1,43,614 vide T.R. 6 challan No. 8/MISC/93-94. The triplicate copy of T Rule 6 challan and worksheet quantifying the amount were enclosed by them. By the said letter, they Informed the Superintendent that their production staff had committed a mistake and such clearances were few and fair between and it was not any intention to evade duty and that as a measure of caution, they shall verify the details for five years prior to 1993-94 and pay duty, If any liability arises in this regard. The letter dated 10.12.93 Is reproduced below:--
The Superintendent of Central Excise, Sri perumbudur Range, Tiruvallur Dated 10.12.93 Dear Sir, Sub : Certain items cleared to spare market While verifying the details relating to spare parts sold during April 93 to September 93 we have identified certain part numbers which were manufactured by our job-workers out of raw materials supplied by us. The raw materials were supplied under Rule 57F2 Challans.
Due to inadvertance at the time of clearing such part numbers we had not noticed this fact. Having noticed it now, we have ourselves quantified the duty involved and paid a sum of Rs. 1,43,614 vide TR6 Challan No. 8/Misc/93-94. The triplicate copy of the TR6 challan and a work-sheet quantifying the duty amount are enclosed.
We understand from our production staff that instances of job work for spare parts requirements in the past are few and far between. However, as a measure of caution, we shall verify the details for the 5 years prior to 93-94 and pay the duty if any liability arises in this regard.
As we have ourselves identified and paid the duty in this matter we request that the lapse may please be condoned.
Thanking you Yours faithfully For HINDUSTAN MOTORS LIMITED Sd/-
4. Appellants on their own took up the process of verifying the details and thereafter arrived at the figure which was due to with the department and deposited the entire amounts. After some time, a special audit took place, and appellants were informed by letter in the month of Feb' 94 which was received by the appellants on 19.3.94 about the irregularities brought out to their notice and a mere letter was addressed with regard to irregularity which is in the paper book. Appellants sent a reply on 20.4.94 to the ACCE, Madras X Division. Nelson Manickam Road, Madras bringing to his notice as to how the activity of production scheduled was carried out. Some times due to urgency of certain job worked items by the customer for replacement in failed equipments, they had to send such job worked items to the customers. Normally such items were cleared on payment of duty. However, due to some clerical error some of the items were cleared without reversing the modvat payment of duty. On their discovery, they deposited the amount of Rs. 1,43,614 vide T. Rule 6 Challan No. 8/Misc/93-94. They also brought out to the notice of the AC of their letter to Superintendent on 10.12.93 and pointed out the amounts that was worked out and deposited in T.Rule 6 Challan. The said letter dated 28.4.1994, furnishing the details is reproduced below:
28.4.1994 The Asst, Collector of Central Excise, Madras X Division, Nelson Manickam Road, Madras.
Dear Sir, We acknowledge receipt of your letter dated 17.3.94 and wish to state as under:
(1) In the normal course of our manufacturing activity, we send as few inputs to our job workers under Rule 57F2 for further processing and return. This is an ongoing activity keeping phase with our Production schedule. Sometimes due to urgency of certain job worked items by the Customer for replacement in failed equipments, we have to send such job worked items to the Customers. Normally such items are cleared on payment of duty. However, while verifying details of the Spare parts sold during the first half of this Financial year we come across certain part Numbers which were job worked outside and sold as spare parts without payment of duty we appropriately quantified some such items and paid a duty of Rs. 1,43,614 vide TR 6 Challan No. 6/Misc/93-94. The triplicate copy of the challan and a working sheet quantifying the duty amount were sent to the superintendent of Sriperumbudur Range under cover of our letter dt. 10.12.93. As undertaken in our letter, we also have exhaustively quantified the duty in respect of such sales for earlier periods.
_________________________________________________________________________________________ TR6 Challan No. Amount Remarks _________________________________________________________________________________________
9. 8.3.94 875730 Duty payable for job worked items cleared to spares during 93-94 _________________________________________________________________________________________
10. 15.3.94 76095 -Do- 93-94 _________________________________________________________________________________________
11. 15.3.94 1579180 -Do- 92-93 _________________________________________________________________________________________
12. 29.3.94 1043414 -Do- 91-92 _________________________________________________________________________________________
13. 31.3.94 840285 -Do- 90-91 _________________________________________________________________________________________
14. 31.3.94 861870 -Do- 89-90 _________________________________________________________________________________________ It will be evident from the above that we have ourselves identified the lapse and have quantified the duty involved and paid the duty applicable.
All current removals of such job worked items for spares market are being done on payment of duty. Inasmuch as past lapses have been identified by ourselves and the duty was paid, we request that the lapse may kindly be condoned.
(2) As regards your contention that duty is to be discharged on the selling price of inputs for clearance effected under Rule 57F(i)(ii), we wish to state the following:--
We have two separate streams of purchases, one to cater to the requirements of out production activity and the other to cater to the spare parts market. In case of inputs procured by us for production activities, we avail Modvat credit. In case of procurement for spare parts market we do not take credit of excise duty suffered on the purchases. However, in case of stock out situation in the spare parts stock, we transfer some items earlier procured by us as inputs for manufacture, by expunging the credit earlier taken. These are to be viewed as stock transfer from Modvat availed stock to Non-Modvat availed stock only.
(3) As regards trading activity in the Parts Distribution Center (PDC), we wish to make it clear that the same houses Bought out components procured on payment of duty on which Modvat credit has not been availed. Inasmuch as Modvat credit is not availed of on these goods, we feel that there is no need to have any specific permission, if however, you feel we need to have a specific permission in this connection, we are agreeable to seek the same.
We hope we have clarified the matters raised by you.
5. It is only after the appellants' discovering the discrepancy and depositing the amounts on their own, the department took up the case for special audit. The facts are very clear that the special audit was conducted only after the appellants had on their own discovered and deposited the amounts and it is not as if the special audit had pointed out about the irregularity and that resulted in uncover of evasion of duty as had been held by the Commissioner in his order and concurred by my learned brother. The first paragraph of the Commissioner order proceeded by relating that 'during the course of special audit conducted at HML during the period 8.12.93 to 31.3.94, by the officers of the Central Excise, the following discrepancies came to notice.' Thereafter, the above two facts have been related. Appellants strongly refuted these facts of discrepancies having been brought to their notice by the special audit by pointing out the same vide their letter dated 10.12.93 and depositing duty vide T.R. 6 Challan and on subsequent letter received from the Superintendent on 19.3.94 pointing out the irregularities. By their reply dated 28.4.1994 pointed out to the entire payments made. The point for consideration is that the findings arrived at by the Commissioner that the irregularity would not have been noticed, had the special audit not discovered is totally not as per the records and it is a finding without any basis and without any evidence. The department has not proved the point that irregularity was noticed by them. The point recorded by the Commissioner that as they did not maintain RT-12s, invoices and other excess records showed that they had made clearances without payment of duty is a misnomer and misreading of facts and is a mere conclusion about the guilt on the appellants' part. The department had also a duty to regularly check the records and find out any irregularities to be noticed. They have remained silent for years together till appellants on their own discovered and paid amounts positively. Such a belief and honesty cannot be discarded as a made belief or an afterthought and it is having not been discovered by the appellants themselves. Revenue's duty is also equally important to have discovered such an irregularity in not remaining silent for years together and when appellant who is paying huge excise duty per annum to the Govt. discovered some discrepancies due to clerical error and later rectified the same by depositing the amounts even before issue of show cause notice or special audit team re-checked the things, it cannot be said that there was an intention to evade duty and the whole process was carried out with an attempt to defraud the exchequer. The said finding is not based on any evidence on record and cannot be appreciated in the light of law already crystallised in this matter and it has also been appreciated by the Bench at the time of order of pre-deposit the amounts.
6. Although the latches cannot be condoned on the ground that it was a clerical error and that penalty should not be imposed on such lapse. However, the point is as to the quantum of penalty that is required to be fixed in the present matter.
7. My learned brother has not given any thought to this aspect of the matter while confirming the order and no finding has been recorded. My attempts to bring out this point in the discussion was not appreciated and therefore, I am compelled to bring out the entire facts and law in this regard in the matter. This Bench had an occasion to examine the imposition of penalty in a case where the person held a bona fide belief on payment of duty not being paid, as in the case of R.S. Graphics (supra), the Tribunal examined all the judgments on the point and in the light of Apex Court judgment laid down that there has to be an intention to evade duty and Contumacious act on the appellants to defraud the exchequer. Mere errors or due to certain irregularities, if payment of duty has escaped the notice of the appellants and on their own depositing the amounts, their bona fide cannot be challenged and burdened with heavy penalties to the extent to equal amount, when especially Revenue has remained quite and silent for years together. It has also been noticed that in this case also it is the Revenue who have not discovered the latches but appellants themselves who have discovered the lapse and paid the amount. In such circumstances, the question that arises is as to why equal amount of penalty imposed by the Commissioner should be confirmed. The Commissioner has not given any finding as to why he has imposed equal amount of penalty under Rule 173Q except to hold that mala fides have been established. For arriving at the mala fides, the intention of the appellants to evade duty ought to have been brought out and as the facts have not been brought out, appellants contention that it was due to clerical error cannot be overlooked or disbelieved, more particularly in a situation like this, where appellants are discharging crores of rupees towards excise duty per annum.
8. As recorded from the stay order, the Tribunal has taken into consideration the Apex Court judgment rendered in Brig. Mohan v. C/T to arrive at the amounts which is required to be fixed for the purpose of considering the appeal. !t has been recorded in para-4 about appellants' not depositing the payment of duty; that they had paid duty amount and it was recorded that they paid over and above the duty, which was required to be paid. The Tribunal although noted that there was some omission and mistakes committed by the clerical staff in the matter of removal of goods but at the same time observed that appellants being major manufacturing unit and they had an organised set up and it was expected that they would work out their system in a manner that large scale removal of goods without payment of duty does not take place; As they were under SRP scheme, lot of faith is reposed in the assessee and it is expected that they organise their internal operations in a manner that due compliance with the law is ensured. Therefore, appellants would not be allowed to take advantage of their own omission of this magnitude and in that background and in the interest of justice took the view after taking into consideration the Apex Court judgment that ends of justice is to be served, if they are called upon to pre-deposit Rs. 10 lakhs. Now what is required to be seen is as to whether the Bench can confirm this finding while ordering the pre-deposit, as directed, in this final order.
9. I am of the considered opinion that Bench has taken a judicious view in the matter at the time of considering the stay application and it is a considered order which is required to be confirmed and upheld at the final stage also, for the reason to be recorded further in the light of law laid down in the following judgments:
(1) In the case of HMT Ltd. Watch Factory and Ors. v. CCE Bangalore , the allegation of clandestine removal was upheld. The plea that there was negligible excess of goods for non-confiscation of goods and for penalty was also rejected. However, the Tribunal took into consideration the facts and circumstances of the case and held that much lower personal penalty is called for on the assessee having regard to the nature of the offence. There was allegation in the case of evasion of duty of Rs. 20,22,639.67; Rs. 1,41,766.40; Rs. 48,99,812.05; 794.55; Rs. 4,08,342.66; Rs. 3,94,261.66. There was various quantum of fines besides penalty of Rs. 10. lakhs under Rules 9(2)/173Q and Rs. 5000 each on the job worker. The Tribunal reduced the penalty from Rs. 10. lakhs to Rs. 50,000 on HMT on whom there was such a huge allegation on evasion of duty and the penalty of Rs. 50,000 on each of the job worker was reduced to Rs. 5000. While remanding the case for re-adjudication on the duty amount only to the extent of Rs. 48,99,812.05, the Tribunal, however confirmed the other duty amounts.
(2) In the case of Ganesh Chandra Golui v. CCE, Calcutta , the Tribunal held that the broad principle that punishment must be proportionate to the offence is or ought to be of universal application save where the statue bars the exercise of judicial discretion. This was observed in a gold control matter involving smuggling in the light of judgment rendered by the Apex Court in Arvind Mohan Sinha v. Amulya Kumar Biswas . Taking this principle into consideration, the Tribunal reduced the penalty from Rs. 2 lakhs to Rs. 30,000 holding that imposition of huge penalty was not justified. The fine was also reduced. (3) In the case of Jay Engineering Works Ltd. v. CCE, Calcutta , the Tribunal held that penalty is not imposable in the absence of mens rea under Rule 173Q especially when the error or mistake in making double entry in PLA account against a single cash deposit was discovered by the assessee himself and made the payment voluntarily prior to its detection by the department, and also wrote a letter to the department to that effect. The Tribunal has noted that it is settled law that penalty proceedings are quasi-criminal proceedings and no penalty is leviable under Rule 173Q of the C.E. Rules, 1944. Unless mens rea is established and since there is complete absence of mens rea in the instant case, no penalty was held to be leviable in the light of Apex Court judgment rendered in Hindustan Limited v. State of Orissa 1978 ELT J159.
In the present case, although, we have held that appellants have discovered on their own and paid duty and informed the department and that there was no deliberate suppression of facts, or intention to evade duty, however, we have considered various other factors for levy of penalty but taking these judgments into consideration, we are of the view that equal amount of penalty is not justified in the light of these judgments and are confining to the amount already fixed in the stay order.
(4) In the case of Parle Beverges v. CCE, Bombay , the Bench of three Members upheld the allegation that appellants tried to evade Central Excise duty by mis-representation about the nature of their sales to various customers. The imposition of penalty was also upheld but it was observed that penalty has to be in proportionate to the seriousness of the offence. In that view of the matter, penalty was reduced from Rs. 8 lakhs to Rs. 3.5 lakhs. Penalty under Rule 210 of C.E. Rules was restricted to Rs. 1000 only.
(5) Ganga Rubber Industries v. CCE , the Tribunal upheld the allegation of clandestine removal. However, penalty was reduced from Rs. 5000 to Rs. 2000 only, keeping the facts and circumstances.uo consideration, even while upholding that appellants had committed a serious mens rea in not making entries in R.G. 1 registers and other other registers.
(6) In the case of Bhuvaneswari Chemicals v. CCE , the Tribunal upheld the allegation of evasion of duty to the extent of Rs. 1,51,543.36 on clandestine clearances. However, on the aspect of penalty, the Tribunal, held that penalty was disproportionate to the offence committed. A penalty of Rs. 15,000 was reduced to Rs. 5000 only.
(7) In the case of Venus Paper Mills Ltd. v. CCE , the Bench of 3 Members upheld charge of invocation of larger period of 5 years payment of duty on the allegation of suppression and mis-declaration of duty amounts. However, on the quantum of penalty, the Tribunal reduced the same to Rs. 4 lakhs on various grounds, and it worked out to approx. 25% of duty demanded. From this case, it is clear that Tribunal in case of allegation of suppression and confirmation of duty for five years, a Bench of three Members, have held that penalty has to be to the extent of only 25% of the duty.
(8) In the case of Vee Kay Industries v. CCE , the Tribunal again observed taking into consideration the Apex Court judgment of Arvind Mohan Sinha v. Amulya Kumar Biswas, (supra) that penalty should be commensurate with the gravity of offence. The Tribunal upheld the allegation of invocation of larger period & duty of Rs. 22,89,044.66 was confirmed. However, penalty of Rs. 20 lakhs was reduced to Rs. 10 lakhs.
(9) In the case of D.S. Screen Pvt. Ltd v. CCE , allegation of non-accountal in R.G. 1 register, clandestine and evasion of duty were upheld. However, taking into consideration the gravity of the offence, the Tribunal reduced the penalty from Rs. 2 lakhs to Rs. 25,000.
(10) In the case of J.B. Shah v. CC , the Calcutta High Court held that power to levy penalty must be exercised with judicial discretion and not arbitrarily. Taking into consideration the Andhra Pradesh High Court judgment rendered in G.Y. Yadavv. CCE AIR 1947 AP 76, the Calcutta High Court held that penalty must have some relation to the offence committed, and observed that petitioner was not a habitual offender for imposition of heavy penalty. The Hon'ble Andhra Pradesh High Court also had observed that 'it is well recognised that judicial review is not confined to the question whether the competent authority has kept within the four corners of the Act and whether it has acted in good faith. The courts will pursue the enquiry further and will use the judicial review for determining whether the repository of a discretion although acting in good faith has not abused it power by an excessive or oppressive use thereof on irrelevant grounds or without regard to relevant consideration or with gross unreasonableness. The discretion committed to the authority under Section 112 of the Act is a judicial or qualified discretion and is amenable to correction in the event, among other things, of the unreasonable or patently unjustifiable exercise of the power.' This law of the Andhra Pradesh High Court rendered in G.Y. Yadav v. CCE (supra) clearly brings out that merely because Section 173Q lays down imposition of penalty, it is not proper on the part of authority to exercise his powers unreasonably and unjustifiably. In the present case, no reasons have been given for imposing equal amount of penalty, even while appellants have themselves discovered the error and paid the duty. The law laid down by both the High Courts clearly applies to the facts of the present case.
(11) In the case Remi Tex v. CCE , the Tribunal upheld the allegation of clandestine removal of clearance of goods but did not agree with the imposition of high penalty and reduced the same from Rs. 7000 to Rs. 3500.
(12) In the case of Vapi Paper Mills Ltd. v. CCE , a Bench of three Members upheld the allegation of clandestine removal of goods worth more than Rs. 38,11,385.88. The penalty imposed under Rule 173Q(1) read with Rule 9(2) was only Rs. 1.5 lakhs, while under Rules 52A & 226, the penalty was Rs. 1000 & Rs. 2000 respectively. The Tribunal held that penalty was proportionate and not excessive in the fight of other judgments quoted therein. Thus, from this judgment, it is very clear that Tribunal has not been imposing equal amount of penalty or three times penalty even in a case where allegation of suppression and clearance of more than Rs. 38 lakhs have been proved and upheld.
(13) In the case of ITC v. CCE, New Delhi , the Tribunal relying on the Apex Court judgment of Arvind Mohan Sinha v. Amulya Kumar Biswas (supra) held that penalty has to be commensurate and proportionate to the offence and in the facts and circumstances, reduced the penalty from Rs. 50 lakhs to Rs. 15 lakhs. The differential duty found to have been evaded was Rs. 4,88,50,078.68. Even then, the penalty was reduced to Rs. 15 lakhs.
(14) In case of Dunlop India Ltd. v. CCE, Madras , there was violation of modvat rules and penalty was imposed by the department although the charges ere serious and the Tribunal held that action of the appellant is reprehensible, however, it held that interests of justice would be served, if the penalty is reduced to Rs. 1 lakh.
(15) In the case of Raymond Cement Works v. CCE, Raipur , allegation of manufacture & removal without payment of duty was upheld. However, as the assessee had acted under a bona fide belief, larger period was held to be not invocable. Penalty was reduced to Rs. 25,000 against the duty demand of Rs. 74,27,564.46 and penalty of Rs. 5 lakhs.
(16) In the case of DCW Ltd. v. CCE, Madurai , a Bench of three Members upheld the extension of larger period of five years and confirmed the duty demand, But, however, on the aspect of penalty, noted assessee's conduct to furnish clearance particulars and paid duty liability when pointed out by the department constituted a reasonable ground for setting aside the penalty. My learned brother, in this case, look a view that appellants paid duty only after the offence was pointed out by the department even while I have held otherwise. Even if this was taken as a ground, the Tribunal in the cited use comprising of three Members have held that assessee's conduct to furnish clearance particulars and paid duty when liability was pointed out by department constituted a reasonable ground to set aside penalty imposed in terms of Rules 9(2) & 173Q of C.E. Rules. However, as I have already taken the view that the stay order has already considered the points in great detail and found the some (sic) offence committed by the appellants, I restrict the penalty to the one already fixed in the stay order.
(17) In the case of CCE, Chandigarh v. Himachal Concrete Corporation , the Tribunal held that quantum of penalty has to be commensurate with gravity of offence and any mitigating circumstance should be taken into consideration for its rejection. Penalty of Rs. 10,000 was reduced to Rs. 1000 after taking all the mitigating factors.
(18) In the case of Prem Pharmaceuticals v. CCE, Indore , a similar view was expressed by the Bench that quantum of penalty has to be commensurate with the nature of offence and duty involved. Penalty was reduced from Rs. 1 lakh to Rs. 50,000 imposed under Rule 173Q of C.E. Rules. We notice that factors taken for consideration were similar to the one in the facts and circumstances of the present case.
(19) In the case of Indian Diamond Products v. CCE, Pune , the Tribunal precisely took this view that penalty is reducible when assessee had admitted contravention of rules and deposited duty amounts even before issue of show cause notice. Taking this factor into consideration, the penalty was reduced to Rs. 50,000.
(20) In the case of Allied Resins & Chemicals Ltd. v. CCE Calcutta , the Tribunal upheld the charges of mis-declaration and Invocation of larger period for confirming duty demand of Rs. 4,50,248.50. However, penalty was reduced to Rs. 40,000 being 10% of the duty amount.
(21) In the case of Fenner (India) Ltd. v. CCE, Madurai , the Tribunal again considered penalty under Rule 173Q and held that same is required to be reduced to Rs. 50,000.
(22) In the case of Pradhan Enterprises v. CCE, Guntur , the Tribunal again upheld the allegation of evasion of duty. However, when it came to Rule 173Q of C.E. Rules, the Tribunal took into consideration that justice is required be done by reducing the penalty from Rs. 25,000 to Rs. 5000.
(23) In the case of Farida Classic Shoes Ltd. v. CCE 2000 (123) ELT 748(T) the tribunal reduced the penalty from Rs. 5000 to Rs. 2000 taking similar factors into consideration.
(24) In the case of B. Kumar Metal Works v. CCE, Mumbai 2000 (123) ELT 924, the Tribunal took on record the fact that the appellants' depositing the amounts even before issue of SCN to be a very good ground for reducing the penalty from Rs. 1 lakh to Rs. 20,000 in terms of Rule 173Q of C.E. Rules. This judgment clearly applies to the facts of the present case.
(25) In the case of Hindustan Copper Ltd. v. CCE, Jamshedpur 2000 (124) ELT 486(T), the Tribunal upheld the allegation of committal of breach of Central Excise rules by utilising the credit on Zinc towards payment of duty on copper cathode. However, taking overall facts and circumstance, the penalty was reduced to Rs. 2.5 lakhs, holding that this would meet the ends of justice. The total duty evasion was Rs. 39,33,792.76 in that case. This judgment also supports the appellants case for reduction of penalty.
(26) In the case of Dynamic Engineers and Anr.v. CCE, Jaipur 2001 (42) RLT 979 (CEGAT), the Tribunal upheld the allegation of invocation of larger period on the ground of suppression of facts. However, when it came to penalty under Rule 173Q, the Tribunal took all the factors into consideration and reduced the penalty to Rs. 25000 under Rule 173Q.
(27) In the case of Triveni Engg. Works v. CCE, New Delhi, 2001 (43) RLT 412 (CEGAT-Del.), again allegation of demands under proviso to Section 11A was upheld for five years but however penalty under Rule 173Q was reduced to Rs. 25,000. from Rs. 1,25,0000 as against duty of Rs. 5,03,167.32. On a survey of all the judgments, for the last twenty years, of the Tribunal it is very clear that the law on penalty under Rule 173Q is clearly laid down & crystallised, that it has to be proportionate to the offence committed and all extenuating circumstances have to be taken into consideration for imposing penalty. The rule crystallised is that where an assessee on his own discovers and deposits the amount even before department has pointed out and before issue of SCN, we have seen in a similar case, no penalty was set aside, while in some cases, it has been reduced considerably to even 10% of the total duty amount. In another cases, there was confirmation of duty amount on extension of larger period under proviso to Section 11A of the Act, whereas the penalty has been restricted to 25% of the amount.
10. This has been in keeping with the judicial discipline and the law laid down by the Supreme Court and High Courts already noted. My learned brother has referred to the case of Zunjarrao Bhikaji Nagarkar v. UOI . In this case, the appellant was the Commissioner of Central Excise and the departmental proceedings were initiated against him for not having imposed penalty under Rule 173Q. He had contended before the Apex Court that he had taken the view in good faith and that was provided by the power given to him under the Rules. The Apex Court upheld the contention although, it noted that penalty was imposable under Rule 173Q and it was a discretionary power and the action initiated against the Commissioner of Central Excise for not having imposed penalty was set aside. The facts are clearly distinguishable with to this case. We have look into the law laid down as to whether penalty has to be there times to be imposed in case where the party has discovered the error and deposited the amounts even before the audit has checked or even before issue of show cause notice. My learned brother has committed an error by applying the invocation of larger period even when appellants have pointed it out and in spite of large number of judgments on this point as brought out supra.
11. The Bench at the time of considering the stay has already dealt with the matter in great detail and the stay order has been extracted supra. The amount directed to be paid was Rs. 10 lakhs. Therefore, I, am of the considered opinion that this amount of Rs. 10 lakhs has to be taken into consideration for confirmation also at the final stage. I, therefore, hold that in the present case, penalty to be imposed should be Rs. 10,00,000 (Rupees Ten lakhs only) and no equal amount of penalty is called for as held by the Commissioner. The amount of penalty is thus reduced to Rs. 10 lakhs in this case.
POINTS OF DIFFERENCE In view of difference of opinion between the two Members, the matter is referred to the Third Member to consider--
(a) as to whether appeal is required to be rejected by confirming the penalty amount, imposed by the Commissioner as held by the Member (Technical) (OR)
(b) as to whether the penalty is required to be reduced in the facts and circum stances of the case to Rs. 10,00,000 (Rupees Ten lakhs only) in terms of stay order passed by the Bench and in the light of findings recorded & judgments referred to by Member (Judicial).
C.N.B. Nair
1. I have perused the records and have heard both sides.
2. The difference of opinion between the two Members is about the quantum of penalty required to be imposed on the appellant.
3. During the hearing of the case, learned Consultant appearing for the assessee took the through the findings of both the Members and facts disclosed by the records. He pointed out that this was a case of a small portion of the duty remaining unpaid on account of human error in the appellant's organization and not because of any deliberate or intentional attempt to evade payment of duty. He submitted that this fact is clear from the amounts involved themselves. The non-payment of duty occurred during the period between 1989-90 and 1993-94. The amounts of duties unpaid varied from 0.45% to 0.79% of the duty payable. He pointed out that such a small error could not be the result of any thought out strategy to evade duty. He further submitted that the appellants conduct itself would show that there was no intention to evade duty. In support of this submission he has relied on the appellants, letter dated 10.12.93. Under this letter the appellant informed the jurisdictional Supdt., Central Excise that verification of details relating to spare parts during April 1993 to September, 1993 has shown that "due to inadvertence" at the time of clearing of such parts, some parts got cleared without payment of duty. The letter further informed that the appellant had paid Rs. 1,43,614 as duty towards the goods so cleared during the period. Challan evidencing the payment of duty on 30th November, 93 was also submitted to the authorities. The letter further stated that the appellants were carrying out a verification of details for five years prior to 93-94 and would pay the duty if any liability arises. The learned Consultant stressed that the detection of the non-payment of duty was by the appellants themselves and that they had paid the entire duty before the issue of show cause notice in July 94. He submitted that in such a case, no imposition of penalty would have been warranted and in any case not the high penalty imposed by the Commissioner in the adjudication proceedings. The learned Counsel also pointed out that Member (Judicial) had clearly reached a conclusion in his order that there was no mens rea involved in the present case and there was no wilful mis-statement of facts with intent to evade duty. However, he confirmed penalty of Rs. 10 lakhs only on account of the fact that, in the stay order, the Division Bench had ordered the pre-deposit of that amount forwards penalty upon a finding that the appellant was a large scale unit and under the SRP scheme it was their duty to ensure that full compliance with payment of duty took place.
4. As against the aforesaid submission on behalf of the appellant, learned DR pointed out that it is clear from the records that the appellant had removed the goods on which they had taken modvat credit without issuing any GP-ls, which were the prescribed document at the relevant time for removal of the goods. Shri submitted that if the appellant had issued the required documents under the excise law, the error would have become evident and non-payment of duty detected. She also pointed out that short payment had remained for long periods from 1989-90 which also justified the higher penalty. The difference of opinion in the present case is in a very narrow campus, whether, penalty should be equal to the amount of duty not paid or Rs. 10 lakhs which is about one fifth of the duty involved. It is settled law that under Rule 173Q (the Rule invoked in the penalty proceedings) penalty is mandatory. However, the amount of penalty is discretionary. Discretion is to be guided by the facts and circumstances of the case. In the present case only a small portion of the inputs (less than 1 %) is involved in the dispute. The appellants themselves noted that certain inputs which had come back from job workers had got cleared for sale without payment of duty. Upon detecting this for the period April to September 1993, they made payment of differential duty on 30th November 93. Subsequently, records for 5 years were verified, differential duty amount worked out and paid before the issue of show cause notice by excise authorities. In the meantime, Central Excise authorities had also undertaken a special audit on the issue. However, the fact remains that original detection of the error was by the assessee themselves and they had stated remedial action to pay the unpaid portion of the duty. And the entire amount was paid before formal proceedings were started with the issue of show cause notice. These facts and circumstances would justify a lower penalty on the appellants. Accordingly, I am of the view that the lower penalty of Rs. 10 lakhs as held to be imposable by the learned Member (Judicial) should be imposed on the appellant and not the higher penalty equivalent to the duty involved.
5. The appeal papers are returned to the original bench for passing final orders on the appeal.
MAJORITY ORDER In view of majority order, the impugned order of the Commissioner of Central Excise, Chennai is modified to the extent that penalty under Rule 173Q shall be reduced to Rs. 10,00,000 (Rupees Ten Lakhs only) and the appeal allowed in the above terms by reducing the penalty.