1 First Appeal No. 2809.09 IN THE HIGH COURT OF JUDICATURE AT BOMBAY BENCH AT AURANGABAD FIRST APPEAL NO. 2809 OF 2009 Commissioner of Central Excise and Customs Town Centre, N-5 CIDCO Aurangabad. ...APPELLANT. VERSUS M/s Navketan Pharma Pvt. Ltd.F-106 MIDC,Waluj, Aurangabad. ...RESPONDENT. ... Smt.Kalpalata Bharaswadkar, Advocate for appellant. Shri.S.P.Deshmukh,Advocate for Respondents. ... CORAM: NARESH H. PATIL AND K.K. TATED, JJ. DATE : 27TH AUGUST, 2010. PER COURT : 1. The Appellant-Revenue challenges the orders passed by the Commissioner dated 15.10.2007 and the Tribunal dated 19.01.2009. The main grievance of the appellant is that under the provisions of Section 11AC of the Central Excise Act, 1944 the Commissioner had no authority to impose nominal penalty of Rs.5000/-(Rupees Five Thousand). The 2 First Appeal No. 2809.09 penalty ought to have been imposed in accordance with the provisions of Section 11AC of the Central Excise Act, 1944 read with Rule 25 of Central Excise Rules 2002. The Commissioner had no discretion to award lessor penalty. 2. Smt.Bharaswadkar, learned counsel appearing for the appellant placed reliance on the Judgments in the matter of Union of India Vs. Dharmendra Textile Processors reported in 2008(231) E.L.T. (S.C.) and Union of India Vs. M/s Rajashtan Spinning and Weaving Mills (Civil Appeal No. 3527 of 2009. 3. Mr. Deshmukh,learned counsel appearing for respondent-assessee submits that throughout it has been held that element of mensrea was absent and respondent-assessee did not suppress anything. No fraud was played. Even if assessee chooses not to challenge the order of imposition of nominal penalty that would not entitle the revenue to 3 First Appeal No. 2809.09 raise argument that assessee had accepted imposition of penalty. The authorities ought to have imposed penalty in accordance with the provisions of Section 11 AC of the Central Excise Act. 4. We have perused the order passed by the Revenue-Commissioner (Appeals). In para No.6 of the order it had clearly observed that mensrea was not there. The department has not brought out any element of mesnrea and could not succeed in establishing their case that there was intentional avoidance of duty. The Commissioner categorically observed that ingredients of section 11AC of the Central Excise Act are not attracted. The Tribunal concurred with a view of the Commissioner and observed that, it can not be said that the practice of valuation adopted by the assessee was malafide or with intention to evade payment of duty. There is no deliberate mis-declaration or suppression, which warrants imposition of penalty on the assessee. The ingredients of section 11AC 4 First Appeal No. 2809.09 of the Act are absent in the case. 5. We may refer to observations of the Apex Court in the case of Union of India Vs. M/s Rajashtan Spinning and Weaving Mills (Civil Appeal No. 3527 of 2009. In para Nos. 19,20 and 21 it is observed that: “19. 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.” “20. At this stage, we need to examine the recent decision of this Court in Dharamendra Textile (supra). In almost every case relating to penalty, the decision is referred to on behalf of the Revenue as if it laid down that in every case of non-payment or short payment of duty the penalty clause would automatically get attracted and the authority had no discretion in the matter. One of us (Aftab Alam,J.) was a party to the decision in Dharamendra Textile and we see no reason to 5 First Appeal No. 2809.09 understand or read that decision in that manner. In Dharamendra Textile the court framed the issues before it, in paragraph 2 of the decision, as follows: "2. A Division Bench of this Court has referred the controversy involved in these appeals to a larger Bench doubting the correctness of the view expressed in Dilip N. Shroff vs. Joint Commissioner of Income Tax, Mumbai & Anr. [2007 (8) SCALE 304]. The question which arises for determination in all these appeals is 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. Before the Division Bench, stand of the revenue was that said section should be read as penalty for statutory offence and the authority imposing penalty has no discretion in the matter of imposition of penalty and the adjudicating authority in such cases was duty bound to impose penalty equal to the duties so determined. The assessee on the other hand referred to Section 271(1)(c) of the Income Tax Act, 1961 (in short the `IT Act') taking the stand that Section 11AC of the Act is identically worded and in a given 6 First Appeal No. 2809.09 case it was open to the assessing officer not to impose any penalty. The Division Bench made reference to Rule 96ZQ and Rule 96ZO of the Central Excise Rules,1944 (in short the `Rules') and a decision of this Court in Chairman, SEBI vs. Shriram Mutual Fund & Anr.[2006(5) SCC 361] and was of the view that the basic scheme for imposition of penalty under section 271(1)(c) of IT Act,Section 11AC of the Act and Rule 96ZQ(5) of the Rules is common. According to the Division Bench the correct position in law was laid down in Chairman, SEBI's case (supra) and not in Dilip Shroff's case (supra). Therefore, the matter was referred to a larger Bench." After referring to a number of decisions on interpretation and construction of statutory provisions, in paragraphs 26 and 27 of the decision, the court observed and held as follows: "26. In Union Budget of 1996-97, 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 the Rules 96ZQ and 96ZO have a concept of discretion inbuilt cannot be sustained. Dilip Shroff's case (supra) was not correctly 7 First Appeal No. 2809.09 decided but Chairman, SEBI's case (supra) has analysed the legal position in the correct perspectives. The reference is answered.........". “21.From the above, we fail to see how the decision in Dharamendra 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.” 6. The learned Counsel appearing for the respondent submits that as the assessee did not challenge the order of imposition of nominal penalty of Rs.5000/-(Rupees Five Thousand), the revenue would impose penalty in accordance with the provisions of Section 11AC of the Central Excise Act, in the facts of the case, is not sustainable. Revenue will have to demonstrate that the case is made out by it to impose penalty in accordance with provisions of Section 11AC of the Central Excise Act, 1944 read with Rule 25 of Central Excise Rules 2002. 8 First Appeal No. 2809.09 7. In view of the observations and findings reached by the Appellate Authorities, Tribunal and pronouncement of the Apex Court in the case of Union of India Vs. M/s Rajashtan Spinning and Weaving Mills, cited supra, we do not find any substantial question of law in the appeal for consideration. Thus, the Appeal fails. The same is dismissed accordingly. Sd/- Sd/- [K.K. TATED, J.] [NARESH H. PATIL, J.] MTK