IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. CEA No. 17 of 2006 Date of Decision: December 16, 2009 Commissioner Central Excise, Ludhiana …Appellant Versus M/s Garg Concast Ltd. …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. Mr. Rajesh Garg, Advocate, for the respondent. 1. To be referred to the Reporters or not? Yes 2. Whether the judgment should be reported in the Digest? Yes M.M. KUMAR, J. This order shall dispose of CEA Nos. 10 and 17 of 2006 because common question of law and facts are involved. However, the facts are being referred from CEA No. 17 of 2006. These appeals have been filed by the Revenue under Section 35G of the Central Excise Act, 1944 (for brevity, ‘the Act’). In C.E.A. No. 10 of 2006, the order dated 7.9.2005, passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (for brevity, ‘the Tribunal’) is the subject matter of challenge, whereas in C.E.A. No. 17 of 2006, the CEA No. 17 of 2006 order dated 13.7.2005, passed by the Tribunal has been challenged. The Tribunal in the aforementioned orders has taken the view that the amount of penalty under Section 11AC of the Central Excise Act, 1944 (for brevity, ‘the Act’) could be reduced in the facts and circumstances of a particular case and accordingly it could has either dropped the penalty or have reduced the same. The Tribunal has also opined by placing reliance on its larger bench judgment in the case of CCE v. Machino Montell (I) Ltd., 2004 (168) ELT 466, holding that where the duty has been deposited by the dealer-assessee before issuance of show cause notice by the revenue then neither penalty could be imposed nor any interest could be demanded. Accordingly, the revenue has claimed by filing these appeals under Section 35G of the Act that the following substantive question of law would arise for determination of this Court: “Whether penalty under Section 11AC of the Central Excise Act, 1944, in cases where any duty of excise has not been levied or paid or has been short-levied or short paid by reasons or fraud, collusion or any willful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made there under with intent to evade payment of duty, is mandatory or discretionary in nature?” Brief facts as culled out from CEA No. 17 of 2006 are that the premises of the dealer-assessee was searched by the officers of the revenue on 23.8.2005. An envelop containing a sum of Rs. 2 CEA No. 17 of 2006 23,060/-, bearing the name ‘Balraj Garg’ was recovered from the pocket of Shri Mohammad Ikhlaq, who was the director of the dealer- assessee. The same was seized under Section 110 of the Custom Act, 1962 (for brevity, ‘the Custom Act’) on the presumption that the amount of cash represented the sale proceeds of ingots cleared without payment of Central Excise Duty. The search team upon physical verification of stock found that there was shortage of finished goods and raw materials. The statement of Shri Mohammad Ikhlaq was recorded under Section 14 of the Act wherein he stated that the envelop containing money was given to him by one Shri Phool Chand informing that the same was to be handed over to Shri Balraj Garg and the money was part of the payment in respect of clearances effected by them without issuing invoices. Shri Mohammad Ikhlaq also admitted the shortage of finished goods and raw material; the same were removed by them clandestinely from the factory without payment of duty and without cover of Central Excise invoice. It was sold in local market. He also explained that the shortage has occurred on account of use of raw material in the manufacture of steel ingots, which were cleared without accounting for in the statutory records and without payment of Central Excise duty. He also admitted the factum of manufacture and clearance of 200 MT of ingots without payment of duty and other shortcomings. A show cause notice under Section 121 of the Custom Act was issued to the dealer-assessee for confiscation of seized cash amounting to Rs. 23,060/- and for recovery of duty amounting to Rs. 3 CEA No. 17 of 2006 5,52,484/- under Section 11A along with interest under Section 11AB as well as proposing penalty under Section 11AC of the Act. On the basis of the aforesaid show cause notice, the Joint Commissioner-cum-Adjudicating Authority held that there is categorical admission by Shri Mohammad Ikhlaq, the Director of M/s GCL in his statement in writing that a khaki envelope containing an amount of Rs. 23,060/- was recovered from his pocket, which was given to him by Shri Phool Chand, who had informed him to hand over the same to Shri Balraj Garg, Director of M/s GCL. The amount was part of the payment in respect of clearance effected by them without issuing invoices and without payment of duty. The Order-in-Original further noticed that the shortage of finished goods and raw material was also admitted, which have been tabulated as under:- Sr. No. Description of goods Recorded Balance as per records Material Physically found Difference 1. Alloy Steel Ingots 54.310 MT 46.050 MT (-) 8.260 MT 2. Ferro Alloys 19.066 MT 11.300 MT (-) 7.760 MT 3. Imported scrap 140.855 MT 120.46 MT (-) 20.855 MT 4. Sponge Iron/ indigenous scrap 216.835 MT 193.240 MT (-) 23.595 MT In respect of shortage of 8.260 MT Alloy Steel Shri Mohammad Ikhlaq had stated that the goods were removed by them clandestinely from the factory without payment of duty and without 4 CEA No. 17 of 2006 cover of Central Excise invoice, which were sold in the local market. The purchaser from the local market included M/s Garg Forging and M/s Nandan Auto Tech., Kanganwal Road, Ludhiana. The shortage is stated to have accrued on account of use of raw material in the manufacture of steel ingots which were cleared without accounting for in the statutory records and without payment of Central Excise Duty. The Order-in-Original, dated 3.6.2004, also noticed the details which reads thus:- “ Also considering that 3200 kg of ingots are manufactured from 120 kg of ferro alloys, 207.09 MT of steel alloys ingots should have been manufactured from the 7.766 MT of ferro alloys found short, in his statement dated 23/24-8-2003, Sh. Mahammad Ikhlaq has also admitted of having manufactured and cleared 200 MT of ingots without payment of duty. The scrap found short would accordingly have also got consumed in this manufacturing activity. As per invoice nos. 209 dated 23-8-2003, 203 dated 21-8-2003, 200 dated 18-8-03, 199 dated 18.08.03, 198 dated 17-8-03, 197 dated 17-8-03, 196 dated 16-8-03 the alloy steel ingots have been self assessed by M/s GCL @ Rs. 16034.48 PMT (ex-duty). Taking this value the assessable value of alloy steel ingots weighing 207.09 MT works out to Rs. 3320580/-. The Excise duty on this @ 16% comes out to Rs. 531292.80, rounded off to Rs. 531293/-. Further duty 5 CEA No. 17 of 2006 liability also arises on 8.26 MT of ingots found short. This duty liability would work out to Rs. 21,191/- on the same basis as above. He voluntarily to the duty involved on the finished goods and raw material found short. His voluntarily debiting Rs. 5 lacs, is his admission of his guilt.” Accordingly, in view of the aforesaid categorical findings the following order was passed:- “i) I confirm the seizure of Rs. 23060/- representing the sale proceeds of goods removed clandestinely without payment of Central Excise Duty. ii) I confirm the demand of Rs. 5,52,484/- (Rs. Five lac fifty two thousand four hundred and eighty four only) and the same be recovered from them under Section 11A of the Central Excise Act, 1944 and amount of Rs. 5.00 lacs already deposited is adjusted against the duty liability. iii) I order charging of interest under Section 11AB. iv) I impose penalty of Rs. 5,52,484/- (Rs. Five lac fifty two thousand four hundred and eighty four only) under Section 11AC of the Act read with Rule 25 of the Rules. v) I impose a penalty of Rs. 1,50,000/- (Rs. One lac fifty thousand only) on Sh. Balraj Garg under Rule 26 of the Rules. 6 CEA No. 17 of 2006 vi) I impose a penalty of Rs. 1,00,000/- (Rs. One lac only) on Sh. Mahammad Ikhlaq under Rule 26 of the Rules. vii) I impose a penalty of Rs. 50,000/- (Rs. Fifty thousand only) on Sh. Phool Chand under Rule 26 of the Rules.” On further appeal, the Commissioner (Appeal) reduced the penalty to Rs. 2,00,000/- although demand of Rs. 5,52,484/- for payment of duty was upheld. The Tribunal, in the impugned order reduced the penalty further to Rs. 50,000/- by observing as under:- “6. The perusal of the records also reveals that rupees five lakh, out of the duty amount were deposited by the appellants before issuance of the show cause notice and the balance amount was deposited by the appellants in terms of the Stay Order of the Commissioner (Appeals). In C.C.E. Delhi-III vs. Machino Montell (I) Ltd. Reported in 2004 (168) E.L.T. 466, it was held by the Larger Bench of the Tribunal that where the duty has been deposited before issuance of the show cause notice by the assessee, neither the penalty can be imposed nor any interest can be demanded. Since the appellants have deposited substantial amount of duty before issuance of the show cause notice, the penalty of rupees two lakh is on higher side and 7 CEA No. 17 of 2006 the same is reduced to rupees 50000/-. However, the penalty on the Director of the Company is set aside in the light of the above detailed facts. Accordingly, the impugned order stands modified in the above terms. The appeals of the appellants stand disposed of.” The question whether the amount of penalty under Section 11 AC could be reduced 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). It has been categorically held that there is no discretion vested in the Assessing Officer to reduce 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 again come up for consideration before Hon’ble the Supreme Court in the case of Union of India v. M/s Rajasthan Spinning & Weaving Mills, 2009 (238) E.L.T. 3 (S.C.). 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. 17 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 appeals there is not an iota of doubt that the Commissioner (Appeals) and the Tribunal clearly fell in error in reducing the amount of penalty contemplated by Section 11AC of the Act. From the facts of the present case no doubt is left that there was fraudulent and clandestine removal of goods with the intention to evade duty and Section 11AC of the Act would, therefore, 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 as well as the Commissioner (Appeals) is set aside to the extent it has reduced the amount of penalty. It is, thus, held that the amount of penalty has to be equivalent to the amount of duty determined by the Order-in-Original, dated 3.6.2004. 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