Central Excise Appeal No.59 of 2006 [ 1 ] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Central Excise Appeal No.59 of 2006 Date of Decision: Jan. 8,2010 The Commissioner, Central Excise Rohtak ........................Appellant Versus M/s Dhillon Kool Drinks & Beverages Ltd........................... Respondent Coram: Hon'ble Mr. Justice Ashutosh Mohunta Hon'ble Mr. Justice Mehinder Singh Sullar Present: Mr. H.P.S. Ghuman, Sr. Penal Counsel for the appellant. Mr. Amit Jhanji, Advocate for the respondent. ..... ASHUTOSH MOHUNTA, J. The present appeal has been preferred by the Revenue under Section 35G of the Central Excise Act, 1944 impugning the order(s) dated 07.07.2005 and 04.08.2005 passed by Customs, Excise & Service Tax Appellate Tribunal, New Delhi (CESTAT), whereby the appeal filed by the respondent against the “order in original” dated 03.05.2005 passed by the Commissioner, Central Excise has been allowed and the order dated 3.5.2005 has been set aside with regard to imposition of penalty and demand of differential amount. The CESTAT, New Delhi while passing the impugned order has relied upon a larger Bench Decision of the Tribunal in Central Excise Appeal No.59 of 2006 [ 2 ] the case of CCE, Gurgaon vs. Mochino Montell (I) Ltd. reported in 2004 (1) 168 ELT 466. Facts in brief may be noticed as under. The respondent is engaged in the manufacture of Aerated Water (Pepsi Brand) falling under Sub Heading No. 2202.20 of the 1st Schedule appended to the Central Excise Tariff Act, 1985. The respondent is registered with Central Excise Department vide registration No. 23 of 1992 PNP. The respondent is availing Cenvat Credit Facility on Raw materials used in the manufacture of their finished goods. On 17.01.2003, the officers of Ante Evasion Branch visited the factory premises of the respondent and it was alleged that the respondent had not paid Central Excise Duty to the tune of Rs. 64,82,763/- on the excisable goods cleared against invoice No. 907 to 1145 dated 30.04.2001, in April 2001, though all the invoices were stamped as “Duty Payable”. It was alleged that the said duty was liable to be paid by 05.05.2001 under Rule 173G (1) (a) of the Central Excise Rules, 1944 and since the respondent had failed to comply with the provisions of the above Rule, they had become liable to pay the outstanding amount alongwith interest @ 24% p.a. In the meantime, the respondent had paid the duty amount of Rs. 64,82,763/- alongwith interest thereon of Rs. 23,56,209/-. Thereafter, a show cause notice dated 08.04.2004 was issued for showing cause within 30 days to the Commissioner, Central Excise Commissionerate, Rohtak as to why: - “a) Central Excise duty of Rs. 64,82,763/- should not be demanded and recovered from them under Rule 173G (1) (d) of Central Excise Rules, 1944, invoking extended period of five years. The Central Excise Appeal No.59 of 2006 [ 3 ] amount already paid should not be appropriated to the Govt. Account; b) Interest amounting to Rs. 28,17,604- @ 24% per annum should not be demanded and recovered from them under Rule 173G(1)(d) of Central Excise Rule, 1944 and the amount of Rs. 23,56,209/- already paid should not be appropriated to the Govt. Account; c) Penalty should not be imposed on the respondent in terms of Rule 173/G(1)(c) of the Central Excise Rules, 1944 read with Rule 173Q of the Rules, ibid 1944 and read with Section 38A of the Central Excise Act, 1944; d) Equal Mandatory Penalty of Rs. 64,82,763/- should not be imposed on the respondent under Section 11AC of the Central Excise Act, 1944; e) Penalty should not be imposed on Sh. Deepak Rai Walia, Executive Director, Sh. Pardeep Marwah, Director (Finance), Sh. Parveen Rana, Manager Excise of the respondent and Sh. Sompal Rana, Excise Incharge of the respondent under Rule 209- A of the Central Excise Rules, 1944 read with Section 38A of the Central Excise Act, 1944.” Ultimately, the Commissioner, vide order in original dated 03.05.2005 confirmed the demand of outstanding duty of Rs. 64,82,763/- alongwith interest of Rs. 28,17,604/- under Rule 173G (1) (d) of the Rules. However, after appropriating the amount already paid, it was directed that there was a balance interest amount of Rs. 4,61,395/-. The Commissioner further impose a penalty of Rs. 32.50 lacs on the Company and a personal penalties of Rs. 10.00 each on the Executive Director and Director (Finance). A further penalty of Rs. 50,000/- was imposed on Manager (Excise) and Rs. 25,000/- on the Excise Incharge. Central Excise Appeal No.59 of 2006 [ 4 ] Two separate appeals were filed against the order-in-original dated 03.05.2005 i.e. one by the Company and another by the four individuals, who had been imposed personal penalties. Both the appeals came to be heard by the CESTAT, New Delhi and the same were accepted vide orders dated 07.07.2005 and 04.08.2005. The Tribunal, while adjudicating upon the appeal filed by the Company vide order dated 07.07.2005 (Annexure A-2) held that where demand of duty stood paid by the Assessee before issuance of show cause notice, then no penalty can be imposed under Section 11AC and no interest can be demanded under Section 11AB. The Tribunal further found that though no interest was payable, however, since the assessee/respondent had paid the interest on its own, then the revenue had rightly accepted the same. The Tribunal further found that the Commissioner had worked out the interest at a flat rate of 24% per annum whereas per notification dated 13.05.2002 bearing No. 19/2002, the rate of interest stood reduced to 15%. The Tribunal thus set aside the demand with regard to differential amount of interest. Similarly, while adjudicating the appeal filed by the four individuals, who had been inflicted with personal penalties, the Tribunal set aside the order-in-original by relying upon the order dated 07.07.2005. The Revenue preferred Central Excise Appeal No. 59 of 2006 by claiming the following questions of law: i) Whether the Ld. Tribunal is correct in holding that penalty equivalent to disputed amount under Section 11 AC and interest under Section 11 AB of Central Excise Act, 1944 are not leviable where disputed duty amount is deposited prior to issue of Show cause notice? Central Excise Appeal No.59 of 2006 [ 5 ] ii) Whether the Ld. Tribunal is right and justified in holding that penalty under Rule 209-A of Central Excise Rules, 1944 is not imposable on assessee’s officials who dealt with contraband goods knowing well to the respondents and non- availability of funds for payment of Central Excise duty and thereby contravened? The Revenue in the appeal has further pleaded in ground (ii) as under: - “That the Ld. Tribunal judgment in case of C.C.E., Delhi –III Vs. Mochino Montell (I) Ltd. has been given in view of Karnataka High Court judgment in case of CCE Mangalore Vs. Shree Krishan Pipe Inds. Karnataka High Court’s decision was given as Hon’ble Supreme Court has rejected the appeal filed by the revenue in case of Reshtriya Ispat Nigam Ltd. Vs. CCE-2003 (161) ELI 285 (Tri Banglore). The Hon’ble Supreme Court in case of Restriya Ispat Nigam Ltd. Vs. CCE-2003 (161) ELT-285 (Tri.-Banglore) has not laid any ratio in this judgment on the imposition of penalty under Section 11AC of Central Excise Act, 1944.” When the appeal came up for hearing, the following order came to be passed on 25.09.2007: - “Counsel for the appellant says that CEA No. 17/06 involving similar questions of law stands already admitted. In view of this fact, this appeal is also admitted. To be heard alongwith CEA No. 17 of 2006.” In CEA No. 17 of 2006, the Revenue had framed the following question of law: - “Whether penalty under Section 11AC of the Central Excise Act, 1944 in cases where any duty of excise has Central Excise Appeal No.59 of 2006 [ 6 ] 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?” A perusal of the order passed by CESTAT, which is subject matter of CCA No. 17 of 2006 reveals that in that case the assessee had not paid the entire duty amount before the issuance of the show cause notice and therefore, the issue raised therein was entirely different. In the case in hand, it is an admitted fact that the entire Excise duty of Rs. 64,82,763/- as payable stood paid on 26.02.2003 by the assessee/respondent before the issuance of the show cause notice alongwith interest amount of Rs. 23,56,209/-. The show cause notice was issued on 08.04.2004 and as such the assessee/respondent had discharged his liability more than a year ago and could not be said to be defaulter of the Revenue. Still further, the Tribunal has held that since the Assessee had paid the entire payable Excise duty before the issuance of the show cause notice and therefore no demand qua interest would be raised by the revenue when the assessee has already paid the interest of over Rs. 23.00 lacs, which in itself shows the bonafide of the Assessee to discharge the liabilities under the Central Excise Act and Rules. Mere some delay in payment of payable excise duty, due to financial constraints being faced by the company, cannot be said to be an act of fraud or willful evasion, thereby holding the assessee to be liable for the payment of penalty. The Revenue had laid challenge to the judgment of the larger bench of the Tribunal in Mochino Montell reported as 2004 (168) ELR 466 Central Excise Appeal No.59 of 2006 [ 7 ] before this Hon’ble Court and this Hon’ble Court in C.E.A. No. 13 of 2005 decided On: 25.07.2006 titled as Commissioner of Central Excise Vs. Machino Montell (I) Ltd. had held as under:- “Learned counsel for the assessee referred to Sub-section 2B of Section 11A of the Act, wherein the statute itself has provided a situation, that on deposit being made, the assessee will not be served notice under Section 11(1) of the Act. Though learned counsel for the revenue made reference to the explanation which limits applicability of Sub-section 2B, we need not go into this question in view of Sub-section 2C of Section 11 of the Act, which makes it clear that Sub-section 2B will not apply where duty has become payable prior to the date on which Finance Bill, 2001 was passed. Present case being governed by Sub-section 2C of Section 11, issuance of notice under Section 11 was not barred.” In the case in hand, the duty had become payable much after Finance Bill Act, 2001 had come into force, hence Sub-section 2B of Section 11A of the Act, wherein the statute itself has provided a situation, that on deposit being made, the assessee will not be served notice under Section 11(1) of the Act, was fully applicable. Still further the judgment in Mochino Montell came to be considered by this Hon’ble Court in CEA No. 154 of 2006 decided on Central Excise Appeal No.59 of 2006 [ 8 ] 22.01.2008 titled as Commissioner of Central Excise Vs. S.K. Sacks (P) Ltd., wherein it was held as under:- “7. On the other hand, the assessee has supported the order of the Tribunal and has relied upon the judgments of this Court in CEA No. 13 of 2005 decided on 25.7.2006 (Commissioner of Central Excise, Delhi v. Machino Montell (I) Ltd. and Anr.), CEA No. 21 of 2007 decided on 10.5.2007 (The Commissioner, Central Excise Commissionerate, Rishi Nagar, Ludhiana v. Jindal Polyvin Pipes and Anr.), CEA No. 22 of 2007 decided on 10.5.2007 (The Commissioner, Central Excise Commissionerate, Rishi Nagar, Ludhiana v. TR Industries and Anr.) and CEA No. 26 of 2007 decided on 16.8.2007 (Commissioner of Central Excise, Ludhiana v. Sigma Steel Tubes and Anr.). 8. We have heard learned Counsel for the parties and perused the record. 9. This Court while deciding CEA No. 13 of 2005 in the case of Commissioner of Central Excise, Delhi v. Machino Montell (I) Ltd. and Anr. (supra) remanded the matter to the Tribunal after discussing the Central Excise Appeal No.59 of 2006 [ 9 ] provisions of Section 11(A)(C) and observed in the operative part of the judgment as under: Question will remain whether situation mentioned in Section 11AC exists, which has to be determined irrespective of the deposit of duty due, prior to issuance of notice. Since the question has not been determined by the Commissioner (Appeals) or by the Tribunal, whose decision are based on the only consideration of deposit, we set aside the order of the Commissioner (Appeals) and the Tribunal and remand the matter back to the Commissioner (Appeals) for a fresh decision on the question of penalty after determining the question whether the non-payment of duty in the present case at the relevant time, which was made up later, was on account of fraud, collusion or any willful 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 Central Excise Appeal No.59 of 2006 [ 10 ] evade payment of duty as laid down under Section 11AC and as held by the adjudicating authority. The Tribunal will also take a fresh decision on the question of liability to pay interest. 10. The decision dated, 25.7.2006 of this Court in M/s. Machino Montell 's case (supra) was further relied upon by the Court in CEA Nos. 21 and 22 of 2007 on a similar question of law as raised in the present appeal and it was held that the finding with regard to the intention to evade the payment of duty is a question of fact. Similar judgment dated, 16.8.2007 in CEA No. 26 of 2007 titled as Commissioner of Central Excise, Ludhiana v. Sigma Steel Tubes and Anr. as well as after relying upon the Machino Montell's3 case (supra) and the judgment of the Hon'ble Supreme Court in the case of Rashtriya Ispat Nigam Ltd. v. Commissioner. 2004 (163) ELT A53, this Court held that no penalty is imposable under Section 11(A)(C) of the Act as well as under Rule 173 (Q) of the Central Excise Central Excise Appeal No.59 of 2006 [ 11 ] Act, 1944 once the duty is debited before issuance of show cause notice. 11. It may be seen that in the present case there is no such finding of fact that the assessee has committed fraud or misrepresentation with the intention to evade duty. Admittedly, the duty was paid before issuance of show cause notice. On the basis of the aforementioned findings as well as clear position of law, we are of the opinion that no substantial question of law warranting admission of this appeal arises.” In light of the above judicial pronouncements, in the present case as well, the assessee had never played any fraud but had deferred the deposit of duty by pleading financial constraints and thereafter, had paid the duty with interest thereon. There was thus never a fraudulent intent on the part of the assessee. The questions of law as sought to be raised are squarely covered and answered against the Revenue. The appeal filed by the Revenue is therefore dismissed. ( ASHUTOSH MOHUNTA ) JUDGE 8.1.2010 ( MEHINDER SINGH SULLAR ) Rupi JUDGE