Punjab-Haryana High Court
Commissioner Of Central Excise vs M/S Supreme Polytubes (P)Ltd. And ... on 5 October, 2009
Author: Jaswant Singh
Bench: Jaswant Singh
CEA No.47 of 2007 1
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH.
CEA No.47 of 2007
Date of decision .10.2009
Commissioner of Central Excise, Ludhiana ... appellant
Versus
M/s Supreme Polytubes (P)Ltd. and another ... Respondents.
CORAM: HON'BLE MR. JUSTICE M.M. KUMAR
HON'BLE MR. JUSTICE JASWANT SINGH
Present: Mr.Gurpreet Singh, Senior Standing Counsel, Government of
India (Indirect Taxes) for the appellant
None for the assessee- respondent.
1.To be referred to the Reporter or not ?
2.Whether the judgement should be reported in the Digest ?
M.M.KUMAR, J.
The instant appeal was disposed of on 14.9.2007 with the observation that if the amount of duty has been deposited before issuance of show cause notice to the dealer- respondent then no penalty under Section 11 AC of the Central Excise Act, 1944 (for brevity 'the Act') was imposable. The Division Bench did not admit the appeal and proceeded to dismiss the same on the basis of the aforesaid principle settled in various judgements as is evident from the following para:
" After hearing learned counsel for the appellant and perusing the record we find that the matter is not res integra in as much as, we have already decided similar appeals against the revenue and in favour of the assessee in the cases of Commissioner of Central Excise, Ludhiana v. M/s Omkar Steel Tubes (P)Ltd. (CEA No.5 of 2007, decided on 28.8.2007); CEA No.47 of 2007 2 Commissioner of Central Excise, Ludhiana v. M/s Crop Chemical India Ltd. and another (CEA No.6 of 2007, decided on 31.8.2007); Commissioner of Central Excise, Delhi III v. M/s Sun Vacuum Former Pvt. Ltd. (CEA No.56 of 2007, decided on 7.9.2007); and Commissioner of Central Excise, Chandigarh v. M/s Diamond Steel Rolling Mills and another (CEA No.25 of 2007, decided on 7.9.2007). "
The revenue carried an appeal to the Hon'ble Supreme Court being C.A.No.1901 of 2008. The Hon'ble Supreme Court alongwith a number of other appeals set aside the order dated 14.9.2007 passed by this Court dismissing the appeal and remitted the matter back to this Court for disposal in the light of the judgement rendered in the case of Union of India v. Dharmendra Textile Processors 2008(231)ELT 3 (SC). Accordingly we proceed to decide the substantive question of law claimed by the revenue and the other one arising as per the directions of Hon'ble the Supreme Court which are as under:
" (A) Whether equal penalty under Section 11 AC is not imposable on the assessee merely on the ground that the duty has been deposited before the issue of show cause notice ? (B) Whether in the facts and circumstances of this case, Section 11 AC of the Act would be applicable so as to attract the provisions of interest and penalty under Section 11 AC as well as 11 AB of the Act. ?" .
Few facts may be noticed before we answer the aforesaid questions of law. The dealer M/s Supreme Polytubes (P)Ltd., Bagrian Road, Dhuri are holding Central Excise Registration and are engaged in the manufacture of CEA No.47 of 2007 3 PVC Pipes falling under sub heading No. 39172390 of the First Schedule to the Central Excise Tariff Act, 1985. The Central Excise Preventive Staff visited the factory premises of the dealer on 30.3.2005 and detected shortage of 7.601 MT. of PVC pipes involving central excise duty/ credit of Rs. 55,821/-. The Director of the unit Shri Sanjeev Kumar in his signed statement admitted the shortage by stating the reason of mis-reporting by illiterate labour. The amount of duty payable on the goods found short was deposited by the dealer. For confirmation of duty under Section 11 A of the Act read with Rule 74 of the Cenvate Credit Rules, 2004 (for brevity 'the 2004 Rules') a show cause notice was issued to the dealer with a proposal for imposition of penalty under Rule 25 of the Central Excise Rules, 2002 (for brevity 'the Rules') read with Rule 15 of the 2004 Rules and Section 11 AC of the Act. A separate show cause notice was issued to Shri Sanjeev Kumar, the Director of the unit for imposition of personal penalty on him under Rule 26 of the Rules read with Section 11 AC of the Act. The matter was decided against the dealer vide order-in-original dated 30.11.2005. As a consequence the demand of Rs. 55,821/- was confirmed under Section 11 A of the Act. The dealer had deposited the amount which stood appropriated to the revenue. However, an equal amount of penalty was imposed under Section 11 AC of the Act read with Rule 25 of the Rules and Rule 15 of the 2004 Rules. A sum of Rs. 10,000/- as personal penalty was also imposed (P.1).
The dealer filed an appeal urging various grounds. The appellate authority by placing reliance on a judgement of the Tribunal rendered in the case of Rashtriya Ispat Nigmal Ltd v. CCE 2003(161)ELT 285 (Tri) which is claimed to be upheld by the Hon'ble Supreme Court as CEA No.47 of 2007 4 reported in 2004(163)ELT A.53 opined that once the dealer had deposited the amount before the issuance of show cause notice no interest or penalty was imposable. The appellate authority also placed reliance on another decision of the larger Bench of the Tribunal rendered in the case of CCE v. Machino Montell (P)Ltd. 2004(62) RLT-709.
Feeling aggrieved by the view taken by the appellate authority in its order dated 22.2.2006 (P.2), the revenue approached the Tribunal by filing an appeal. The Tribunal also affirmed the view taken by the appellate authority holding that no substantial question would arise in view of the settled position of law including the one rendered by the Bombay High Court in the case of CCE 1 v. Gaurav Mercantiles Ltd. 2005(190) ELT 11 (Bom.) The principle of law laid down in these judgements is that if the amount of duty has been deposited before issuance of show cause notice then no interest or penalty would be imposable.
The Hon'ble Supreme Court has set aside the view taken by the Division Bench of this Court and has remitted the matter to this Court for decision afresh in the light of the judgement in Dharmendra Textile Processors's case (supra). However, the view taken by the Hon'ble Supreme Court in Dharmendra Textile Processors's case (supra) has been explained and reconsidered in a later judgement of the Supreme Court in the case of Union of India v. Rajasthan Spinning and Weaving Mills 2009(238) ELT 3 (SC). While explaining the view taken in Dharmendra Textile Processors's case (supra) Hon'ble the Supreme Court has now clarified that penalty under Section 11AC of the Act is punishment for an act of deliberate deception by the assessee with an intent to evade duty by adopting any of the means mentioned in the Section. Therefore Dharmendra Textile CEA No.47 of 2007 5 Processors case (supra) is not an authority for the proposition that in every case of non payment or short payment of duty the penalty clause would automatically get attracted and that the authority had no discretion in the matter. In para 20 of the judgement rendered in the case of Rajasthan Spinning and Weaving Mills (supra) it has been observed that the aforesaid judgement cannot be read to mean that penalty provision under Section 11 AC of the Act would be attracted automatically in every case of non payment/ short payment of duty. It follows that the judgement in Dharmendra Textile Processors's case (supra) is not an authority that irrespective of the fulfillment of basic ingredients of Section 11 AC of the Act the penalty get attracted for non payment or short payment of duty. In paras 18 and 19 of the judgement in Rajasthjan spinning and Weaving Mills case (supra), it has been observed as under:
"18. One can not fail to notice that both the proviso to sub section 1 of section 11A and section 11AC use the same expressions: "....by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,...". In other words the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under section 11A (1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under section 11A (2) there is a legally tenable finding to that effect then the provision of section 11AC would also get attracted. The CEA No.47 of 2007 6 converse of this, equally true, is that in the absence of such an allegation in the notice the period for which the escaped duty may be reclaimed would be confined to one year and in the absence of such a finding in the order passed under section 11A (2) there would be no application of the penalty provision in section 11AC of the Act. On behalf of the assessees it was also submitted that sections 11A and 11AC not only operate in different fields but the two provisions are also separated by time. The penalty provision of section 11AC would come into play only after an order is passed under section 11A(2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in section 11AC.
19. From the aforesaid discussion it is clear that penalty under section 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section."
Another 'strong' reason discovered in support of the aforesaid proposition set out by the Supreme Court in Rajasthan Spinning and Weaving Mills case (supra) is that such an interpretation was not even sought by the revenue in Dharmendra Textile Processors' case (supra).
The Supreme Court in Rajasthan Spinning and Weaving Mills case (supra) has now clarified and laid down that merely because duty has been paid before issuance of show cause notice would not result in non application of Section 11 AC or 11 AB of the Act. The view of their Lordship is discernible from para 15 of the judgement in the case of Rajasthan Spinning and Weaving Mills (supra). The aforesaid view reads CEA No.47 of 2007 7 thus:
" 15. Sub-section 2B of section 11A provides that in case the person in default makes payment of the escaped amount of duty before the service of notice then the Revenue will not give him the notice under sub section 1. This, perhaps, is the basis of the common though erroneous view that no penalty would be leviable if the escaped amount of duty is paid before the service of notice. It, however, overlooks the two explanations qualifying the main provision. Explanation 1 makes it clear that the payment would, nevertheless, be subject to imposition of interest under section 11AB. Explanation 2 makes it further clear that in case the escape of duty is intentional and by reason of deception the main provision of sub section 2B will have no application."
It is thus obvious that there is no rule of law applicable in blanket manner to the effect that if the amount of duty due has been paid before the issuance of show cause notice then the provision concerning interest or penalty would not be applicable. It has been clarified by the Explanations I and II that non payment of duty amount would be subject to imposition of interest under Section 11 AB of the Act and in case the non payment of duty/ short payment of duty is found to be intentional actuated by the reason of deception then sub section 2B of Section 11 of the Act would have no application.
The aforesaid principles are required to be applied to the facts of the present case. The finding recorded by the Assessing Authority in the order-in-original no where states that there was any suppression of facts or CEA No.47 of 2007 8 mis-statement or fraud with an intention to evade payment of duty. On the contrary the defence of the dealer has been noticed which stated that clandestine removal of 7.601 MT. of PVC pipes could not be proved by the revenue although the shortage was conceded. Even for shortage stated in the defence by the dealer was the mis-reporting by the labour which was illiterate. The other submission made by the dealer was that the weighment of the stock material was done on the basis of eye estimate because to weigh such a huge quantity of 7.601 MT. a number of days were required to load the trucks and then to take them to weighment bridge for loading and unloading the same to weigh the material a number of times. However, the Assessing Authority has concluded that the dealer was fully satisfied with the manner of verification of stock and he had put his signatures on the stock statement as taken of its correctness. He admitted his lapse and debited the duty.
On further appeal before the appellate authority the aforesaid findings have not been tinkered with and the appellate authority allowed the appeal on the basis of various judgements laying down the principle that if the amount of duty is deposited before the issuance of a show cause notice , no penalty or interest under Section 11 AC and Section 11AB of the Act was imposable. The findings recorded by the Assessing Authority are deemed to have been affirmed. The position is the same with regard to the order passed by the Tribunal.
In the light of the absence of findings of clandestine removal of goods or any fraud, mis-representation, suppression of facts with the intention to evade duty, Section 11 AC of the Act read with Rule 25 of the Rules would not get attracted as has been held by the Hon'ble Supreme CEA No.47 of 2007 9 Court in the case of Rajasthan Spinning and Weaving Mills's case (supra) In view of the above, the question of law at 'A' is answered in favour of the revenue. It is held that Section 11 AC of the Act would be attracted and the amount of penalty equivalent to the amount of duty becomes imposable. There is no discretion vested in the assessing authority, appellate authority or the Tribunal to reduce the penal amount except in the circumstances contemplated by various provisos to Section 11 AC of the Act. Having answered the aforesaid question in favour of the Revenue, the other question whether Section 11 AC of the Act is attracted to the facts of the present case has to be answered against the Revenue and in favour of the dealer. The appeal is disposed of accordingly.
(M.M.Kumar)
Judge
(Jaswant Singh)
.10.2009 Judge
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