Case Law Details
Little Star Foods Pvt Ltd Vs Commissioner of Central Tax Medchal – GST (CESTAT Hyderabad)
In Little Star Foods Pvt Ltd vs Commissioner of Central Tax, Medchal, the CESTAT Hyderabad examined the limited issue of imposition of penalty under Rule 25 of the Central Excise Rules, 2002, along with appropriation of duty and interest already paid by the appellant.
The appellant was engaged in manufacturing “Cadbury Perk with Glucose Energy” on a job work basis for another company and received conversion charges. A dispute arose regarding the classification of the product, with the department denying the benefit of concessional duty under relevant exemption notifications. The adjudicating authority classified the product under a specific tariff heading, denied the concessional rate, confirmed duty demand of ₹4.19 crore, and imposed equal penalty.
Before the Tribunal, the appellant did not contest the classification or denial of concessional duty. Instead, the dispute was restricted to two issues: (i) non-appropriation of duty and interest already paid, and (ii) imposition of penalty under Rule 25.
On the first issue, the appellant submitted that the entire duty and interest amounts had already been paid and acknowledged by the department. Evidence including communication from the department confirmed payment of duty and interest. However, the department had not appropriated these amounts, citing pendency of appeal and non-payment of penalty.
The Tribunal observed that the demand of duty and interest was no longer in dispute and that the amounts had already been paid. It held that such payments must be appropriated against the confirmed demand, and the department cannot raise any further demand in respect of duty and interest once paid. Accordingly, the Tribunal directed that the amounts already paid stand appropriated.
On the second issue concerning penalty under Rule 25, the appellant argued that no specific sub-clause of Rule 25 had been invoked, and that penalty could not be imposed in absence of fraud, suppression, or intent to evade duty. It was further contended that since penalty under Section 11AC had been set aside in earlier proceedings, penalty under Rule 25 could not survive.
The department, on the other hand, argued that the matter had attained finality on merits, and the Tribunal in earlier proceedings had only set aside penalties under Section 11AC and Rule 26, without disturbing the penalty under Rule 25. It was also emphasized that the issue involved interpretation of exemption notification and absence of fraud had already been noted, but penalty under Rule 25 remained valid.
The Tribunal examined the provisions of Rule 25 in detail. It noted that Rule 25(1)(d) requires intent to evade duty for imposition of penalty. However, in cases falling under Rule 25(1)(a), (b), and (c), there is no requirement to establish mens rea or deliberate intent, and penalty can be imposed based on contravention of rules.
The Tribunal further clarified that Rule 25 is subject to Section 11AC, which provides for different categories of penalties. Even in cases where there is no fraud, collusion, or suppression, Section 11AC(1)(a) permits imposition of penalty up to 10% of the duty determined. Therefore, absence of mens rea does not automatically bar imposition of penalty.
In the present case, the adjudicating authority had restricted the penalty to 10% of the duty, considering that the demand pertained to the normal period and there was no element of fraud or suppression. The Tribunal found that this approach was consistent with the statutory provisions.
Accordingly, the Tribunal held that the penalty imposed under Rule 25, limited to 10% of duty, was legally sustainable and did not suffer from any infirmity.
In conclusion, the Tribunal upheld the duty demand and interest, directed appropriation of amounts already paid, and sustained the penalty under Rule 25. The appeal was partly allowed to the extent of appropriation of payments.
FULL TEXT OF THE CESTAT HYDERABAD ORDER
M/s Little Star Foods Pvt Ltd (hereinafter referred to as the appellant) are in appeal against the OIO dt.03.06.2022 to the extent of imposition of penalty of Rs.41,91,517/- under Rule 25 of Central Excise Rules (CER), 2022.
2. The brief facts of the case are that the appellants were engaged in manufacture of ‘Cadbury Perk with Glucose Energy’ on job work basis for M/s Cadbury India Ltd and were receiving conversion charges. There was certain dispute regarding classification of said product and the department felt that their products were not eligible for availing benefit of concessional rate of duty under Notification No. 03/2006-CE. On adjudication, the adjudicating authority classified the product under the Chapter sub-heading 19053290 as ‘coated wafers – other than wafer biscuits’ and denied the benefit of concessional rate of duty under Notification No. 12/2012-CE dt.17.03.2012 and also confirmed demand of Rs.4,19,55,168/- and also imposed equal penalty.
3. Learned Advocate for the appellant has mainly submitted that they are not contesting the classification confirmed or the denial of concessional rate of duty by the adjudicating authority and what they are contesting is that the adjudicating authority has not appropriated the entire duty and interest already discharged by them in this regard. They are also contesting the imposition of penalty under Rule 25 of CER, 2002. Insofar as non-appropriation of duty and interest already paid, it is now settled that the adjudicating authority himself has duly acknowledged/ confirmed the payment made by the appellant. In support thereof, he has submitted an email from Medchal GST Commissionerate indicating confirmation of payment of Rs.4,19,55,167/- towards duty and Rs.5,37,07,126/- towards interest. The department has only made an observation that such payment cannot be accepted as closure of dues, since they had filed a second appeal and also due for payment of penalty.
4. On the issue of levy of penalty under Rule 25, his main submission is that no specific sub-clause of Rule 25 was invoked contrary to the law laid down by the Hon’ble Supreme Court in the case of Amrit Foods Vs CCE, UP [2005 (190) ELT 433 (SC)] and Jeevan Diesels and Electricals Ltd Vs CCE, Puducherry [2019 (365) ELT 397 (Mad)]. He has further submitted that sub-clause (a) to (c) to Rule 25 have never been invoked against the appellant. It is his contention that since Rule 25 begins with the term ‘subject to provisions of section 11AC’ and hence the requirement of section 11AC is a condition subject to which power under Rule 25 can be exercised and therefore, once the Tribunal, in its earlier order, had categorically held that section 11AC is not attracted, the question of invoking Rule 25 does not even arise. He has also submitted that levy of penalty was not an issue in appeal before the Hon’ble Supreme Court.
5. On the other hand, learned AR has essentially submitted that impugned order is an order passed in denovo proceedings and in the earlier rounds, the matter had already reached up to Hon’ble Supreme Court and therefore, has attained finality. Even the earlier Tribunal order remanded the matter, which was contested by the appellant, by upholding the demand and has only remanded back for re-computation of the amount. The Tribunal also in their order dt.06.08.2019, inter alia, held that since the issue is interpretative in nature regarding exemption notification, therefore, the penalties imposed under section 11AC need to be set aside. It was also broadly observed that no element of fraud, collusion, willful misstatement, suppression of facts, etc., with an intent to evade payment of duty has been established. However the Tribunal did not set aside the penalty imposed under Rule 25.
6. Heard both sides and perused the records.
7. Insofar as merit of the case is concerned, we find that it is now settled and the demand confirmed by the adjudicating authority in the remand proceeding along with interest is correct. This is not even being disputed by the appellant. However, we also note that though they have already admittedly paid these amounts to the department, the same has not yet been appropriated by the department on the grounds that they had gone in appeal and also the fact that they have not yet paid the penalty imposed under Rule 25. We find that since the Central Excise duty and interest were already paid, the same will stand appropriated against duty and interest confirmed in the impugned order and department will not be raising any further demand in respect of such confirmation of duty and interest.
8. Insofar as penalty under Rule 25 is concerned, we find from the perusal of earlier order of the Tribunal dt.06.08.2019, it is obvious that what was set aside is penalty under section 11AC as also penalty under Rule 26 and there was no setting aside of penalty under Rule 25. Though it is an admitted fact that in view of clear observation and setting aside of section 11AC, the element of fraud, collusion, willful misstatement, etc., are not present in this case. Therefore, it is to be examined whether in the absence of such element, can penalty be imposed under Rule 25 or otherwise. The provisions of Rule 25 are as under.
“25. Confiscation and penalty.
(1) Subject to the provisions of section 11-AC of the Act, if any producer, manufacturer, registered person of a warehouse [or an importer who issues an invoice on which CENVAT credit can be taken,] [Inserted by Notification No. G.S.R. 153(E), dated 1.3.2015 (w.e.f. 1.3.2002)] or a registered dealer, –
(a) removes any excisable goods in contravention of any of the provisions of these rules or the notifications issued under these rules; or
(b) does not account for any excisable goods produced or manufactured or stored by him; or
(c) engages in the manufacture, production or storage of any excisable goods without having applied for the registration certificate required under section 6 of the Act; or
(d) contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty,
then, all such goods shall be liable to confiscation and the producer or manufacturer or registered person of the warehouse [or an importer who issues an invoice on which CENVAT credit can be taken,] [Inserted by Notification No. G.S.R. 153(E), dated 1.3.2015 (w.e.f. 1.3.2002)] or a registered dealer, as the case may be, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or clause (c) or clause (d) has been committed, or [rupees five thousand] [Substituted for "rupees two thousand” by Notification No. G.S.R. 153(E), dated 1.3.2015 (w.e.f. 1.3.2002)], whichever is greater.
(2) An order under sub-rule (1) shall be issued by the Central Excise Officer, following the principles of natural justice.”
9. A plain reading of this rule would clearly show that as per Rule 25(1)(d), if any producer, manufacturer, registered person of a warehouse or an importer contravenes any of the provisions of these rules or the notifications issued under these rules with an intent to evade payment of duty, penalty is leviable. Therefore, for levy of penalty under this provision in terms of Rule 25(1)(d), intent to evade payment of duty is to be present. However, we also note that in respect of situations covered by Rule 25(1)(a), (b) and (c), there is no such express provisions in the rules to establish any malafide intent or deliberate suppression, etc., and a mere action covered under the said category would be sufficient for imposing penalty. In other words, mens rea need not be established supporting intent in such cases. We find that in this case, the adjudicating authority has held that as the Tribunal has set aside the demand for extended period and therefore, he has confirmed demand only for the normal period. The adjudicating authority has analyzed the provisions of Rule 25 and held that penalty under Rule 25 can be invoked in terms of section 11AC(1)(a), which covers situations where fraud or collusion or willful misstatement are not present and in such situations they are liable to pay penalty not exceeding 10% of the duty so determined or Rs.5,000/-, whichever is higher. Therefore, even the ground taken by the learned Advocate for the appellant that section 11AC clearly covers only such cases where penalty cannot be imposed if there is no element of fraud, willful misstatement, collusion, etc., is not correct. We find that section 11AC(1)(a) clearly covers situation where no such element is required for imposition of penalty. In fact, section 11AC covers both the situations where the duty is determined for the past period within normal period as well as beyond the normal period and different penalties are invokable. While in the case of normal period or where there is no element of suppression, etc., penalty can go up to 10% or the duty determined. Therefore, the provisions of Rule 25, which is subject to provisions under section 11AC, has been exercised in this case for impositng penalty, however, restricting penalty only up to 10% of duty. Therefore, we do not find any infirmity in the order of the adjudicating authority imposing penalty of 10% of duty, which is consistent with the provisions of Rule 25 of CER, 2002.
10. To sum up,
a) Duty confirmed along with interest by the adjudicating authority in the impugned order is upheld.
b) Amount already paid towards said duty and interest will stand appropriated and no further demand can be raised by the department.
c) Imposition of penalty under Rule 25 is upheld.
11. Appeal allowed partly.
(Pronounced in the Open Court on 13.04.2026)
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