180 TAXMAN 609 (SC)
SUPREME COURT OF INDIA
Union of India
Rajasthan Spg. & Wvg. Mills
AFTAB ALAM AND S.H. KAPADIA, JJ.
CIVIL APPEAL NOS. 3525 & 3527 OF 2009
MAY 12, 2009
Section 11AC of the Central Excise Act, 1944 - Penalty - For short-levy or non-levy of duty in certain cases - Period 1-7-2000 to 31-3-2004 - Whether penal provision of section 11AC would come into play only after an order is passed under section 11A(2) with finding that escaped duty was result of deception by assessee by adopting a means as indicated in section 11AC - Held, yes - Tribunal in its impugned orders, on finding that assessees had deposited excise duty short-paid before issue of show-cause notice, held that there was no warrant for levy of penalty under section 11AC on assessees - In instant appeal, revenue relying on decision in Union of India v. Dharamendra Textile Processors  306 ITR 277/174 Taxman 571 (SC) contended that mere non-payment or short payment would inevitably lead to imposition of penalty under section 11AC - Whether decision of Dharmendra Textile Processors (supra) could not be said to have held that section 11AC would apply to every case of non-payment or short payment of duty, regardless of conditions expressly mentioned in section for its application - Held, yes - Whether in view of said decision, though application of section 11AC would depend upon existence or otherwise of conditions expressly stated in section, once section is applicable in a case, concerned authority would have no discretion in quantifying amount and penalty must be imposed equal to duty determined under sub-section (2) of section 11A - Held, yes - Whether therefore, impugned orders passed by Tribunal were on a wrong premise and matter was to be remitted to Tribunal for fresh decision - Held, yes
Proceedings were initiated against the assessees for non-payment and short-payment of excise duty. The demand for duty was confirmed on the assessees and penalty under section 11AC was also imposed. However, the Tribunal in its impugned orders had taken a view that there was no warrant for levy of penalty since the assessees had deposited the duty even before the show-cause notice was issued. In the instant appeal, the revenue relying upon the decision in Union of India v. Dharamendra Textile Processors  306 ITR 277/174 Taxman 571 (SC), contended that mere non-payment or short payment of duty would inevitably lead to imposition of penalty equal to the amount by which duty was short paid.
Payment of differential duty, whether before or after the show-cause notice is issued, cannot alter liability for penalty, the conditions for which are clearly spelled out in section 11AC. [Para 2]
From section 11A(1) read with its proviso, it is clear that in case the short-payment, non-payment or erroneous refund of duty is unintended and not attributable to fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of the Act or of the rules made under it, with intent to evade payment of duty then the revenue can give notice for recovery of the duty to the person in default within one year from the relevant date. In other words, in the absence of any element of deception or malpractice, the recovery of duty can only be for a period not exceeding one year. But in case the non-payment, etc., of duty is intentional and by adopting any means as indicated in the proviso, then the period of notice and the period for which duty can be demanded, gets extended to five years. [Para 11]
Sub-section (2B) of section 11A provides that in case the person-in-default makes payment of the escaped amount of duty before the service of notice, then the revenue will not give him the notice under sub-section (1). This, perhaps, is the basis of the common, though erroneous view that no penalty would be leviable if the escaped amount of duty is paid before the service of notice. It, however, overlooks the two Explanations qualifying the main provision. Explanation 1 makes it clear that the payment would, nevertheless, be subject to imposition of interest under section 11AB. Explanation 2 makes it further clear that in case the escapement of duty is intentional and by reason of deception, the main provision of sub-section (2B) will have no application. [Para 15]
The main body of section 11AC(1) lays down the conditions and circumstances that would attract penalty and the various provisos enumerate the conditions, subject to which and the extent to which the penalty may be reduced. [Para 17]
One cannot fail to notice that both the provisos to sub-section (1) of section 11A and section 11AC use the same expressions ‘...by reasons of fraud, collusion or any wilful 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....’ In other words, the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under section 11A(1) states that the escaped duty was the result of any conscious and deliberate wrong-doing and in the order passed under section 11A(2), there is a legally tenable finding to that effect, then the provision of section 11AC would also get attracted. The converse of this, equally true, is that in the absence of such an allegation in the notice, the period for which the escaped duty may be reclaimed would be confined to one year and in the absence of such a finding in the order passed under section 11A(2), there would be no application of the penal provision of section 11AC. The penal provision of section 11AC would come into play only after an order is passed under section 11A(2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in section 11AC. [Para 18]
From the aforesaid discussion, it is clear that penalty under section 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section. [Para 19]
In almost every case relating to penalty, the decision of Dharamendra Textile Processors’ case (supra) is referred to on behalf of the revenue as it lays down that in every case of non-payment or short payment of duty, the penalty clause will automatically get attracted and the authority has no discretion in the matter. [Para 20]
From the said decision, one could fail to see how section 11C 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. [Para 21]
There was another very strong reason for holding that Dharamendra Textile Processors’ case (supra) could not have interpreted section 11AC in the manner as suggested because in that case, that was not even the stand of the revenue. [Para 22]
The decision in Dharamendra Textile Processors’ case (supra) 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 qualifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of section 11A. [Para 23]
In the light of the discussion made above, it was evident that in both the appeals, orders were passed by the Tribunal on a wrong premise. Therefore, the impugned orders passed by the Tribunal were to be set aside and the matter was remitted to the respective Tribunal for fresh consideration. [Para 25]
CASES REFERRED TO
Union of India v. Dharamendra Textile Processors  306 ITR 277/174 Taxman 571 (SC) [Para 2], Cosmic Dye Chemical v. CCE 1995 (75) ELT 721 (SC) [Para 12] and Continental Foundation Jt. Venture v. CCE 2007 (216) ELT 177 (SC) [Para 12].
Ashok Desai for the Appellant.