Case Law Details
Surine Automotive Ltd Vs Commissioner of GST (CESTAT Chennai)
CESTAT Chennai held that penalty of only 25% and not 100% leviable as duty along with interest and 25% penalty is paid within 30 days from the receipt of Order-in-Original.
Facts- The issue is that the appellant was purchasing raw materials from their supplier M/s. Sungwoo Gestamp Hi-tech (Chennai) Ltd. who in turn were buying from various places and clearing it as such to the appellant. Thus, they were passing on the CENVAT credit.
While doing so, the supplier had opted for uniform price and passed on uniform credit instead of paying an amount equal to the credit availed on the raw materials. This resulted in passing on excess credit or lesser credit which was later rectified by the supplier by way of issuing credit notes when there was excess and supplementary invoices for lesser amount.
It was noted by the audit wing that even though credit note was issued by the supplier, the appellant failed to reverse the respective credit availed. They did not mention the receipt of those credit notes in their returns nor did they inform the department seeking clarification. The appellant had thus availed excess credit which was not eligible.
Show Cause Notice was issued proposing to deny the credit of Rs.40,61,911/- for the period from April 2012 to March 2014 along with interest and for imposing penalties under Rule 15(2) of CENVAT Credit Rules, 2004 r/w Sec. 11AC of the Central Excise Act, 1944. After due process of law, the original authority confirmed the demand along with interest and imposed equal penalty. Against such order, appellant filed appeal before Commissioner (Appeals) who upheld the same. Hence this appeal.
Conclusion- Held that it is clear that the appellant had paid duty along with interest and 25% of penalty on receipt of the Order in Original. The adjudicating authority has not given the option to pay 25% of the penalty in the order passed by him. The jurisdictional High Court in AP Steels (supra) had occasion to analyse a similar issue and held that the appellant has to be given an option to pay 25% penalty if they are paying duty along with interest within 30 days of receipt of the order.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Brief facts are that the appellants are engaged in manufacture of automobile parts and are also availing CENVAT credit of duty paid on inputs, capital goods and input services. On verification of records of the appellant by the Directorate General of Audit, Chennai, it was noticed that the appellant was purchasing / receiving raw materials, namely, steel coils and sheets from their supplier M/s. Sungwoo Gestamp Hi-tech (Chennai) Ltd. who in turn were buying from various places and clearing it as such to the appellant. Thus, they were passing on the CENVAT credit. While doing so, the supplier had opted for uniform price and passed on uniform credit instead of paying an amount equal to the credit availed on the raw materials. This resulted in passing on excess credit or lesser credit which was later rectified by the supplier by way of issuing credit notes when there was excess and supplementary invoices for lesser amount. It was noted by the audit wing that even though credit note was issued by the supplier, the appellant failed to reverse the respective credit availed. They did not mention the receipt of those credit notes in their returns nor did they inform the department seeking clarification. The appellant had thus availed excess credit which was not eligible. Show Cause Notice was issued proposing to deny the credit of Rs.40,61,911/- for the period from April 2012 to March 2014 along with interest and for imposing penalties under Rule 15(2) of CENVAT Credit Rules, 2004 r/w Sec. 11AC of the Central Excise Act, 1944. After due process of law, the original authority confirmed the demand along with interest and imposed equal penalty. Against such order, appellant filed appeal before Commissioner (Appeals) who upheld the same. Hence this appeal.
2. The learned counsel Shri M.N. Bharathi appeared and argued for the appellant. He submitted that the appellant is not contesting the duty or interest confirmed by the authorities below. In fact, the appellant had paid the duty and the interest along with 25% of the penalty within 30 days from receipt of the Order in Original. He adverted to the Order in Original passed by the adjudicating authority and submitted that the appellant was not given an option to pay 25% of the penalty amount. This is grossly erroneous as the first proviso to Sec. 11AC states that if the duty along with interest is paid within 30 days from the communication or order, the amount of penalty liable to be paid by the assessee would be only 25% of the duty so determined. The learned counsel prayed that as the appellant had already paid the 25% penalty, the order confirming equal amount of penalty may be set aside. He relied upon the decision of the Hon’ble jurisdictional High Court in the case of AP Steels Vs. CCE, Trichy – 2017 (355) ELT 6 (Mad.).
3. The learned AR Ms. Anandalakshmi appeared for the department. She supported the findings of the impugned order.
4. Heard both sides.
5. The appellant is contesting only equal penalty imposed by the authorities below. Section 11AC reads as follows:-
“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 intent 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 sub-section (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.”
6. From the facts narrated above, it is clear that the appellant had paid duty along with interest and 25% of penalty on receipt of the Order in Original. The adjudicating authority has not given the option to pay 25% of the penalty in the order passed by him. The jurisdictional High Court in AP Steels (supra) had occasion to analyse a similar issue and held that the appellant has to be given an option to pay 25% penalty if they are paying duty along with interest within 30 days of receipt of the order. Relevant portion of the order is as follows:-
“4.2 A careful perusal of the provisions of Section 11AC would show that it operates in two parts. First, where, a determination is made to the effect that duty 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, in view of contravention of any of the provisions of the Act or the rules made thereunder with the intent to evade duty, then, the person, who is liable to pay duty under Section 11A(2), would also be liable to pay penalty equivalent to the amount of duty so determined.
4.3 Second part of the Section is contained in the first proviso to Section 11AC. The said proviso states that where duty, as determined under Section 11A(2) and the interest payable thereon, under Section 11AB, is paid within thirty (30) 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 Section 11AC, shall be twenty-five per cent of the duty so determined.
4.4 Thus, a conjoint reading of the main provision with the first proviso would have us conclude that, in the ordinary course, where, duty has not been levied or paid, or has been short-levied and/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 the Act and the Rules made thereunder with the intent to evade the payment of duty, the Assessee is liable to pay penalty equivalent to 100% of the duty so determined. The first proviso, however, carves out an exception to the main section – perhaps, to maximise the revenue, by holding out to the Assessee that, if, it were to accelerate the payment of dues, (i.e., duty and interest), by paying the same within the outer limit of thirty (30) days of the communication of the order of the Central Excise Officer, the penalty imposed would get reduced to 25% of the duty so determined.
5. The question, which arises for consideration is, when does the period of thirty (30) days commence ? The other inter-related question, which arises, is does the period of thirty (30) days provided in the first proviso to Section 11AC, commence from the date of the Adjudication Order, or, the date, when, the Appellate Authority passes the order?
5.1 Ms. Hemalatha, who appears for the Revenue, says that the period of thirty days would commence from the date, when, the order of adjudication is passed in the matter. In other words, it is the learned counsel’s submission that the Commissioner (Appeals) could not have given an option of payment of scale down penalty in terms of the first provisos to Section 11AC.
5.2 Learned counsel for the Assessee, Ms. Cynduja, argues to the contrary. In support of her submission, Ms. Cynduja, draws our attention to Section 2(b) of the 1944 Act, which defines the expression “Central Excise Officer”. For the sake of convenience, the provision is extracted hereafter:
“2 ………
(b) “Central Excise Officer” means Principal Chief Commissioner of Central Excise, Commissioner of Central Excise, Commissioner of Central Excise (Appeals), Additional Commissioner of Central Excise, Joint Commissioner of Central Excise, Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise or any other officer of the Central Excise Department, or any person (including an officer of the State Government) invested by the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) with any of the powers of a Central Excise Officer under this Act.”
5.3 Based on the aforesaid, Ms. Cynduja, submits that the Central Excise Officer would include the Commissioner of Central Excise (Appeals).
5.4 In the rejoinder, Ms. Hemalatha, drew our attention to the provision under Section 12E of the 1944 Act, based on which, it was argued by her that the Commissioner (Appeals) could exercise only those powers of the Central Excise Officer, which are specified in Section 14, or Chapter VIA of the 1944 Act. Learned counsel, thus, submitted that the contention of Ms. Cynduja, that the expression “Central Excise Officer”, as found in the first proviso to Section 11AC of the 1944 Act, should be read to include Commissioner (Appeals), (based on the provisions of Section 2(b) of the 1944 Act), was erroneous.
5.5 The way, we look at the issue raised before us, has, in our view, got nothing to do with Section 2(b), or Section 12E of the 1944 Act. What is required to be considered, in our opinion, is whether the appellate proceedings can be considered as a continuation of the original proceedings? And therefore, would the Appellate Authority have the same powers, as the Original Authority? In our view, the answer has to be that, if, the original proceedings are challenged in appeal, the order of the Original Authority is in jeopardy, till such time, it attains finality, upon conclusion of the appellate proceedings. (See Santoshi Tel Utpadak Kendra v. Deputy Commissioner of Sales Tax and Another, (1981) 3 SCC 466 Paragraph 11; Commissioner of Wealth Tax, Gujarat v. Vimlabeen Vadilal Mehta, AIR 1984 SC 302; Union of India and Others v. West Coast Paper Mills Ltd., (2004) 2 SCC 747 [2004 (164) E.L.T. 375 (S.C.)] Paragraph 41; and the Full Bench Judgment of this Court in : State of Tamil Nadu v. Arumugham & Co., Jayalakshmi Sago Factory, Salem and Another, 1982 (51) STC 381). In other words, duty, as determined under Section 11A(2) of the 1944 Act, will attain finality, only, if, it is sustained by the Appellate Authority. In this case, the Appellate Authority was the Commissioner (Appeals). Therefore, in the instant case, when, the Commissioner (Appeals) gave the option to pay penalty, albeit, for a reduced amount equivalent to 25% of the duty so determined, in our opinion, no fault could be found with such a direction.
5.6 To illustrate the validity of this proposition, we may assume, in a given case, the show cause notice proposes to impose duty in the sum of Rs. 12,00,000/- on an Assessee. The Assessee challenges the imposition of duty and the Adjudicating Authority, after hearing the Assessee and the representative of the Revenue, comes to the conclusion that the demand should be confirmed only to the extent of Rs. 10,00,000/-, as against what was proposed in the show cause notice. If, the Revenue were to carry the matter in appeal, and the Appellate Authority held that the original proposal ought to be sustained, which is that, the demand ought to be confirmed at Rs. 12,00,000/-, would then, the Revenue contend that the penalty should be imposed keeping in mind, the order of the Adjudicating Authority and not that of the Appellate Authority. In our understanding, the answer, would, necessarily, be that, the Revenue would press for penalty equivalent to the demand as confirmed by the Appellate Authority. The rationale for this stand can only be that the Order-in-Original, if, challenged, can only attain finality on the conclusion of the appellate proceedings. Quite logically then, the time frame for the option given in proviso to Section 11AC will also commence from the date of the Appellate Order.
6. In this context, we may say that the reliance placed by the Tribunal on the judgement of the Bombay High Court in : Commissioner of Central Excise and Customs, Aurangabad v. V.V. Patil S.S.K. Limited, 2007 (215) E.L.T. 23 (Bom.) was misdirected. According to us, the Tribunal has completely misunderstood the ratio of the judgement. This was a case, in which, the Bombay High Court held that there was no discretion vested in the Authorities to reduce the penalty below the minimum prescribed under the Act. The Court was not called upon to deal with the issue, that we have been called upon to decide. According to us, the judgement is completely distinguishable from the facts obtaining in the present case.
6.1 An apposite judgement, in our view, would be the judgement of the Division Bench of the Delhi High Court in K.P. Pouchers (P) Ltd. v. Union of India, 2008 (228) E.L.T. 31 (Del). In this, none of the statutory authorities had given an option to the Assessee to pay duty at a scaled down amount in terms of the first proviso to Section 11AC. In the background of these broad facts, the Court made the observations :
“ 17. We are of the opinion that Section 11AC of the Act and its two provisions have to be given a meaningful interpretation. The purpose of the Section and the provisos is to give a benefit to the Assessee if he pays the duty demanded within 30 days of the adjudication order. In that event, the Assessee would be liable to pay only 25% of the duty amount by way of penalty, otherwise he would be liable to pay 100% of the duty amount by way of penalty.
18. In the present case, as we have already noticed, the Assessee deposited the entire duty amount well before the show cause notice was issued and, therefore, the Assessee would be liable to pay only 25% of the duty amount as penalty.
19. It is quite clear that under these circumstances, the Assistant Commissioner could not have demanded more than 25% of the duty amount by way of penalty, in view of the first proviso to Section 11AC of the Act. Unfortunately, for reasons that are not available on record, the Assistant Commissioner demanded 100% of the duty amount by way of penalty. This was incorrect and contrary to the benefit that the Assessee was statutorily entitled to under the first proviso to Section 11AC of the Act.
20. Since the Assistant Commissioner had wrongly demanded 100% o f the duty by way of penalty and the Assessee was under no obligation to pay it, the Assessee preferred an appeal before the Commissioner (Appeals) as well as before the Tribunal. Neither of these authorities paid heed to the terms of the first proviso to Section 11AC of the Act.
21.As far as we are concerned, no one can say that if the Assistant Commissioner had in fact imposed only 25% of the duty amount by way of penalty (as he should have), the Assessee would not have paid the penalty amount within 30 days of the adjudication order. However, the benefit of doubt in this regard must go to the Assessee considering the bona fides, which are obvious from the fact that the Assessee debited the duty amount on the date of the search, well before a show cause notice was issued to it. Under these circumstances, we can only inter that if the correct penalty had been imposed upon the Assessee, he could have paid it within the time prescribed.
22. The fact that the Assistant Commissioner levied an incorrect penalty left the Assessee with no option but to challenge it otherwise he would have had to pay the full penalty amount, which is statutorily not leviable, and then claim a refund of 75% excess penalty paid. Having rightly challenged the imposition, it cannot be said that the Assessee had no intention of paying the penalty within time and saddle itself with an avoidable liability. On the contrary, it could easily be assumed (given the conduct of the Assessee) that if the correct penalty has been imposed, the Assessee would have paid it during the time prescribed.
23. Since the statutory authorities have themselves acted illegally and contrary to the first proviso to Section 11AC, the Assessee cannot be faulted for challenging the order passed by the Assistant Commissioner. Unfortunately, the error committed by the Assistant Commissioner was repeated by the Commissioner (Appeals) as well as by the Tribunal.
24. Consequently, the failure of the Assessee to pay the penalty amount within 30 days of the adjudication order cannot be held against the Assessee on the facts of the present case.”
(emphasis is ours)
6.2 As would be evident from the observations extracted above from the judgement of the Delhi High Court in K.P. Pouchers case, the Court seems to have gone further, by observing that it is incumbent on the part of the statutory authorities to bring to the notice of the Assessee that it is entitled to a statutory “benefit” under the first proviso to Section 11AC.
6.3 We may only note that this aspect of the matter does not arise strictly in the instant case. What we were called upon to decide was whether the Commissioner (Appeals) could have given an option to the Assessee to pay lesser amount of penalty in terms of the first proviso to Section 11AC.
7. In view of our discussion above, we are inclined to agree with the Assessee that the impugned order of the Tribunal cannot be sustained. It is, accordingly, ordered.
8. Thus, insofar as Question No. 1 is concerned, the same is answered in favour of the Assessee and against the Revenue. As regards Question No. 2, in our view, the same has been rendered redundant, in the wake of the conclusion arrived at vis-à-vis Question No. 1.
9. Resultantly, the impugned order is set aside. The captioned appeal is allowed. There shall, however, be no order as to costs.”
7. Similar issue was decided by the Hon’ble High Court of Delhi in the case of K.P. Pouches (P) Ltd. Vs. Union of India – 2008 (228) ELT 31 (Del.).
8. After appreciating the facts and evidences placed before me and following the decision of the jurisdictional High Court in the case of AP Steels (supra). I am of the view that payment of 25% of the penalty amount paid by the appellant would suffice. The impugned order confirming the equal penalty is set aside without disturbing the confirmation of duty and interest. The appeal is partly allowed in above terms with consequential relief if any.
(Dictated and pronounced in open court)
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