prpri Intent to evade payment duty is a sina qua non for invoking penal provision u/s. 11AC Intent to evade payment duty is a sina qua non for invoking penal provision u/s. 11AC

Case Law Details

Case Name : M/s. Landis + Gyr Ltd. Vs CCE-KOL-V (CESTAT Kolkata)
Appeal Number : Order No. A-866 (Kol) Of 2012
Date of Judgement/Order : 04/12/2012
Related Assessment Year :


Landis + Gyr Ltd.


Commissioner of Central Excise


Order No. A-866 (Kol) OF 2012
Appeal No. Ex.Ap. 890 OF 2011

Date of Pronouncement- 04.12.2012


1. This is an Appeal filed by the Appellant against Order-in-Appeal No. 66/KOL-V/2011 dated 09.08.2011.

2. Briefly stated the facts of the case are that the Appellant are engaged in the manufacture of Electric Meter falling under chapter 90 of C.E.T.A., 1985. Also, during the period June 2005 to May 2007 they have received small quantity of Electric Meter for trading purpose and the same were traded. In the manufacture and trading of the said electric meters, they had availed CENVAT credit paid on the input Services viz. G.T.A. Service and business auxiliary services. On being pointed out by Audit they had reversed the proportionate CENVAT Credit amounting to Rs.3,41,397/- on 10.07.2007 availed on the traded goods and also, paid the interest of Rs. 10,477/- on 20.09.2007. A Show Cause Notice was issued to them on 10.02.2009 proposing penalty under section 11AC and also proposing as to why extended period of five years should not be invoked under section 11A(1) of Central Excise Act, 1944. On adjudication, the Ld. Asst. Commissioner has imposed a penalty of Rs. 3,41,397/- under section 11AC of Central Excise Act, 1944. Aggrieved, the appellant filed Appeal before the Commissioner(Appeals). Ld.Commissioner(Appeals) upheld the order-in-original and rejected the appeal filed by the appellant. Hence the present appeal.

3. Ld. Chartered Accountant for the appellant submitted that during the initial period of trading involving a very insignificant quantity of electric meters, they had taken CENVAT Credit on the input services namely, G.T.A. and Business Auxiliary Service, utilized for the traded goods as well as for the manufactured goods. It was a bona fide mistake, as they were not aware of the provisions that no CENVAT Credit on input services used for traded goods were admissible to them. However, as soon as the mistake was pointed out by the visiting C.E.R.A. Audit, the entire credit was reversed on 10.07.2007 and also they had paid the interest on the said CENVAT credit. Ld. Chartered Accountant contended that before invoking section 11AC, it is necessary that the duty should first be determined under section 11A(2) of Central Excise Act, 1944, but in the present appeal no demand has been proposed in the show cause notice, only penalty has been proposed under section 11AC of Central Excise Act, 1944. Ld. Chartered Accountant further submitted that there is no suppression of fact as the entire amount of CENVAT Credit received and utilized both for traded as well as manufactured goods were duly accounted for in the CENVAT Credit register and the CENVAT Credit availed on the input services, were duly reflected in their monthly returns filed with the department. Therefore, there is no suppression of fact. Further he has submitted that in view of the provisions of section 11A(2B) of Central Excise Act, 1944, since the wrong credit pointed out by the CERA Audit was due to their a bona fide mistake, and immediately paid by them, the department ought not have issued the show cause notice proposing penalty under section 11AC of Central Excise Act, 1944. In this regard, he has referred to the judgement of Honorable Karnataka High Court in the case of CCE v. Geneva Fine Punch Enclosures Ltd. 2011 (267) ELT 481 and CCE & ST v. Adecco Flexione Works force Solutions Ltd. [2012] 34 STT 472. He has also referred to the Trade Notice No. 48/2008 issued by Commissionerate of Central Excise, Madurai.

4. Per contra ld. A.R.(Addl. Commr.) pointed out that in the brief facts of the show cause notice it is mentioned that the amount of irregular input service credit utilized was recoverable from the said assessee under Rule 14 of the said Rules read with section 11A of the Central Excise Act, 1944, along with interest at the appropriate rate under Rule 15(2) of the said Rules. However, he has fairly accepted that though while directing the Appellant to show cause, the said proposition had not been mentioned in the Notice. Further, he has submitted that CENVAT Credit being reversed for the period from June 2005 to May 2007, which was beyond the normal period, itself, shows that there had been an intention of wrong availment of CENVAT credit during the said period. Ld. A.R. further submitted that the Appellant could not produce any contrary evidence before the Commissioner(Appeals) rebutting the said allegation in the Notice. Further, he has submitted that the case laws furnished by the ld. Chartered Accountant are not applicable to the facts of the present case. Ld. A.R. referred to the judgement of Honorable Apex Court in the case of UOI v. Rajasthan Spg. & Wvg. Mills 2009 (238) ELT 3 and submitted that penalty is imposable under section 11AC of Central Excise, 1944.

5. In his rejoinder ld. Chartered Accountant submitted that the reference to the judgement in the case of Rajasthan Spg. & Weaving Mills (supra) is out of place, as in the said judgement the Honorable Supreme Court has laid down the principle of law and the same when applied to the facts of the present case, no penalty could be imposable under section 11AC of Central Excise Act, 1944.

6. Heard both sides and perused the record. Undisputedly the appellant had received input services viz. GTA and Business Auxiliary Service and used the same in or in relation to the manufacture and trading of Electric Meters. It is also not in dispute that credit of Rs. 3,41,397/- availed by the appellant on the said input services were not exclusively used in or in relation to the manufacture of Electricity Meters, but also used for trading purposes. Admitting the said wrong availment of credit, being pointed out by C.E.R.A. Audit, the appellant had reversed it and also paid the interest on the same. It is also not in dispute that the show cause notice was issued to them after a lapse of one and a half year i.e. on 10.04.2009 proposing penalty under section 11AC of Central Excise Act, 1944. I find that the show cause notice does not spell out the circumstances or facts which were suppressed and how the appellant had availed the said admissible CENVAT Credit with mala fide intention. I also find that the adjudicating authority as well as the appellate authority did not discuss the facts which were suppressed or mis-declared or mis-stated by the appellant, except observing that had the Audit not pointed out the said wrong credit, the amount would not have been recovered from the Appellant. I find this reasoning standing alone cannot be accepted as a ground for confirming suppression, mis-statement or mis-declaration of facts by the appellant, in availing the inadmissible CENVAT Credit on the input services used in the trading of the goods and not in or in relation to the manufacture of the goods.

7. Needless to mention, the very objective of conducting the Audit of records of an assessee is to ascertain the correctness of payment of duty, availment of CENVAT Credit, etc. Any shortcomings noticed during the course of Audit, itself cannot be reasoned that the deficiency was due to mala fide intention on the part of assessee. I find that Honorable High Court of Karnataka in Geneva Fine Punch Enclosures Ltd.’s case (supra) taking into consideration the judgement of the Honorable Apex Court in Rajasthan Spg. & Wvg. Mills’ case (supra) had observed as follows:-

“6. Therefore, the determination of liability to pay duty is a condition precedent for imposing penalty. If after demand of duty if the assessee without contesting the claim voluntarily pays the duty and interest payable thereon for the delay in payment of duty on the stipulated day, the question of the Officer determining the duty payable would not arise. It is only in cases duty is determined coupled with the fact that the duty is evaded by a reason of fraud, conclusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of this Act or the Rules made there under with intent to evade payment of duty, the liability to pay penalty arise. The Tribunal in the instant case on a careful consideration of the material on record has held firstly that there is no determination of duty. Secondly, the aforesaid requirement i.e. the cause of evasion of duty is not mentioned in the show cause notice. Further that the entire duty and interest was paid voluntarily on being pointed out. It held that no case for imposing the penalty is made out. The Commissioner was in total error in passing the order and imposing the penalty. Under these circumstances, we do not find any infirmity in the order passed by the Tribunal. No substantial question of law involved in this appeal that arises for consideration. Hence, the appeal is dismissed.”

8. On a plain reading of the said observation, it can safely be inferred that irrespective of the fact whether duty was paid either involving extended period or otherwise, or paid voluntarily or in pursuance to a demand notice, unless it is found that the duty short paid or not paid was not on account of suppression of fact, mis-statement etc., penalty under section 11AC of Central Excise Act, 1944 cannot be justified. The Honorable Supreme Court in Rajasthan Spig. & Wvg. Mills’ case (supra) laid down the said principle at para 19 of the said judgement as below:-

“19. From the aforesaid discussion it is clear that penalty under Section 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section.”

9. Therefore, mis-declaration, suppression of facts etc. with intent to evade payment duty is a sina qua non for invoking penal provision under section 11AC of the Act. In the present case, I do not find any suppression or misstatement or mis-declaration on the part of the appellant, brought out in the impugned Orders of the lower authorities. Consequently, in absence of the said ingredients, penalty under section 11AC cannot be justified. I also find that since no other penal provision has been invoked in the show cause notice other than Section 11AC, therefore, no penalty could be imposed on the appellant. In these circumstances, the ld. Commissioner’s order is set aside to the extent of confirmation of penalty imposed under section 11AC of Central Excise Act, 1944. Appeal disposed of as above.

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