IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. CEA No. 21 of 2006 Date of Decision: December 16, 2009 Commissioner of Central Excise Commissionerate, Rohtak …Appellant Versus M/s Singhal Strips 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. Rishabh Kapoor, Advocate, for Mr. Sandeep Goyal, 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 appeal filed by the Revenue under Section 35G of the Central Excise Act, 1944 (for brevity, ‘the Act’) challenges order dated 13.4.2005, passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (for brevity, ‘the Tribunal’) by claiming that the following substantive question of law would arise for determination of this Court: “Whether the penalty limit under Section 11AC of the C entral Excise Act, 1944, is maximum and authority has discretion to impose lesser penalty?” CEA No. 21 of 2006 Brief facts of the case, as disclosed in the appeal, are that the respondent-assessee is engaged in the manufacturing of Cold Rold Strips and Steel Tubes falling under Chapter Heading No. 72.11 & 73.06 of the Schedule to the Central Excise Tariff Act, 1985. The respondent-assessee was also availing the Cenvat credit facility of duty paid on raw material/inputs and capital goods. On 23/24.11.2000, the Officers of Central Excise Rohtak Division inter- cepted a tempo on Delhi-Rohtak Highway, bearing Registration No. HR-46-A-3040, belonging to the respondent-assessee, which was loaded with steel tubes and pipes. On demand the driver produced original copy of invoice bearing Sr. No. 1714, dated 23.11.2000, val- ued at Rs. 1,02,765/- involving Central Excise duty of Rs. 16,442/-, issued by the respondent-assessee. However, the transporter’s copy of the invoice was not available. The officers brought back the tempo to the factory prem- ises, where Shri A.N. Singh, authorised signatory of the respondent- assessee was present. Thereafter, in the presence of two independent witnesses the records pertaining to central excise were scrutinised which revealed that the respondent-assessee has not debited the duty liability of the goods in question in the PLA despite the fact that the same were debited in the invoice. It was also noticed that the facility of fortnightly payment of duty which was available under Rule 173-G (1), had already been withdrawn by the Deputy Commissioner, Cen- tral Excise Division, Rohtak, vide order dated 20.11.2000 for two months and the respondent-assessee was required to pay duty from PLA consignment wise. It was found that they have cleared goods 2 CEA No. 21 of 2006 valued at Rs. 1,48,602/- involving Central Excise duty amounting to Rs. 23,776/-, vide Invoice Nos. 1712 and 1713, dated 23.11.2000 without debiting the duty leviable thereon from PLA. The officers, therefore, seized 109 bundles of steel tubes and pipes weighing 6.045 MT valued at Rs. 1,02,765/- involving Central Excise duty of Rs. 16,442/- along with the tempo valued at Rs. 2,00,000/-. They also conducted physical verification of stock taking into account raw ma- terial as well as finished goods, which was tallied with the book bal- ance of the respondent-assessee. It was also noticed that the respon- dent-assessee had cleared 2.330 MT, C.R. Strips, valued at Rs. 46,199/- involving Central Excise duty of Rs. 7,392/-. But the C.R. Strips had already been consumed in the manufacture of the final product and were not available. On 5.1.2001, the unit of M/s Bhogal Sales Corporation at Ludhiana, was visited by the officers of the revenue, who had re- ceived the consignment of C.R. Strips weighing 5.210 MT valued at Rs. 1,02,403/- without payment of Central Excise duty amounting to Rs. 16,348/- from the respondent-assessee. The consignment was seized by the officers of the revenue. Subsequently, show cause no- tices were issued to the respondent-assessee as well as M/s Om Steel Industries and M/s Bhogal Sales Corporation, proposing the follow- ing actions against them: “a) Central excise duty amount to Rs. 16384/- leviable on the consignment of C.R. Strips cleared to M/s Bhogal Sales Corp., Ludhiana, those loaded in Tempo No. HR-46A-3040 and Rs. 7392/- leviable 3 CEA No. 21 of 2006 on the consignment of Steel Tube and Pipe sold to M/s Om Steel Industries, Ludhiana, Rs. 16442/- leviable on the consignment of Bill No. 1714 should not be demanded and recovered from them under Rule 9(2) of Central Excise Rules, 1944 read with Section 11A of the Central Excise Act, 1944. b) Seized Steel Tubes/Pipes weighing 6.045 MT val- ued at Rs. 102765 and C.R. Strips weighing 5.210 MT valued at Rs. 102403/- should not be confis- cated and penalty imposed on them under Rules 9 (2) and 173Q of the Central Excise Rules, 1944. c) Tempo No. HR-46A-4030 valued at Rs. 200000/- should not be confiscated under section 115 of Customs Act, 1962 made applicable to central ex- cise matters. d) Mandatory penalty should not be imposed and in- terest on delayed payment of Central Excise Duty should not be recovered from them under Section 11AB & 11AC of the Central Excise Act, 1944.” The case was adjudicated by the Joint Commissioner who vide order dated 26.2.2003 confirmed the demand of duty of Rs. 40,218/- covered by three invoices dated 23.11.2000. The seized goods i.e. 6.045 MT steel tubes/pipes valued at Rs. 1,02,765/- & 5.210 MT C.R. Strips valued at Rs. 1,02,403/- were confiscated with an option of redemption fine of Rs. 10,000/- for each of them. Pen- alty of Rs. 40,218/- under Section 11AC and recovery of interest un- 4 CEA No. 21 of 2006 der Section 11AB of the Act has also been imposed upon the respon- dent-assessee. Other than this, the tempo valued at Rs. 2,00,000/- was also confiscated with an option of redemption fine of Rs. 20,000/-. Penalty of Rs. 25,000/- each has also been imposed on M/s Om Steel Industries and M/s Bhogal Sales Corporation under Rule 173Q of the Central Excise Rules, 1944. The respondent-assessee, M/s Om Steel Industries and M/s Bhogal Sales Corporation filed appeals before the Commissioner (Appeals) against the order-in-original dated 26.2.2003. The Com- missioner (Appeals), vide order dated 5.1.2004, allowed the appeals of M/s Om Steel Industries and M/s Bhogal Sales Corporation by de- leting the penalty of Rs. 25,000/- each imposed against them. How- ever, he rejected the appeal filed by the respondent-assessee. The grounds urged in support of the appeal by the respondent-assessee were: “(i) there is no evidence on record to establish if there was any attempt to remove the goods in a clandes- tine manner as proper invoice showing all the de- tails was issued; permission to pay duty on fort- nightly basis was forfeited by the D.C. and accord- ingly they were required to pay excise duty for each consignment by debit to the account correct as per this rule it requires that duty is to be debited for each consignment; there was enough balance in PLA to absorb the excise duty leviable on these goods; 5 CEA No. 21 of 2006 (ii) the adjudicating officer has not considered the ap- pellants plea that conversion of HR Strips to CR Strip at the factory of appellants does not amount to manufacture; that there can be no alleged clan- destine removal in respect of such goods for which the invoice had been raised by the appellant; hence fine of Rs. 10,000/- can not be sustained; (iii) the adjudicating officer has held that the goods covered under these invoices are deemed to have been intentionally cleared without payment of duty; there is not provision in Central Excise for considering the clearances on deemed basis; (iv) confiscation of tempo was unjustified when proper invoice had been issued; hence RF of Rs. 20,000/- needs to be quashed; (v) in the facts & circumstances of the case penalty of Rs. 40,218/- under section 11AC is not sustain- able.” The respondent-assessee further filed an appeal before the Tribunal. The Tribunal, vide impugned order dated 13.4.2005, found that the duty on steel tubes has been rightly confirmed, how- ever, duty in respect of C.R. Strips is not sustainable as the same had been duly accounted for in the record. It has been specifically noticed by the Tribunal that these goods were purchased under duty paid in- voices and the same were utilised in the manufacture of final product. The Tribunal also reduced the penalty to Rs. 2,000/-. 6 CEA No. 21 of 2006 Having heard learned counsel for the parties and perus- ing the record with their able assistance we find that the matter is no longer res integra. In the present case it would be necessary to read Rule 13 of the Central Excise Rules, 1944 (for brevity, ‘the Rules’), which reads thus: “13. Confiscation and penalty.- (1) If any person, takes CENVAT credit in respect of inputs or capital goods, wrongly or without taking reasonable steps to ensure that appropriate duty on the said inputs or capital goods has been paid as indicated in the document accompanying the inputs or capital goods specified in rule 7, or contra- venes any of the provisions of these rules in respect of any inputs or capital goods, then, all such goods shall be liable to confiscation and such person, shall be liable to a penalty not exceeding the duty on the excigable goods in respect of which any contravention has been committed, or ten thousand rupees, whichever is greater. (2) In a case, where the CENVAT credit has been taken or utilized wrongly on account of fraud, willful mis-state- ment, collusion or suppression of facts, or contravention of any of the provisions of the Act or the rules made thereunder with intention to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the provisions of section 11AC of the Act. (3) Any order under sub-rule (1) or sub-rule (2) shall be 7 CEA No. 21 of 2006 issued by the Central Excise Officer following the princi- ples of natural justice.” A perusal of sub rule (1) of Rule 13 of the Rules would show that if cenvat credit in respect of any inputs or capital goods have been obtained wrongly or without taking reasonable steps or making payment of appropriate duty then all such goods are liable to be confiscated and such a person has been made liable to penal ac- tion. Accordingly duty on the excisable goods in respect of which contravention has been committed has been provided. It is further provided that amount of Rs. 10,000/- is to be paid. Sub-rule (1) of Rule 13 of the Rules obviously talks of confiscation of goods and im- position of penalty. The use of word 'and' is significant which would mean that it is in case of confiscation where such an accused can also be liable to pay penalty equivalent to the amount of duty. According to sub rule (2) of Rule 13 of the Rules if cenvate credit has been taken or utilised wrongly on account of fraud, willful mis-statement, collu- sion or suppression of facts or contravention of any of the provisions made in the Act or the Rules with the intention to evade payment of duty then a dealer would be liable to pay penalty in terms of Section 11AC of the Act. In the case of Union of India v. Dharamendra Textile Processors, 2008(231) ELT (SC), Hon’ble the Supreme Court has held that the authorities under the Act do not enjoy any discretion to reduce the penalty which has to be equivalent to the amount of duty. The aforesaid view has been further explained by their Lordships of Hon'ble the Supreme Court in the case of Union of India v. Ra- 8 CEA No. 21 of 2006 jasthan Spinning and Weaving Mills, 2009 (238) ELT 3 (SC) hold- ing that mandatory provisions of penalty under Section 11AC of the Act are not applicable automatically to every case of non-payment of duty or short payment of duty. Therefore, to determine whether the penalty is imposable or not, the requirements of Section 11AC have to be fulfilled. It has been held in para 19 of the judgment that 'pen- alty 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'. Accord- ingly, the judgment of Hon'ble the Supreme Court in Dharmendra Textile Processors's case (supra) is not an authority for the proposi- tion that Section 11AC of the Act would apply to every case of non payment or short payment of duty regardless of fulfillment of the con- ditions expressly mentioned in the section for its application. How- ever, once it was found to be applicable then the concerned authori- ties would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under section 11(2) of the Act. In the present case, learned counsel for the appellant has not been able to show any fraud, willful mis-statement, collusion or suppression of facts on the part of the respondent-assessee with the intention to evade payment of duty. We confronted learned counsel for the revenue to point out any finding of availing cenvat credit by playing fraud, willful mis-statement, collusion etc. with the intention to evade payment of duty but he remained unable to show any such finding.. It is pertinent to notice that Rule 13(2) of the Rules uses 9 CEA No. 21 of 2006 strong expression like fraud, willful mis-statement, collusion or sup- pression of facts etc. with the intention to evade payment of duty. In the absence of any proof it has to be presumed that there was no such element involved in the transaction. In the absence of any finding of fraud etc. it is not possible to assume the existence of fraud, willful mis-statement, collusion or suppression of facts etc. with the intention to evade payment of duty. Moreover, in cases where the requirement of proving the intention to evade duty is not satisfied/proved then the question of invoking penalty clause would be impermissible. The lan- guage of Rule 11AC is similar to Rule 13(2) which has been inter- preted by Hon'ble the Supreme Court in Rajasthan Spinning and Weaving Mills' case (supra). In that regard paras 18 and 19 of the judgment would be relevant which reads thus: “18. One can not fail to notice that both the proviso to sub section 1 of section 11A and section 11AC use the same expressions: "....by reasons of fraud, collusion or any willful mis-statement or suppression of facts, or con- travention 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 at- tract 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 10 CEA No. 21 of 2006 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 applica- tion of the penalty provision in section 11AC of the Act. On behalf of the assessee it was also submitted that sec- tions 11A and 11AC not only operate in different fields but the two provisions are also separated by time. The penalty 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 decep- tion by the assessee by adopting a means as indicated in section 11AC. 19. From the aforesaid discussion it is clear that pen- alty under section 11AC, as the word suggests, is punish- ment 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.” From the perusal of the aforesaid paras it is evident that penal clause would not be attracted to the facts of every case unless a categorical finding of fraud, collusion, willful mis-statement etc. with the intention to evade payment of duty have been recorded. In the ab- sence of such a finding, the imposition of penalty is not automatic and 11 CEA No. 21 of 2006 cannot be levied. Accordingly, we hold that the appeal does not merit admission and the same is liable to be dismissed. For the reasons recorded above, this appeal fail and the same is dismissed. (M.M. KUMAR) JUDGE (JASWANT SINGH) December 16, 2009 JUDGE Pkapoor 12