By TIOL News Service
MUMBAI, JUNE 28, 2012: KUCH meetha ho jaye!
Revenue can rejoice for they have won.
They were always apprehensive about filing an appeal simply because the CESTAT had granted such a benefit in a large number of cases and it all began with a Single Member Bench decision a couple of years ago. The benefit was not exactly illusory but was never quantified. It all depended on the appellant assessee paying the dues adjudged by the CESTAT in appeal within a period of 30 days along with interest . What we are talking of is the mandatory penalty envisaged in section 11AC of the Central Excise Act, 1944.
Section 11AC of the CEA, 1944 operating during the material period read thus –
Section 11AC – 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 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 of the rules made thereunder with intention to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of Section 11A, shall also be liable to pay a penalty equal to the duty so determined :
Provided that where such duty as determined under subsection (2) of section 11A, and the interest payable thereon under section 11AB, is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such duty, the amount of penalty liable to be paid by such person under this section shall 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 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 Act, 2000 receives 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."
The facts of the present case are that the assessee filed an appeal before the CESTAT to challenge the penalty imposed under Section 11AC of the Act. The CESTAT held that the finding recorded by the Commissioner of Central Excise to the effect that the excess credit was taken by the assessee with an intention to evade the duty having not been challenged, the decision of the Commissioner in holding that Section 11AC of the 1944 Act is not attracted in the present case cannot be faulted. However, the CESTAT following the decision of the Delhi High court in the case of K.P. Pouches (P) Ltd. V/s. Union of India (2008-TIOL-240-HC-DEL-CX) held that since the option for pay the reduced penalty under the proviso to Section 11AC has not been given in the adjudication order dated 12th November, 2003 , the benefit of reduced penalty under Section 11AC of the Act cannot be denied to the assessee. Accordingly, the CESTAT reduced the penalty to 25% and directed the assessee to pay 25% of the penalty imposed within 30 days of the communication of the order of CESTAT dated 19th May, 2011, failing which the assessee would be liable to pay 100% of the penalty.
Challenging the aforesaid order of CESTAT, the Revenue had filed an appeal before the Bombay High Court and the question of law as reframed read -
“Whether the CESTAT was justified in directing the assessee to pay 25% of the penalty levied under Section 11AC within 30 days from the date of communication of the order passed by the Tribunal, when the first and second proviso to Section 11AC specifically provide that the benefit of reduced penalty at 25% shall be available only if the duty determined under Section 11A(2), interest payable thereon under Section 11AB and penalty at 25% of the duty determined under Section 11A(2) has been paid within thirty days from the date of communication of the order of the Central Excise Officer determining duty payable under Section 11A(2) of the 1944 Act ?" .
The following High Court decisions were cited by the assessee in support of the CESTAT decision –
+ CCE v/s. J.R. Fabrics (P) Ltd. 2009-TIOL-259-HC-P&H-CX
+ CCE v /s. Bhagyoday Silk Industries 2010-TIOL-201-HC-AHM-CX
After hearing the arguments of the Revenue and the respondent assessee and that of the Amicus Curiae, the High Court observed -
“18) The dispute in the present case relates to the liability to pay penalty imposed under Section 11AC as per the Order in Original passed by the adjudicating authority on 12th November, 2003 and hence we are required to construe the provisions of Section 11AC as it stood on 12th November, 2003 i.e. prior to the substitution of Section 11AC by Finance Act, 2011.
19) Section 11AC as amended by Finance Act, 2000 with effect from 12th May, 2000, which is applicable to the facts of the present case, inter alia provides that where a person contravenes any of the provisions of the 1944 Act or the rules made thereunder with an intention to evade payment of duty, then, such person who is liable to pay duty determined under Section 11A(2) shall also be liable to pay a penalty equal to the duty so determined. The question as to whether the penalty leviable under Section 11AC is mandatory or discretionary has been considered by the Apex Court in the case of Union of India V/s. Dharmendra Textile Processors reported in - (2008-TIOL-192-SC-CX-LB) as also in the case of Union of India V/s. Rajasthan Spg. & Wvg Mills reported in - (2009-TIOL-63-SC-CX) . The dictum laid down by the Apex Court in the aforesaid cases is that once it is held that Section 11AC is attracted, then, the concerned authority would not have any discretion and penalty must be imposed equal to the duty determined under Section 11A(2) of the 1944 Act. In other words, in cases where Section 11AC applies, the penalty equal to 100% of the duty determined under Section 11A(2) has to be mandatorily imposed and there is no discretion left with the adjudicating authority to impose penalty, less than 100% of the duty confirmed under Section 11A(2) of the 1944 Act.
20) The first proviso inserted to Section 11AC with effect from 12/5/2000, however, provides that where the duty determined under Section 11A(2) and interest payable thereon under Section 11AB is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such duty, then the amount of penalty liable to be paid by such person under Section 11AC shall be 25% of the duty so determined. The second proviso inserted to Section 11AC along with the first proviso with effect from 12/5/2000 further provides that the benefit of paying the reduced penalty under the first proviso shall be available if the amount of reduced penalty so determined has also been paid within the period of thirty days referred to in the first proviso.
21) Reading Section 11AC together with the first and the second proviso inserted thereto, it becomes clear that where Section 11AC is attracted, the liability to pay penalty is 100% of the duty determined under section 11A(2), however, if the duty determined under Section 11A(2) together with interest payable thereon under Section 11AB is paid within thirty days from the date of communication of the order of the Central Excise Officer determining the duty under Section 11A(2), then, the penalty liable to be paid under Section 11AC shall be twenty-five per cent of the duty determined under Section 11A(2), provided, the penalty at twenty-five per cent of the duty determined under Section 11A(2) is also paid within thirty days from the date of communicating the order determining the duty under Section 11A(2). In other words, where Section 11AC is attracted, the liability to pay penalty is 100% of the duty determined under Section 11A(2), but if the duty determined under Section 11A(2) together with interest payable thereon and penalty at twenty-five per cent of the duty determined is paid within thirty days from the date of the communication of the order of the Central Excise Officer determining duty under Section 11A(2), then, the assessee is not required to pay the balance penalty of 75%.
22) Thus, the legislature while mandatorily imposing penalty under Section 11AC equal to 100% of the duty determined under Section 11A(2), provides an incentive to the assessee covered under Section 11AC by providing that if the duty determined under Section 11A(2) together with interest payable under Section 11AB is paid within the stipulated time, then, the penalty payable would be 25% determined, subject to the condition that 25% of the penalty is also paid within the time stipulated therein. Section 11AC neither requires the Central Excise Officer to determine the quantum of 25% penalty nor does it require the Central Excise Officer to communicate the availability of the option under Section 11AC. Once the duty is determined under Section 11A(2) and 100% penalty is imposed under Section 11AC, it is for the assessee to avail the incentive by paying the duty, interest and 25% of the penalty within the time stipulated under the section. If the assessee fails to fulfill the conditions set out in the first and the second proviso to Section 11AC within the time stipulated therein, then, the incentive is lost and the assessee is required to pay penalty at 100%. Therefore, in the absence of any obligation cast upon the Central Excise Officer under Section 11AC to determine penalty at 25%, the argument that if the Central Excise Officer fails to determine 25% penalty, the appellate authority can determine 25% penalty and permit the assessee to pay penalty within thirty days from the date of communication of the order passed by the appellate authority cannot be accepted.
23) The fact that this Court in the case of Viraj Alloys Limited (supra) as also various High Courts and even the CBDT have directed the adjudicating authorities to make it explicitly clear in the operative part of the adjudication order regarding the availability of paying 25% penalty in the circumstances set out in the first and the second proviso to Section 11AC, does not mean that the statue casts such an obligation on the adjudicating authorities. Therefore, if the adjudicating authority fails to make a reference in its order regarding the availability of paying 25% penalty, the assessee cannot agitate that there is violation of the statutory provisions contained in Section 11AC and it will not be open to the appellate authorities or the Courts to permit the assessee to pay 25% penalty beyond the time prescribed under Section 11AC.
24) The argument advanced on behalf of the assessee that the provisions of Section 11AC have to be read liberally cannot be accepted, because, Section 11AC imposes punishment to an assessee who has intended to evade duty by adopting any of the means mentioned therein. While punishing the persons who have sought to evade payment of duty, the legislature gives an incentive to pay lesser penalty provided the duty sought to be evaded with interest and 25% of the penalty is also paid within the time stipulated therein. The incentive in Section 11AC is intended to encourage payment of tax due to the revenue at the earliest without resorting to unwarranted litigation and it is not an incentive for violating the provisions of law. Therefore, the incentive in Section 11AC given to the persons who have violated the provisions of the 1944 Act cannot be treated as if an incentive given to persons who have complied with the provisions of law. Therefore, the provisions contained in Section 11AC have to be construed strictly and if the assessee fails to comply with the conditions set out in the proviso to Section 11AC, the benefit of paying lesser penalty cannot be extended to the assessee.
25) If the contention of the assessee that even the appellate authority can direct the assessee covered under Section 11AC to pay 25% of the penalty within thirty days from the date of communication of the order passed by the appellate authority is accepted, then it would defeat the very object with which the incentive under Section 11AC is allowed. The basic object of granting incentive under Section 11AC is to encourage payment of duty sought to be evaded with interest and penalty at 25% within the time stipulated therein. When the legislature specifically fixes the time limit within which the duty with interest and penalty at 25% is to be paid for availing the incentive, it would neither be open to the appellate authority nor any other authority to permit the assessee to pay 25% penalty at any time other than the time prescribed under Section 11AC.
26) By comparing Section 11AB with Section 11A(2B) and (2C) and also by referring to Section 11AC as substituted with effect from 8th April, 2011, it was contended by the counsel for the assessee that it was never the intention of the legislature to levy 100% penalty under Section 11AC. We see no merit in the above contention because, firstly sub-section 2B and 2C to Section 11A are applicable to cases not involving fraud, collusion, suppression of facts etc, whereas Section 11AC applies to cases where there is intention to evade payment of duty on account of fraud, collusion or any willful misstatement or suppression of facts etc. Secondly, to attract Section 11AC criminal intent or mens rea is a necessary constituent, whereas, under Section 11A, the criminal intent or mens rea is not the necessary constituent. Therefore, the provisions of Section 11AC cannot be interpreted with reference to the provisions contained in Section 11A of the 1944 Act. Similarly, the Section 11AC as substituted with effect from 8th April 2011 does not support the case of the assessee because, even under those provisions the penalty imposable under Section 11AC is the penalty equal to the duty determined under Section 11A(10) i.e. 100% of the duty sought to be evaded and the incentive to pay lesser penalty is also given in those provisions subject to the conditions set out therein. Thus, under Section 11AC as substituted with effect from 12th May 2000 as also substituted with effect from 8th April 2011, the penalty mandatorily imposable is 100% of the duty sought to be evaded, but if the assessee pays the duty sought to be evaded with interest and penalty at the rates specified therein within the stipulated time, then, the balance penalty would not be payable.
27) Moreover, the third and the fourth proviso to Section 11AC make it further clear that, it is only when the duty determined as payable under Section 11A(2) is increased by the appellate authority or the Court as the case maybe, then, the twenty five per cent of the increased penalty has to be paid within thirty days of the communication of the order by which such increase in the duty take effect. Thus, the appellate authority under the fourth proviso to Section 11AC is authorised to permit the assessee to pay penalty beyond the time prescribed under Section 11AC only in respect of the increased penalty required to be paid on account of the increase in the duty determined as payable under Section 11A(2) in the appellate proceedings and not in any other cases. Therefore, when the liability to pay 25% penalty under the first and the second proviso to Section 11AC is required to be paid within thirty days from the date of communication of the order the Central Excise Officer determining duty under Section 11A(2), it would not be open to the appellate authority or the Court to direct the assessee to pay 25% penalty beyond the date stipulated in the first and the second proviso to Section 11AC. For all the aforesaid reasons, we find it difficult to endorse the contrary views expressed by the Delhi High Court, P & H High Court and the Gujarat High Court in the cases referred to by the counsel for the assessee.
28) In the present case, the applicability of Section 11AC is not in dispute. It is also not in dispute that the assessee has paid the duty sought to be evaded as also the interest payable thereon under Section 11AB before the passing of the adjudication order. Admittedly, the assessee has not paid 25% of the penalty imposed under Section 11AC within thirty days from the date of the communication of the order of Central Excise Officer determining the duty sought to be evaded under Section 11A(2) of the Act which is the mandatory requirement under Section 11AC. Instead of paying 25% of the penalty within the stipulated time, the assessee has chosen to file an appeal against imposition of penalty under Section 11AC and the Tribunal has permitted the assessee to pay 25% penalty beyond the time prescribed under the proviso to Section 11AC which is not permissible in law.”
In fine, the High Court ruled in favour of the Revenue and also placed on record the valuable assistance rendered by the amicus curiae.
Extracts from CBEC Advise –
Letter F.No.208/07/2008-CX.6 dated 22 nd May, 2008
...It is seen that these proviso to section 11AC of the Act have been specifically inserted to ensure speedy recoveries of the disputed amount. It is an incentive given to the assessee that if he pays the duty amount along with interest, the penalty is reduced to 25% of the duty. This provision is beneficial to the Department as well as the assessee as rightly pointed out by Delhi High Court and therefore, the assessee should be made aware of the option available to him.
3. In view of the points as discussed above, Board has decided that in all the cases, wherein penalty under section 11AC of the Act is imposed, the provisions contained in first and second proviso to section 11AC should be mandatorily mentioned in the Order-in-original itself by the adjudicating authority.
(See 2012-TIOL-464-HC-MUM-CX)
