ORDER
Madan B. Lokur, J.
1. The Assessee is aggrieved by an order dated 15th February, 2007 read with an order dated 27th July, 2007 [2007 (220) E.L.T. 960 (Tri.-Del.) passed by the Customs, Excise and Service Tax Appellate Tribunal (the Tribunal) in Excise Appeal No. 2134/2005-NI3(SM) and Excise Miscellaneous Application No. 447/2005- SM(BR) respectively.
2. After hearing learned Counsel for the parties, we admit this appeal and frame the following substantial question of law for consideration:
Whether the Customs, Excise and Service Tax Appellate Tribunal was correct in law in upholding the imposition of 100% penalty on the Assessee in terms of Section 11AC of the Central Excise Act, 1944?
3. Filing of paper books is dispensed with.
4. The broad facts of the case are that the Assessee is a manufacturer of Ghutka. On 16th September, 2003, two tempos carrying Ghutka were intercepted by the Excise Authorities and on an enquiry from the tempo staff, they reached the factory premises of the Assessee.
5. One Mahesh Kumar, who is an employee of the Assessee was questioned by the Central Excise Officers and he admitted to have cleared the goods without payment of duty. He further stated that he has done this despite the specific direction from the Director not to do so.
6. The Director of the Company was also examined by the Central Excise Officers and he admitted that his employee had committed a mistake and he took full responsibility for the acts of his employee.
7. On the same date, by making an adjustment in the PLA Register vide Entry Nos. 105 and 106 dated 16th September, 2003, the duty in respect of the goods being Rs. 2,73,488/- was debited by the Assessee.
8. Thereafter, a show cause notice dated 10th March, 2004/11th August, 2004 was issued by the Assistant Commissioner, Central Excise in which it was mentioned in para 8 thereof that the debit entry had voluntarily and admittedly been made by the Assessee towards duty payable on the goods.
9. On the conclusion of the adjudication proceedings, the Assistant Commissioner passed an order dated 30th August, 2004 wherein he found that the Assessee had violated the provisions of the Central Excise Act, 1944 (for short the Act), and ordered confiscation of the goods and also appropriation of the duty amount of Rs. 2,73,488/-. The Assistant Commissioner also imposed a penalty on the Assessee of 100% of the duty under the provisions of Section 11AC of the Act.
10. According to the Assessee, in view of the first proviso to Section 11AC of the Act, penalty in excess of 25% could not have been' levied since the entire duty was paid by the Assessee on the date of the search and seizure, which was of course well before the date of the show cause notice.
11. Feeling aggrieved by the imposition of 100% penalty, the Assessee preferred an appeal before the Commissioner (Appeals) who passed an order dated 31st March, 2005 rejecting the contention of the Assessee.
12. Thereafter, the Assessee preferred an appeal before the Tribunal and the Tribunal also dismissed the appeal of the Assessee.
13. The Assessee then preferred a miscellaneous application before the Tribunal wherein it was pointed out that the Assessee had already paid the entire duty well before the date of the show cause notice. However, the Tribunal came to the conclusion that since the Assessee had not paid the penalty within 30 days of the adjudication order, it was not entitled to the benefit of the first proviso to Section 11AC of the Act.
14. It is under these circumstances that the Assessee has approached us by way of an appeal under Section 35-G of the Central Excise Act, 1944.
15. Before us, learned Counsel for the Revenue placed reliance upon the second proviso to Section 11AC of the Act and contended that since the penalty determined by the Assistant Commissioner was not paid by the Assessee within 30 days of the adjudication order, the Assessee is not entitled to the benefit of the first proviso to Section 11AC of the Act.
16. For facility, the provisions of Section 11AC of the Act and its two provisos that we are concerned with, are reproduced herein below:
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 willful mis-statement 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 be twenty-five percent of the duty so determined:
Provided further that the benefit of reduced penalty under the first proviso shall be available if the amount of penalty so determined has also been paid within the period of thirty day referred to in that proviso:
Provided also that xxx xxx xxx
Provided also that xxx xxx xxx
17. We are of the opinion that Section 11AC of the Act and its two provisos 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 the 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% of 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 its 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 infer that if the correct penalty had been imposed upon the Assessee, he would 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.
25. Learned Counsel for the Assessee has brought to our notice that an amount of Rs. 50,000/- was deposited before the Tribunal at the time when its application for waiver of pre-deposit was heard. This amount is a little short of 25% of the duty amount. Learned Counsel for the Assessee says that he will make the balance payment within ten days of the receipt of the order passed by us today. In the event, the Assessee fails to make the payment within that time, the Respondents will be entitled to recover the entire penalty amount as adjudicated by the Tribunal.
26. The question of law is, therefore, answered in the negative, in favour of the Assessee and against the Revenue. The appeal is disposed of accordingly.
27. To obviate any similar situation from arising in future, we are of the opinion that in its adjudication order the adjudicating authority under the Act should explicitly state the options available to the Assessee under Section 11AC of the Act. Once the choices are made known to the Assessee and it still does not take advantage of the first proviso to Section 11AC of the Act, it will be entirely at its own peril. Therefore, it would be beneficial, both from the point of view of the Revenue as well as the Assessee, if the options available to the Assessee are mentioned in the adjudication order itself.
28. A copy of this order be given dasti to learned Counsel for the both the parties.