BALAJI EXPORTS Vs. COMMISSIONER OF CENTRAL EXCISE, SURAT

JUDGEMENT

(1.) THIS is a case of illicit removal of raw materials procured without payment of duty by the appellants 100% EOU.

(2.) HEARD both the sides. Ld. Consultant on behalf of the appellants submits that there is no evidence of clandestine removal and the duty demanded has already been paid before issue of show cause notice. Therefore the penalty u/s 11AC may be reduced to 25%. On the other hand ld. DR submits that it is not only the shortage found but there is a clear admission by the receiver of the goods that he has received the same without payment of duty. He also submits that in view of the Honble Supreme Court decision in the case of M/s. Dharmendra Textile Processors [2008 (231) E.L.T. (S.C.) = 2008 (89) RLT 103 (SC -LB)], penalty under Section 11AC is mandatory unless the duty, interest and penalty have been paid before the issue of adjudication order or within a month of the adjudication order.

(3.) I have considered rival submissions. No doubt the Honble Supreme Court has held that penalty u/s 11AC is mandatory unless the duty, interest and penalty have been paid before the issue of adjudication order or within a month of the adjudication order. But before blindly applying the judgment of the Honble Court, we have to note that there have been different views regarding mandatory penalty imposable u/s 11AC of C.E. Act, 1944. Initially the Tribunal had taken a view that no penalty can be imposed if the duty thereon paid before issue of show cause notice. This was a decision of the Larger Bench of the Tribunal in M/s. Machino Montell (I) Ltd. [2004 (168) E.L.T. 466 (T -LB)]. However, this decision on an appeal filed by the Commissioner, was reversed by the Honble High Court of Punjab and Haryana reported in 2006 (202) E.L.T. 398 (P&H). However, in between also there was a decision of the Honble High Court of Delhi in M/s. Malbro Appliances P. Ltd. reported in 2007 (208) E.L.T. 503 (Del.) = 2007 (5) S.T.R. 256 (Del.) wherein a view was taken that if the duty was paid before the issue of show cause notice, penalty would be limited to 25%. This was further affirmed by the Honble High Court of Delhi in M/s. K.P.Pouches Ltd. [2008 (228) E.L.T. 13 (Del.) = 2008 (85) RLT 483]. In view of the different decisions during different periods and also in view of the decision of the Larger Bench of the Tribunal and also in view of the fact that the matter of mandatory penalty was pending before the Honble Supreme Court for some time, the appellants cannot be found fault with their approach i.e. wait for the decision finally so that they know the exact situation as far as mandatory penalty is concerned. They cannot also be found fault with if they hope that the penalty could be 25% wherever duties have been paid before issue of show cause notice or it can be nil rather than being 100%. Therefore, it is quite possible that the appellants had a bona fide belief that penalty would be 25% under Section 11AC if duty was paid before issuance of show cause notice and therefore would not have made the payment immediately after the adjudication order. Further Section 11AC creates a right of payment of penalty at a reduced rate i.e. if the payment is made within a month of the adjudication order. Section 35F creates a right of hearing the appeal by waiving the requirement of pre -deposit of duties and penalties. If a strict interpretation of Section 11AC is made for the purpose of penalty of 100%, it would mean that even if the party chooses to file an appeal against the order, he has to deposit the duty, interest and the penalty within 30 days of the adjudication order and otherwise he would lose the benefit of reduction of penalty to 25%, if the payment is not made within 30 days of the adjudication order. This would virtually nullify the provisions of Section 35F and therefore there is a need to construct the meaning of Section 11AC and Section 35F of Central Excise Act, 1944 harmoniously. This can be achieved by interpreting Section 11AC to mean that if the appellants desire to go in appeal and if the stay petition is allowed, the benefit of reduction of 25% would shift to the stage of appellate order and so on. Therefore if the Tribunal has admitted the appeal without insisting on pre -deposit of the mandatory penalty and other liabilities, the appellant would be entitled to reduction of mandatory penalty under Section 11AC to 25% if he makes the payment within 30 days from the date of communication of the order. Such a conclusion is also supported by proviso to Section 11AC which provides that where the duty determined and payable is reduced or increased by the Commissioner (Appeals), the appellate Tribunal or, as the case may be, the Court, then for the purposes of this section, the duty is reduced or increased as the case may be shall be taken into account.) In view of the above discussion, if the appellant makes the payment of penalty within 30 days of the communication of this order, it would be sufficient for reduction of penalty to 25% of the duty amount subject to the condition that full duty amount, interest are also deposited along with penalty. Failure to deposit either the duty or interest or penalty to the extent of 25% in full within 30 days would result in penalty u/s 11AC to the extent of 100% equal to the duty. Since the appellants have already paid full duty and interest, penalty u/s 11AC shall be 25% of duty if paid within 30 days of communication of this order and will be 100% of duty if paid thereafter. (Pronounced in Court on 13 -1 -2009)