Bombay High Court
The Commissioner Of Central Excise vs M/S Viraj Alloys Limited on 13 October, 2010
Author: Vijay Daga
Bench: V.C.Daga, R.M.Savant
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY,
ORDINARY ORIGINAL CIVIL JURISDICTION.
CENTRAL EXCISE APPEAL NO. 64 OF 2005.
The Commissioner of Central Excise.
...Appellant.
V/s
M/s Viraj Alloys Limited.
..Respondent.
M.I. Sethna, Senior Advocate with J.B.Mishra i/b
T.C.Kaushik for the appellant.
S.N.Kantawala with Brijesh Pathak i/b,
Y.M.Rohira for the respondent.
CORAM :
V.C.DAGA AND R.M.SAVANT, JJ
th
DATED : 13 October 2010.
JUDGMENT (Per Vijay Daga, J)
Heard Mr. Sethna, learned senior counsel for the appellant- Revenue and Mr. Kantawala, learned counsel for the respondents.
2. The question of law canvassed in this appeal revolve around the interpretation of section 11 AC of the Central Excise Act, ::: Downloaded on - 09/06/2013 16:32:07 ::: 2 1944 ("the Act" for short) based on the factual scenario hereinbelow.
3. This appeal is directed against the order passed by the Customs, Excise and Service Tax Appellate Tribunal, West Regional Bench at Mumbai ("the Tribunal" for short); wherein the Tribunal has reduced the quantum of penalty imposed under section 11AC of the Act. The questions of law canvassed by the Revenue are framed as under:
"1. Whether the Tribunal has the power to reduce mandatory penalty under section 11AC of the Central Excise Act, 1944?
2. Whether the respondents are entitled to the benefit of first and second provisos to section 11AC of the Central Excise Act, 1944?"
As to Question No. 1:
4. The first question relating to the absence of power in Tribunal to reduce mandatory penalty under section 11AC of the Act is no more res integra in view of the judgments of the Apex Court in the case of Union of India v. Dharmendra Textile Processors, 2008 (231) ELT 3 (SC) and Union of India v. Rajasthan Spinning and Weaving Mills, 2009 (238) ELT 3 (SC) which ::: Downloaded on - 09/06/2013 16:32:07 ::: 3 judgments are holding the field. In the said judgments the Hon'ble Supreme Court has held that while interpreting the provisions of law the Court only interprets and cannot legislate and further that where wordings of the Statute are unambiguous and do not lead to absurd and unreasonable results, they have to be given their full effect, without adding any foreign words to the same. The said judgments are followed by this Court in number of cases, the details of which are not necessary for the purpose of answering the first question. In this view of the matter, for the reasons recorded in the aforesaid judgments of the Hon'ble Supreme Court, first question is answered in the negative i.e. in favour of the Revenue and against the Assessee holding that the Tribunal on its own cannot reduce mandatory penalty under section 11AC of the Act for want of power in that behalf.
As to Question No. 2:
5. The resolution of second question of law depends upon the meaning to be assigned to the provisos to section 11AC of the Act. Let us turn to text of section 11AC and provisos thereto.
11-AC. Penalty for short- levy or non-levy of duty in certain cases:- Where any duty of excise has not been levied or paid or has been short-levied or short-paid or ::: Downloaded on - 09/06/2013 16:32:07 ::: 4 erroneously refunded by reasons of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of section 11-A, shall be liable to pay a penalty equal to the duty so determined:
Provided that where such duty as determined under sub-section (2) of section 11-A, and the interest payable thereon under section 11-AB, is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such duty, the amount of penalty liable to be paid by such person under this section be twenty-five per cent of the duty so determined:
Provided further that the benefit of reduced penalty under the first proviso shall be available if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso:
Provided also that where the duty determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of ::: Downloaded on - 09/06/2013 16:32:07 ::: 5 this section, the duty, as reduced or increased, as the case may be, shall be taken into account:
Provided also that in case where the duty determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the first proviso shall be available, if the amount of duty so increased, the interest payable thereon and twenty-five per cent of the consequential increase of penalty have also been paid within thirty days of the communication of the order by which such increase in the duty takes effect.
Explanation-- For the removal of doubts, it is hereby declared that--
(1) the provisions of this section shall also apply to cases in which the order determining the duty under sub-section (2) of section 11A relates to notices issued prior to the date on which the Finance Bill, 2000 received the assent of the President;
(2) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person."::: Downloaded on - 09/06/2013 16:32:07 ::: 6
6. A perusal of section 11AC of the Act shows that an amount equal to the amount of duty as determined by the Central Excise Officer under section 11A(2) of the Act is required to be paid by the assessee where any duty of excise has not been (a) levied or paid or (b) has been short paid or ( c ) erroneously refunded by the reason of fraud, collusion or any wilful mis-statement or suppression of facts or (d) contravention of any of the provisions of the Act or the Rules made thereunder with intent to evade payment of duty. The aforesaid principal clause has four provisos. The first proviso postulates a concessional rate of penalty in case the amount of duty as determined under sub-section 11A(2) of the Act and the interest payable thereon under section 11AB of the Act stand paid within thirty days from the date of communication of the order of the officer determining such duty. In such a case, the amount of penalty has been stipulated to be 25% of the duty so determined.
7. The second proviso further imposes an obligation that the benefits contemplated by first proviso are to be available if the amount of penalty so determined has also been paid within a period of thirty days. In other words, if the duty as determined under section 11A(2) of the Act by the Central Excise Officer is paid ::: Downloaded on - 09/06/2013 16:32:07 ::: 7 within thirty days then penalty equal to the amount of duty is not required to be paid and the amount contemplated in lieu of the penalty is 25% of the total amount of excise duty determined by the officer concerned.
8. It would further be necessary to notice that 3rd proviso takes care of a situation where duty determined to be payable is reduced or increased by the Commissioner (Appeals), Appellate Tribunal or by the Court; then duty as reduced or increased is required to be taken into account. The first, second and third provisos take care of fluctuation in the assessment of duty at the appellate stage.
9. It is appropriate to notice that the period in question is subsequent to 31st October, 2001 and there is no dispute that the proviso added by Act No. X of 2000 is made applicable with effect from 12th May, 2000 would apply which provides that an amount equal to 25% of the amount of duty of excise would be liable to be paid as penalty if the amount of duty of excise is paid within thirty days from the date of communication of the order by the Central Excise Officer.
::: Downloaded on - 09/06/2013 16:32:07 ::: 810. The very question had come up for consideration before the Delhi High Court in the case of K.P.Pouches (P) Limited v.
Union of India, 2008(228) ELT 31 (DELHI) wherein the Court after discussing the controversy between the parties in paragraph 27 of the judgment has observed that to obviate any similar situation from arising in future, the adjudicating authority in its adjudication order under the Act should explicitly set out the options available to the Assessee under Section 11AC of the Act. Once the chances are made known to the assessee and it still does not take advantage of the first Proviso to Section 11AC of the Act, it will be entirely at its own peril. The Court, therefore, held that it would be beneficial both from the point of view of the revenue as well as the assessee, if the options available to the assessee are mentioned in the adjudication order itself.
11. Pursuant to the above judgment of the Delhi High Court, the Central Excise department has issued Circular on 22.05.2008 wherein it is clarified that in all the cases wherein penalty under Section 11AC of the Act is imposed, the provisions contained in the first and second Proviso to Section 11AC should be mandatorily mentioned in the order in original itself by the adjudicating ::: Downloaded on - 09/06/2013 16:32:07 ::: 9 authority.
12. The Punjab & Haryana High Court was also faced with the similar situation and in its judgment in the case of Commissioner of Central Excise, Rohtak v. J.R.Fabrics Private Limited, 2009 (238) ELT 209, the Court took the view that it was appropriate to notice that the period in question was 28.07.2001 to 28.02.2002 and there was no dispute that the proviso added by the Act No. X of 2000 was made applicable with effect from 12.05.2000, which provides that an amount equal to 25% of the amount of duty of excise be paid as penalty if the amount of duty of excise is paid within 30 days from the date of communication of the order by the Central Excise Officer. In that case, the order in original also had imposed penalty which was equivalent to the amount of duty of excise assessed by the adjudicating authority. The assessee was, however, not given any option as to whether he desired to pay the duty within 30 days from the date of the adjudication order. The Court, therefore, took the view that the conclusion reached by the Tribunal that the assessee was liable to pay penalty to the extent 25% of the amount of duty of excise demanded by the officer concerned was unsustainable. While arriving at this conclusion, the ::: Downloaded on - 09/06/2013 16:32:07 ::: 10 Court has also considered the decision of the Apex Court in the case of Dharmendra Textile (Supra) and observed that the provisos first and second which were added in the year 2000 were not the subject matter of consideration before their Lordships in Dharmendra Textile Processor's case (Supra). The Court, therefore, did not find any substance in the contention raised on behalf of the revenue, especially, in the face of express provision made by the four provisos in the year 2000.
13. In the case of Commissioner of Central Excise v. Gopal Fibres Pvt. Ltd., 2010 (256) ELT 10 (Guj.), High Court of Gujarat had an occasion to consider the situation arising out of absence of determination of the amount of interest by the adjudicating authority payable under section 11AB of the Act. While considering the said question, the Court observed that in absence of quantification of interest and communication thereof to the noticee/ assessee, the period of 30 days can not start running. In other words, section 11AC and provisos thereto mandatorily require the adjudicating authority and/ or the appellate authority and/ or the Tribunal and/or the Court to quantify the duty liability along with interest and penalty together with communication thereof. All ::: Downloaded on - 09/06/2013 16:32:07 ::: 11 these requirements are cumulative. The quantification of either of the components payable by the assessee, the liability to pay within 30 days would not start running.
14. So long as there is no order and its communication to the assessee/ noticee quantifying the duty liability and interest under section 11AB of the Act, the period of 30 days under the first proviso to section 11AC does not start running. It, therefore, follows that wherever the assessee has received demand quantifying the amount of duty and the interest payable thereon, he is bound to pay it within 30 days from the receipt thereof, if he wants to take advantage of the first proviso. If he does not pay the quantified demand within 30 days from the receipt thereof, the benefit of the reduced penalty is not available to the assessee. If this be so, once the assessee failed to pay duty, interest and penalty within 30 days from the date of receipt of the quantified demand based on the order-in-original, then the assessee would not get fresh period of 30 days to make payment in the event demand is enhanced in appeal at the instance of Revenue. In the event of increased or enhanced duty liability or interest or penalty such period of 30 days for payment of demand is available only to that assessee, who ::: Downloaded on - 09/06/2013 16:32:07 ::: 12 has paid quantified demand within 30 days from the date of demand based on the adjudication order or order-in-original pursuant to first proviso to section 11AC of the Act. Failure to pay increased quantified demand pursuance to the order in appeal or revision as the case may be within 30 days from the receipt thereof would rob the assessee/ noticee of the advantage which he may have got under the first proviso to section 11AC. As a consequences, he shall have to pay the full (i.e. 100%) penalty. But, if he pays or deposits the increased quantified demand within 30 days, then, certainly, the assessee shall be entitled to retain the benefit of the first proviso to section 11AC of the Act. Of course, in the event of decrease in the duty liability or interest or penalty, the assessee will be entitled to refund as per the provisions of the Act.
15. The Government of India Ministry of Finance (Department of Revenue) Central Board of Excise and Customs, New Delhi, in order to clarify the above legal position, has issued a Circular No. 898/18/2009-CX, dated 15th September, 2009 reading as under:
"Subject: Benefit of reduced penalty under provisos to Section 11AC- Whether also available at appeal ::: Downloaded on - 09/06/2013 16:32:07 ::: 13 stage -Regarding.
A case has been brought to the notice of the Board wherein a Commissioner (Appeals) had allowed the benefit of proviso to Section 11AC of the Central Excise Act, 1944 to pay penalty at the reduced rate of 25% within 30 days of the communication of the Order in Appeal. Commissioner (Appeals) has read Section 11AC and Section 35F together to arrive at the aforesaid decision.
2. The matter has been examined. The provisions relating to reduction of penalty to 25% are contained in proviso (1) to (4) of Section 11AC. In terms of proviso (1) and (2), a penalty imposed under Section 11AC can be reduced to 25% on fulfilment of following conditions.
(i) Duty determined under Section 11A(2) and interest payable thereon has been paid within 30 days.
(ii) The said period of 30 days is calculated from the date of communication of the order passed by a Central Excise Officer determining the duty.
(iii) The reduced 25% penalty is also paid within 30 days of the date of communication of the order ::: Downloaded on - 09/06/2013 16:32:07 ::: 14 passed by the Central Excise Officer.
3. From the above it is clear that in order to avail the benefit of 25% penalty, the duty, interest and penalty are required to be paid within 30 days of communication of the order passed by the adjudicating authority. Further, the reading of proviso (4) would also support this interpretation because the said proviso stipulate that wherever duty amount is increased at any appellate stage, in that case in order to avail the benefit of 25% penalty, the assessee is required to pay differential amount within 30 days of the passing of the order by the appellate authority. A combined reading of all the 4 proviso would, therefore, make it clear that the benefit of 25% penalty is applicable only when the assessee has paid duty, interest and the reduced penalty within 30 days of communication of the order passed by the adjudicating authority. However, if the penalty amount is increased at the appellate stage, in that case the 25% of differential amount of penalty can be paid within 30 days of communication of said appellate order..."
16. The above circular is in consonance with the spirit of provisos to section 11AC interpreted by various High Court, with which we wholly concur.
::: Downloaded on - 09/06/2013 16:32:07 ::: 15Consideration on Merits:
17. Having understood the sweep of section 11AC and provisos thereto and having examined the factual matrix emerging in appeal, Mr. Kantawala has fairly stated that the appellant did not comply with the requirements of the provisos to section 11AC of the Act since the appellant did not pay the amount of interest under section 11AC within a period of 30 days from the date of receipt of quantified demand. In view of this admitted position, it is not necessary to go into the details of payment made by the petitioner in respect of duty liability, interest and penalty. In view of the fact situation emerging in the case in hand, the second question is also answered in favour of the Revenue and against the Assessee.
Directions to the Authorities under the Act & Tribunal:
18. In order to make the assess/ noticee aware of the advantage flowing from the provisos, the adjudicating and/or appellate and/or revisional authorities and/or Courts acting under the Act are directed to make it explicitly clear in the operative part of the order that quantified duty liability along with interest under section 11AB, if paid within 30 days from the date of receipt of quantified demand, then the penalty payable would be 25% of the ::: Downloaded on - 09/06/2013 16:32:07 ::: 16 duty liability, so that the assessee can reap the advantage of paying reduced penalty flowing from the provisos to section 11AC of the Act.
19. With the aforesaid direction, appeal stands disposed of in terms of this order with no order as to costs.
(R.M.SAVANT, J) (V.C.DAGA, J)
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