WHEN section 11A(2B) of the Central Excise Act, 1944 made its appearance in the statute by the Finance Act, 2001 it came as a whiff of fresh air for assessees who had not paid, short paid, short levied/paid any duty of excise. The provision allowed a manufacturer to pay such un-paid Central Excise duty along with interest under section 11AB of the Central Excise Act, 1944 and inform the Central Excise officer who after being satisfied of this ascertainment lets go of the formality of issuance of the show cause notice in respect of the duty so paid .
Such occasions were born when either the officers from the Audit or the Preventive Wing visited the assessee and pointed out the deficiency or on some occasions, self-realization. The assessee being satisfied that there certainly was a lapse on his part volunteers to pay up this duty along with interest. The officers are also happy that they have effected “Spot Recovery” and would proudly show them in their resume.
However, there were instances when in such cases too where the assessee had made the payment of duty along with interest, the departmental authorities issued show cause notices seeking imposition of penalty under rule 25 of the CER, 2002. This, the officers attributed to the fact that there was nothing in the said sub-section 2B which prevented them from issuing SCN for imposition of penalty. But naturally, things take the usual course and the assessee feels cheated that inspite of he paying up the duty due along with interest, he is saddled with penalties.
Fortunately, section 11AC of Central Excise Act, 1944 was not being invoked as this section caters only to cases involving fraud, collusion, mis-statement, suppression etc. and which obviously are kept out of the purview of section 11A(2B) of the CEA, 1944.
The proposed Explanation 3 inserted by clause 63 of the Finance Bill, 2010 declares that no penalty under any of the provisions of this Act or the rules shall be imposed in cases covered by section 11A(2B) of the Central Excise Act 1944 . Obviously, being an Explanation and that too issued for removal of doubts, it certainly has a retrospective effect and the benefits would flow to all cases that are pending or which are in the pipeline. Hopefully, the departmental authorities accept this gracefully unlike the “cum-duty” explanation added by the Finance Act, 2003.
The new Explanation reads -
“Explanation 3 – For the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made thereunder shall be imposed in respect of payment of duty under this sub-section and interest thereon.”