2. The appeal by the Commissioner is against the order of the Commissioner (Appeals) reducing the penalty imposed under Section 11AC on the assessee from Rs 32,385/- to Rs 20,416/-.
3. I have heard the departmental representative. The respondent is absent and unrepresented despite notice.
4. The Commissioner (Appeals) has relied upon the decision of the Tribunal in Hindustan Wires Ltd v. CCE 2002 (148) ELT 577 which he says has been confirmed by the Supreme Court on 14.11.2002 (without giving further details) for his conclusion that penalty referred to in section 11AC, being equal to the duty is mandatory and the adjudicating authority or appellate authority had his discretion to impose, disturb or reduce it.
5. The contention in the appeal is that penalty prescribed under section 11AC of the Act is the minimum penalty and the maximum is contained in Rule 173Q. The reasoning for this proposition contained in the appeal is summarised by the departmental representative as follows, (i) As held by the Supreme Court in P & B Pharmaceuticals Pvt Ltd v.CCE 2003 (55) RLT 275, penalty under Rule 173Q can only be imposable if the extended period of limitation contained in Section 11A (1) is invoked. Penalty under Rule 173Q is imposed for goods involving non payment or short payment of duty. In such a case where the extended period limitation invoked, the provisions of Section 11AC would not also apply. Rule 173Q is subject to the provisions contained in Section 11AC. Hence in case where duty has been short paid or not paid by reasons of any of the factors specified in the proviso under Section 11A (1), penalty under both Rule 173Q and Section 11AC is imposable. In such a situation, Section 11AC prescribes the lower limit of penalty and Rule 173Q the higher.
6. There are several flaws which renders this argument unacceptable. It is not really necessary to consider whether the Supreme Court in P & B Pharmaceutical Pvt Ltd v. CCE 2003 (55) RLT 275 has said that penalty under Rule 173Q is not imposable when a case where the proviso under Section 11AC is not invoked. If the relevant sentence in paragraph 21 of the order reported in 2002 (148) RLT 55 is to be literally interpreted, as the departmental representative does, it would follow that penalty under Rule 173Q cannot be imposed in cases where the demand under the proviso to Section 11AC is not invoked or in other cases not involving demand under Section 11A, such as cases involving modvat credit, contravention of procedures etc. I do not think it would be correct to say that the Supreme Court has laid down such a proposition. Reading the sentence in the correct context, the Supreme Court has said since the demand failed on the ground of limitation, the proviso to Section 11A could not have been invoked. Therefore, penalty could not be imposed on the assessee. This is in fact the ratio of the judgment of the Supreme Court in CCE v. H.M.M. Ltd 1995 (76) ELT 497 and in Nagpur Alloy Castings Ltd v. CCE 2002 (142) ELT 515.
7. The second flaw is in trying to equate the duty equal to which penalty can be imposed under Section 11AC to the value of the goods up to three times which the penalty can be imposed. Duty on the goods may be equal to, lesser or greater than three times of value. The department's argument breaks down if the value of the goods is one third of the duty or less than that. This is the result of trying to compare two incomparables.
8. I do not think it is correct to say that phrase "subject to the provision contained in Section 11AC of the Act" occurring in Sub-rule (1) of Rule 173Q has to be so interpreted to mean that to be synonymous with in addition to the action to be taken under Section 11AC. By applying its normal meaning the term "subject to" appropriately can be construed to mean that where Section 11AC invoked, Rule 173Q could not be invoked. I however deliberately refrain from saying so this is not the issue before me and that can be decided on my reasoning so far.
9. This reasoning further fails when one consider the proviso to Section 11AC as it stands now providing that penalty under Section 11AC shall be 25% of the duty if it is paid within thirty days of the date of communication of the order along with duty. The departmental representative is not able to explain how his claim applies in that contingency.
10. The decision of this Tribunal in Escorts JCB Ltd v. CCE 2000 (118) ELT 650 was set aside on the merits of the issue by the Supreme Court and therefore is no longer sound authority for the proposition that penalty specified in Section 11AC is only maximum and is mandatory.
However, the Supreme Court in its judgment in State of Madhya Pradesh v. Bharat Heavy Electricals Ltd 1998 (99) ELT 33 has held that, the liability contained in Section 7(5) of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 for payment of penalty equal to ten times the payment of entry tax is only refers to the maximum amount of penalty that should be levied, assessing officer has the discretion to levy lesser amount depending upon the facts and circumstances of each case. I therefore do not find any justifiable ground for interference.