CA Urvashi Porwal
Brief of the case- In the case of Commissioner of Central Excise V/s M/s. Sunrise Zinc Ltd. it has been held by Goa High Court held that where non-payment of duty is not with an intent to evade of payment then there can be no occasion to impose penalty under Section 11AC of the Central Excise Act.
On 18/02/1999 the Officers of Central Excise Department intercepted a tempo van. On examination, it was found that the said van was loaded with 20 drums of chemicals under the brand name of DEHPA (spent) (hereinafter referred to as ‘goods’) which had been loaded from the factory of the respondent. However, the goods were not accompanied with any document evidencing the payment of central excise duty. On inquiry with M/s. Sunrise Zinc Ltd. it was confirmed that the goods were removed without payment of central excise duty and only on a commercial invoice. The goods were seized by the Officers of Central Excise Department under the belief that they are liable for confiscation.
Consequent to an inquiry carried out by the Department show case notice came to be issued to the respondent.
The basis of the above notice was that the respondent had removed goods without payment of duty and, therefore, they are liable not only for payment of duty but also penalty. The respondent filed its reply to the show cause notice and inter alia pointed the fact that they had paid the duty amount payable on the 4000 kgs of the goods much before the issue of the show cause notice. Besides, they were under a bonafide belief that the said goods had become unserviceable being in nature of waste/sludge therefore, not dutiable. Thus non-payment of duty was on the basis of bonafide understanding that the said goods were waste.
The Commissioner of Central Excise confirmed the show cause notice. However, the demand was reduced and, consequently, an equivalent penalty was also imposed upon the respondent under Rule 57U read with 173Q of the Rules read with Section 11AC of the Act.
Being aggrieved, the respondent filed an appeal to the Tribunal only with regard to penalty. The demand of duty was accepted. By its order the Tribunal held that the respondent had recorded the sale of the said goods in their books of account and had cleared the same on commercial invoice. This clearance of the goods without payment of duty was on the basis of a bonafide belief that the said goods were not excisable. Besides, the impugned order also recorded the fact that as the entire amount of duty and interest had been paid before the issue of show cause notice no occasion to impose any penalty could arise. Thus the Tribunal by the impugned order set aside the penalty imposed upon the respondent. Being aggrieved on dropping of the penalty the Revenue had filed the present appeal.
Contentions of the Revenue
The Revenue contended that in view of Section 11AC of the Act which was invoked along with Rule 57U of the Rules for the purposes of imposing penalty does not give any discretion to the authorities to waive penalty. In support of the aforesaid submissions the revenue placed reliance upon the decision of the Supreme Court in the case of Union of India V/s. Rajasthan Spinning & Weaving Mills reported in 2009 (238) E.L.T. 3(S.C.). According to revenue there is no discretion left with the authorities under the Act to waive penalty once Section 11AC of the Act has been invoked. Revenue further submitted that merely because the duty along with interest has been paid before the issue of show cause notice penalty does not stand automatically waived. In support of the above, the revenue relied upon the decision of the Supreme Court in Rajasthan Spinning & Weaving Mills (supra) wherein it has been observed that where duty has been paid before issue of show cause notice, but the original non-payment was with an intent to evade duty, then the mere payment of duty prior to issue of show cause notice would not absolve the Assessee from being liable for penalty.
Contentions of the Assessee
The Assessee placed reliance upon the decision of the Supreme Court in Rajasthan Spinning & Weaving Mills (supra) to point out that provisions of Section 11AC of the Act would be invoked only where duty of excise has not been paid by reason of fraud, collusion and willful misstatement or suppression of facts. In this case, the impugned order has recorded that the non-payment of duty arose on account of bonafide belief on the part of the respondent that no duty is payable on the said goods. Consequently, mandatory penalty under Section 11AC of the Act would not have any application where the non-payment of duty was bonafide. In such cases, authorities would be correct in not imposing any penalty.
Held by Hon’ble High Court of Bombay at Goa
The Hon’ble High Court stated that the issue is no longer res integra as a Division Bench of this Court in the case of Commissioner of Central Excise, Mumbai-V V/s. Guru Plastics Work reported in 2010 (261) E.L.T. 60 (Bom.) had occasion to consider an identical issue. This Court after considering the decision of the Supreme Court in Rajasthan Spinning & Weaving Mills (supra) held that where non-payment of duty is not with intent to evade of payment then there can be no occasion to impose penalty under Section 11AC of the Act. In the present facts, the impugned order has recorded a finding of fact that the non-payment of duty on the goods by the respondent was on account of bonafide understanding that the said goods are not chargeable to excise duty. Thus, the condition precedent for invoking Section 11AC of the Act is not satisfied in the present facts. Consequently, in such cases the authority cannot impose a penalty under Rule 57U read with Section 11AC of the Act. In fact, it is pertinent to note that even under Rule 57U of the Rules penalty is imposable only when there has been intent to evade payment of duty. The factual finding arrived at in the impugned order has not been shown to be arbitrary or perverse.
In view of the above, the appeal has been dismissed.