IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. CEA No. 36 of 2006 Date of Decision: December 16, 2009 Commissioner, Central Excise, Rohtak …Appellant Versus M/s Bhiwani Fibers Limited …Respondent CORAM: HON'BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE JASWANT SINGH Present: Mr. H.P.S. Ghuman, Senior Standing Counsel, (Indirect Taxes), for the appellant. None for the respondent. 1. To be referred to the Reporters or not? Yes 2. Whether the judgment should be reported in the Digest? M.M. KUMAR, J. This appeal filed by the Revenue under Section 35G of the Central Excise Act, 1944 (for brevity, ‘the Act’) challenges order dated 22.7.2005, passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (for brevity, ‘the Tribunal’). The Tribunal has placed reliance on its larger bench judgment in the case of CCE v. Machino Montell (I) Ltd., 2004 (168) ELT 466, to come to a conclusion that where the duty has been deposited by the dealer- assessee before issuance of show cause notice by the revenue then no CEA No. 36 of 2006 penalty could be imposed. Accordingly, the Tribunal has set aside the penalties imposed under Section 11AC of the Central Excise Act, 1944 (for brevity, ‘the Act’). The revenue has claimed that the following substantive question of law would arise for determination of this Court: “Whether the Tribunal is correct in holding that penalties (including personal penalties imposed on Managing Director and other employees of the firm) are not attracted where the respondents have deposited the duty prior to issue of show cause notice?” Brief facts of the case are that on 7.8.2001, the Preventive Officers of the Central Excise, Rohtak Division, visited the unit of the dealer-assessee and conducted a physical stock verification of finished and other goods lying in finishing room in the presence of Shri S.K. Yadav, DGM & Authorised Signatory, and two independent witnesses. It was found that 108 bags weighing 5400 Kgs. of cotton yarn valued at Rs. 2,65,710/- involving Central Excise duty of Rs. 24,446/- were in excess than the recorded balance in the daily stock register. Those goods were ready for despatch being fully finished and duly packed. Accordingly, it was apprehended that the dealer-assessee had the intention to remove the goods without payment of Central Excise duty, inasmuch as, the goods in question were not accounted for in the excise record. The goods were seized under Rule 24 of the Central Excise Rules, 2001 and Section 110 of the Customs Act, 1962 read with Section 12 of the Act. The 2 CEA No. 36 of 2006 statements of Shri S.K. Yadav, DGM & Authorised Signatory, Shri K.K. Mehta, Managing Director and Shri Ramesh Kumar, who was looking after the excise records, were recorded. On 4.4.2002, a show cause notice was issued. On 1.10.2001, the dealer-assessee through their letter voluntarily disclosed that they have cleared cotton yarn in cones amounting to Rs. 10,03,013.50 involving Central Excise duty of Rs. 92,277/- in the guise of plain reel hanks on which Central Excise duty was not paid. They also voluntarily deposited the duty of Rs. 92,277/- and interest of Rs. 9,348/-. The Adjudicating Authority after considering the factual position as well as statements of aforementioned persons and affording opportunity of personal hearing came to the conclusion that the dealer-assessee have clandestinely removed the cotton yard in cones without payment of duty in the guise of plain reel Hanks. The relevant extract of the observations made by the Adjudicating Authority reads thus:- “ In view of fore goings, I find that the party was engaged in removal of dutiable Cotton Yard (cotton yarn in cones) by mis-declaring the same as plain reel hanks without payment of duty with an intent to evade payment of duty and they have suppressed the proper identity of the goods from the department. ………Thus the charges framed in the show cause notice are proved beyond any shadow of doubt against the party and they are also liable to penal action in addition to duty on the goods 3 CEA No. 36 of 2006 clandestinely removed by them. Also, in my view, the role of Sh. K.K. Mehta, Managing Director, Sh. Balwan Singh, Production Manager, Sh. S.K. Yadav, DGM and Sh. Ramesh Kumar, Excise Clerk cannot be denied in developing such a modus-operandi, which resulted in deliberate clandestinely removal of dutiable Cotton yarn in cones, by misdeclaring the same as plain reel hanks, without payment of duty. Therefore, each of them is also liable for penal action under Rule 209A of erstwhile Central Excise Act, 1944 and Rule 26 of erstwhile Central Excise (No. 2) Rules, 2001.” (emphasis added) In view of the aforesaid categorical findings, the Adjudicating Authority confirmed and appropriated the duty of Rs. 92,277/- along with interest under Section 11A of the Act. He has also imposed a penalty of Rs. 92,277/- upon the dealer-assessee, Rs. 50,000/- upon Shri K.K. Mehta, Managing Director, Rs. 20,000/- upon Shri Balwan Singh, GM (Production), Rs. 15,000/- upon Shri S.K. Yadav, DGM and Rs. 10,000/- upon Shri Ramesh Chander, Excise Clerk of M/s Bhiwani Fibres Ltd., vide order-in-original dated 12.8.2003 (A-1). Aggrieved against the Order-in-Original, the aforementioned persons including the dealer-assessee preferred appeals before the Commissioner (Appeals). In all five appeals were filed. The Commissioner (Appeals) upheld the order passed by the Adjudicating Authority by categorically noticing as under: 4 CEA No. 36 of 2006 “ In the grounds of appeal the appellant No. 1 has not made any submissions against demand of duty by the original authority on the cotton yarn in cones clandestinely removed without payment of duty in the guise of plain reel hanks. The appellant has been only emphasizing that since duty has been deposited before issuance of show cause notice their case is clearly covered under the provisions of Section 71A(2B) of the Central Excise Act, 1944. I am not convinced with the argument made in this regard. A perusal of Section 11A (2B) clearly shows the provision of this sub section are not applicable where the duty was not levied or was not paid by reason of fraud, collusion or any willful misstatement or suppression of facts or contravention of any of the provisions of this Act or rules made there- under with intent to evade payment of duty. Since this is a case where cotton yarn in cone form has been cleared clandestinely without payment of Central Excise Duty in the guise of plain reel hanks, it is a clear case of suppression and contravention of the rules and that act will intent to evade payment of duty and as such the conclusion drawn by the original authority that the case is not covered under section 11A(2B) has been correctly arrived at. Further plea has been made by the appellant no. 1 that in any case since the entire duty was paid 5 CEA No. 36 of 2006 voluntarily even before issuance of show cause notice, no penalty should be levied under section 11AC or rule 173Q in view of various decision of the Hon’ble Tribunal. The ratio of various cases relied upon by the appellant no. 1 in this regard is not applicable in view of the decision of the Tribunal in the case of Elephanta Gases Vs. CCE Pune-I 2003 (155) ELT 435 (T-Mumbai). In this case the Hon’ble Tribunal has rejected a similar plea made by the appellant relying upon the decision of the Hon’ble Supreme Court in the case of Z.B. Nagarkar Vs. UOI 1992 (112) ELT 772 (SC). In the said judgment the Hon’ble Supreme Court has held that if the assessee contravenes any of the provisions of rules with intent to evade payment of duty, liability to pay penalty is mandatory under rule 173Q and Section 11AC of the Central Excise Act, 1944. In view of the same the demand of duty confirmed by the original authority against appellant No. 1 along with interest and imposition of penalty for any equal amount is perfectly in order is upheld.” On further appeal filed by the dealer-assessee and others, the Tribunal has set aside the penalties imposed by observing as under: “ The contention of the appellant is that no penalty is imposable in as much as the appellant had deposited the 6 CEA No. 36 of 2006 duty amount before the issue of Show-cause Notice. it is being pointed out that this issue remains settled by the decision of the Larger Bench of this Tribunal in the case of C.C.E. Delhi-III, Gurgaon vs. Machino Montel(I) Ltd.-2004 (168) ELT 466 (Tri. L.B). 2. The records show that this is a case where duty was paid by the assessee before the issue of Show Cause Notice. No penalty is attracted in such a case [2004 (168) ELT 466]. Penalties imposed are, therefore, set aside with consequential relief to the appellant.” The aforesaid view of the ‘Tribunal’ does not survive in the face of the observations made by Hon’ble the Supreme Court in the case of Union of India v. Rajasthan Spinning & Weaving Mills, 2009 (238) E.L.T. 3 (S.C.). In para 15 of the judgment, the aforesaid misconception has been attributed to misconstruction of Section 11A(2B) of the Act. The observation in extenso reads thus:- “ 15. 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 7 CEA No. 36 of 2006 clear that the payment would, nevertheless, be subject to imposition of interest under Section 11AB. Explanation 2 makes it further clear that in cqase the escape of duty is intentional and by reason of deception the main provision of sub section 2B will have no application.” The question then is whether the amount of penalty under Section 11 AC could be reduced or dropped is now stand settled by the judgment of Hon’ble the Supreme Court in the case of Union of India v. Dharamendra Textile Processors, 2008 (231) E.L.T. 3 (S.C) which has also been explained in the case of Rajasthan Spinning & Weaving Mills (supra). It has been categorically held that there is no discretion vested in the Assessing Officer to reduce or drop the amount of penalty. It is mandatory for him to impose the penalty equivalent to the amount of duty attempted to be evaded. The aforesaid judgment has been further explained by Hon’ble the Supreme Court in the case of M/s Rajasthan Spinning & Weaving Mills. Reiterating and explaining the view taken in the Dharamendra Textile’s case (supra), in para 23 of the judgment following observations have been made:- “23. The decision in Dharamendra 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 8 CEA No. 36 of 2006 quantifying the amount and penalty must be imposed equal to the duty determined under sub-section 92) of Section 11A. That is what Dharamendra Textile decides.” (emphasis added) When we apply the aforesaid judgment to the facts of the present appeal, no iota of doubt is left that the Tribunal clearly fell in error in dropping the amount of penalty contemplated by Section 11AC of the Act. From the facts of the present case it is clear that there was fraudulent and clandestine removal of goods with the intention to evade duty and Section 11AC of the Act would be attracted to the facts of the present case. Therefore, there is no escape from the conclusion that penalty equivalent to the amount of duty was imposable. Accordingly, the appeal is allowed and the view taken by the Tribunal is set aside. It is held that the amount of penalty has to be equivalent to the amount of duty as determined by the Order-in- Original dated 12.8.2003. The question of law is answered in favour of the revenue and against the dealer-assessee. (M.M. KUMAR) JUDGE (JASWANT SINGH) December 16, 2009 JUDGE Pkapoor 9