Judgment:
F.M. Ibrahim Kalifulla, J.
1. The Commissioner of Central Excise, Chennai, is the appellant herein. Challenge is to the order of the CESTAT (Customs, Excise and Service Tax Appellate Tribunal), South Zone, Chennai, dated 20.7.2005, passed in Appeal Nos. E/1318/04 and E/1428/04.
2. This appeal was entertained on the following substantial question of law:
Whether the penalty amount mentioned in Section 11AC of the Central Excise Act, 1944, is the discretion of the Quasi Judicial Authority viz., the Tribunal.
3. The issue arises in the following circumstances:
(a) The first respondent/Assessee had taken 50% of the duty paid on the capital goods as Modvat Credit in 1999-2000 and taken Cenvat Credit to the value of Rs. 1,42,559/- vide RG23C Sl. No. 25 on 24.12.1998 for capital goods along with spares, received under invoice No. 1485 dated 7.12.1998 from M/s. Cadmach Machinery Company Limited, Ahmedabad.
(b) Subsequently, under their own private invoice MC001 dated 9.9.2000 the said machineries were removed by the first respondent from Chennai to Mumbai for a value of Rs. 7,08,366/- without payment of duty. Though the removal of the said goods were reflected in the statement of fixed assets for the financial year 2000-2001, it was not disclosed to the department by the first respondent/Assessee.
(c) The Department, therefore issued a show cause notice dated 31.12.2003, calling upon the first respondent/Assessee to show cause as to why duty should not be levied on the capital goods under Section 11A along with interest under Section 11AB and levy of penalty under Section 11AC of the Act. After issuance of the show cause notice and during the course of adjudication of the case, the first respondent came forward to reverse the credit, which had been irregularly availed on the capital goods.
(d) The adjudicating authority therefore held that the first respondent was liable to pay duty amounting to Rs. 1,56,062/- under proviso to Section 11A(1) of the Central Excise Act, 1944, apart from the debit entry of the amount of Rs. 1,54,633/- and Rs. 1,429/- after issue of the show cause notice, and also a penalty of Rs. 1,56,062/- i.e., the equal amount of the duty under Section 11AC of the Act. The Original Authority also directed for recovery of interest from the first respondent.
(e) On appeal, the Commissioner of Central Excise, while upholding the liability of duty as well as penalty, took the view that interest of justice can be met by scaling down the penalty under Section 11AC from the equal amount of duty to a sum of Rs. 1,00,000/-, apart from interest payable under Section 11AB of the Act.
(f) However, on further appeal preferred by the Assessee as well as by the Department, the Tribunal, even after finding the first respondent/Assessee guilty of wrong availing of the Cenvat credit and also holding its failure to reverse the credit immediately after the same was pointed out to it by the audit party of the department, ultimately reduced the penalty to Rs. 50,000/-, while upholding the levy of interest under Section 11AB of the Act.
(g) It is as against the above order of the Tribunal, the Department has come forward with this appeal. The first respondent/Assessee has however not chosen to challenge the said order.
4. We heard Mr. K. Ravichandra Babu, learned Senior Central Government Standing Counsel appearing for the appellant. The learned Counsel for the first respondent remained absent.
5. The learned Senior Central Government Standing Counsel brought to the notice of this Court a Larger Bench decision of the Honourable Supreme Court reported in : 2008 (231) ELT 3 (SC) Union of India v. Dharmendra Textile Processors wherein the question of law, which has now been raised in this appeal, came up for consideration. The issue posed for consideration in the said decision was to the following effect,
Whether Section 11AC of the Central Excise Act, 1944 (in short the 'Act') inserted by Finance Act, 1996, with the intention of imposing mandatory penalty on persons who evaded payment of tax should be read to contain mens rea as an essential ingredient and whether there is a scope for levying penalty below the prescribed minimum.
Ultimately the Honourable Supreme Court answered the said question as under in paragraphs 26 and 27 (in ELT),
26. In Union Budget of 1996-1997, Section 11AC of the Act was introduced. It has made the position clear that there is no scope for any discretion. In Para 136 of the Union Budget reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the Notes on Clauses also the similar indication has been given.
27. Above being the position, the plea that Rules 96-ZQ and 96-ZO have a concept of discretion inbuilt cannot be sustained. Dilip Shroff case was not correctly decided but SEBI case has analysed the legal position in the correct perspectives. The reference is answered. The matter shall now be placed before the Division Bench to deal with the matter in the light of what has been stated above, only so far as the cases where challenge to vires of Rule 967-Q(5) are concerned. In all other cases the orders of the High Court or the Tribunal, as the case may be, are quashed and the matter remitted to it for disposal in the light of present judgments. Appeals except Civil Appeals Nos. 3397 & 3398-99 of 2003, 4096 of 2004, 3388 & 5277 of 2006, 4316, 4317, 675 and 1420 of 2007 and appeal relating to SLP(C) No. 21751 of 2007 are allowed and the excepted appeals shall now be placed before the Division Bench for disposal.' Subsequently the said decision came up for interpretation before the Honourable Supreme Court in the decision reported in JT 2009 (7) SC 314 Union of India v. Rajasthan Spinning and Weaving Mills. In the said decision, the Honourable Supreme Court after referring to paragraphs 26 and 27 of the Dharmendra Mill's case (cited supra) has held as under in paragraphs 21 and 23
21. From the above, we fail to see how the decision of Dharmendra Textile can be said to hold that Section 11AC would apply to every case of non-payment or short payment of duty regardless of the conditions expressly mentioned in the section for its application.
23. The decision in Dharmendra Textile must, therefore, be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under Sub-section (2) of Section 11A. That is what Dharmendra Textile decides.
A combined reading of above two paragraphs in both the decisions leads us to the conclusion that when once the application of Section 11AC to a case is imperative, thereafter there could be no discretion in quantifying the amount of penalty, but the penalty must be imposed equally to the duty determined under Section 11A(2) of the Act.
6. With the above legal position in mind when we examine the case on hand, a perusal of the Appellate Tribunal's order discloses that there was every justification for invoking Section 11AC on the first respondent/Assessee. The findings of the Tribunal have been recorded in paragraph 4 of the order, which reads as under:
It appears from the facts of the case that the assessee has been working under self-removal procedure. Admittedly, they took 50% of the credit in 1999-2000 and the balance 50% in 2000-01, which indicates that they were aware of the relevant Modvat rules. Again, it is an admitted fact that, in March, 2002, their mistake of having removed the capital goods without payment of duty/reversal of credit out of their factory was pointed out to them by the audit party from the department. It has been submitted by the assessee's representatives today that no specific direction in writing was received from the department for payment of duty or reversal of credit on the capital goods. I am not impressed with this submission inasmuch as, in the scheme of self-removal procedure, it was incumbent on the assessee to promptly correct a mistake pointed out to them by the department. The assessee, however, did not care to correct the mistake. They received the SCN in December, 2003, wherein their mistake was categorically pointed out by the department. Even then, they did not feel like correcting the mistake. It was only during the course of adjudication of the case that they came forward to reverse the credit which had been irregularly availed on the capital goods. In these circumstances, it cannot be held that the assessee conducted themselves in a clean manner. Their conduct was, certainly, blameworthy. The department's allegation is that the assessee suppressed the fact that they had cleared the capital goods without payment of duty or reversal of credit, to their Bombay unit. Any intention to clear the goods in this manner had not been indicated even in their Modvat declaration. The allegation of suppression of fact with intent to evade payment of duty on the goods is apparently sustainable in this case. Hence neither the demand of interest under Section 11AB nor the penalty imposed under Section 11AC can be successfully resisted by the assessee. However, the quantum of penalty under Section 11AC, in the facts and circumstances of this case, requires to be reduced to a reasonable extent. I reduce it to Rs. 50,000/-. There is no scope for reduction of interest.
Therefore, once the Tribunal arrived at a conclusion that the allegation of suppression of the fact with an intend to evade duty of goods was sustainable and levy of penalty under Section 11AC cannot be resisted by the Assessee, it is axiomatic that such levy of penalty as provided under Section 11AC should be equal to the amount of duty levied under Section 11A(2) of the Act.
7. Having regard to the said legal position, the order of the Commissioner of Central Excise (Appeals) dated 31.8.2004 as well as the Appellate Tribunal dated 20.7.2005 insofar as reducing the penalty under Section 11AC is set aside and that of the Original Authority dated 15.6.2004 shall stand confirmed. The question of law is answered in favour of the Appellant and the appeal stands allowed. No costs.