By TIOL News Service

AHMEDABAD, DEC 13, 2012: THE Appeal under Section 35G of the C.E Act, 1944 is at the instance of the Revenue and is directed against an order passed by the CESTAT, Ahmedabad.

Brief facts of the case are -

++ The question out of which the present Appeal arises was whether the respondent's product, i.e. "Ala Fabric Bleach" should be classified under the Heading 2828.90 as contended by the assessee, or under the Heading 3402.90 as claimed by the Revenue. The appeal of the party was accepted by the Commissioner (Appeals). The Revenue preferred an appeal before the Tribunal. At the time of hearing of the appeal before the Tribunal, Ld counsel appearing on behalf of the assessee conceded that the item in question should be classified under the Heading 3402.90 and therefore, the Tribunal, by accepting the aforesaid concession of the assessee set aside that part of the order which was the subject matter of appeal. The question, however, was whether in such circumstances, the assessee should be liable to pay interest and penalty as provided under Section 11AB of the Act and Rule 173Q (1) of the C.E Rules, 1944. The Tribunal came to the conclusion that it was not a case of malafide on the part of the assessee so as to invoke penal action against it; that in such circumstances, in the absence of any malafide intention of the assessee in evading the amount of duty, no order of interest should also be passed in view of the then provision of Section 11AB. The question that arises for determination in the Appeal is whether the Tribunal was justified in rejecting the claim of the Revenue of interest and penalty as indicated above.

The Revenue Representative contended that it is apparent from the conduct of the assessee that there was deliberate misstatement made by it as regards classification of its product, as a result, the Revenue has suffered and thus, it is a fit case of imposition of not only interest but also penalty upon the assessee and relied the decision of the Bombay High Court in the case of Padmashri V.V. Patil S.S.K. Ltd, (2007-TIOL-419-HC-MUM-CX).

The High Court observed as -

On plain reading of the Section 11 AB, it is clear that interest can be levied where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded. In the present case, there is no dispute that there is short-payment of duty. The aforesaid section further provides in no unambiguous term that such interest can be levied if such short-payment had occasioned by reason of fraud, collusion or any wilful mis-statement or suppression of fact or contravention of any of the provisions of the Act or the rules made thereunder with intent to evade payment of duty.

In the preset case, it appears from para-6 of the SCN that the Revenue has alleged that the act on the part of the assessee amounted to contravention so as to constitute an offence of the nature described in clauses [a] and [d] of sub-rule [1] of Rule 173Q of the Rules and also made it liable pay interest at appropriate rate on delayed payment under Section 11AB of the Act. In the SCN, no allegation of any fraud, collusion, wilful mis-statement, or suppression of fact or contravention with intent to evade payment of duty has been made.

Therefore, we find substance in the reason assigned by the Tribunal below that in the absence of such allegation in accordance with law as it stood, there was no scope of invoking the provisions of interest within the meaning of Section 11AB of the Act.

Similarly, the penalty can be applied only by taking aid of Section 11AC of the Central Excise Act, 1944 where there is collusion, wilful mis-statement or suppression of fact or contravention of any of the provisions of the Act with intent to evade payment of duty. We have also pointed out that in the SCN, all that has been alleged is mis-statement or wrong classification, but no allegation of fraud, collusion, suppression or intention to evade lawful duty has been made. Therefore, for the selfsame reason, penalty also cannot be imposed.

With regard to the decision of the Bombay High Court in the case of Padmashri V.V. Patil S.S.K. Ltd, (2007-TIOL-419-HC-MUM-CX), with great respect to the Hon'ble Judges of the said Court, we are unable to subscribe to the view taken by Their Lordships on the plain and simple reading of the provision of Sections 11AB and 11AC of the Act as those stood at the relevant point of time.

We are quite conscious of the subsequent amendment by which those allegations of fraud, mis-statement, collusion etc. have been deleted by the Legislature w.e.f. May 11, 2001 and not earlier than the said date. Therefore, from the above amendment also, it is clear that the benefit of the latest amendment cannot be availed of by the Revenue in the case of the incident which occurred prior to the said amendment.

Finally, the High Court held that no substantial question of law is involved in the Appeal and dismissed the revenue appeal.

(See 2012-TIOL-999-HC-AHM-CX)