TMI Blog2007 (3) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of duty imposable under Section 11AC of the Central Excise Act, 1944?" 4.A show cause notice was issued for alleged short levy on excess stock found on verification with the one shown in the register maintained for that purpose. Apart from issuing show cause notice for levy of duty, notice for levy of penalty under Section 173Q (sic) (Rule 173Q) as well as 11AC (sic) (Section 11AC) was issued for alleged breach of Rules and ultimately adjudicating authority decided to levy penalty under Section 11AC for the alleged breach of Rules. D.B.O.T.R. No. 2/2005 5.Following substantial question of law has been referred for opinion in this appeal :- "Is Tribunal empowered to reduce the mandatory penalty imposed under Section 11AC of the Central Excise Act, 1944, while upholding the demand of duty?" 6.A show cause notice was issued to the respondent assessee that the assessee has wrongly availed benefit of exemption under notification dated 2-6-1998. Along with show cause notice for the alleged short levy of duty, notice to levy penalty for the same was issued under Section 11AC read with Rule 173Q. The adjudicating authority had raised a demand of short levy of duty on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... availment of Modvat/Cenvat credit by the manufacturer and calling upon the assessee to recall the excess availed Modvat credit in contravention of Rules 9(1), 57AB, 57AC 57AE of the Central Excise Rules. Rejecting the assessee's explanation, the adjudicating authority disallowed the Cenvat credit availed in excess of the permissible limit and imposed a penalty equal to excess availment of Modvat credit by resorting to Section 11AC. It may be stated that in the show cause notice no allegation of suppression, fraud or collusion was made. The show cause notice for levy of penalty under Section 11AC and Rule 173Q for alleged contravention of Rules 9(1), 57AB, 57AC 57AE of Central Excise Rules, 1944 and Rule 13 of the Cenvat Credit Rules, 2001 and for the same reason show cause notice under Section 11AC was also issued. However, after adjudicating against the manufacturer about the wrong availment of excess Cenvat credit, adjudicating authority raised a demand for excess availed Cenvat credit and imposed a penalty equal to amount of tax under Section 11AC. While considering the levy of penalty reference was not made to Rule 173Q. 14.In all these cases the Tribunal upheld the levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to treat the measure of penalty provided under the provision to be maximum limit and the assessing authority has the discretion to levy lesser amount of penalty. The Court held that : "From the aforesaid it follows that Section 7(5) has to be construed to mean that the presumption contained therein is rebuttable and secondly the penalty of ten times the amount of entry tax stipulated therein is only the maximum amount which could be levied and the assessing authority has the discretion to levy lesser amount, depending upon the facts and circumstances of each case. Construing Section 7(5) in this manner the decision of the High Court that Section 7(5) is ultra vires cannot be sustained." 19.On this premise, it is further submitted by the learned Counsel that following the aforesaid decision, the Gujarat High Court in Ambuja Synthetics Mills v. Union of India [2004 (175) E.L.T. 85 (Guj.)]. Madras High Court in Commissioner of Central Excise, Tiruchirapalli-I v. CEGAT, Chennai [2001 (133) E.L.T. 536 (Mad.)] and in Beauty Dyers v. Union of India [2004 (163) E.L.T. 28 (Mad.)] has construed the provision of 11AC of Central Excise Act as laying down the maximum limit of penalty to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 173Q (sic) (Rule 173Q) and Section 11AC. In some of the cases penalty has been levied equal to duty of amount of tax by considering it to be under Section 173Q (sic) (Rule 173Q) read with Section 11AC and in some cases while adjudicating authority levied penalty by referring to Section 11AC and has abandoned the reference to Rule 173Q. 23.These facts deserve consideration. Rule 173Q envisages that for contravention of Rule by the manufacturer in various circumstances and on various grounds invoke levy of penalty. Rule 173Q of the Rules, 1944 reads as under :- 'Rule 173Q. Confiscation and penalty. - (1) Subject to the provisions contained in Section 11AC of the Act and Rule 57AH, if any manufacturer, producer, registered person of a warehouse or a registered dealer - (a) removes any excisable goods in contravention of any of the provisions of these Rules; or (b) does not account for any excisable goods manufactured, produced or stored by him; or (bb) takes credit of duty in respect of inputs or capital goods for being sued in the manufacture of final products or capital goods for use in the factory of the manufacturer of final product, as the case ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt levy or non-levy of duty or wrong availment of any benefit under various notifications is intended action on the part of the assesses to evade payment of duty is an essential ingredient. In other words until short levy or non-levy or excess availing of tax concessions is a result of wilful action on the part of the assessee then only penalty under Section 11AC is leviable and not otherwise, but it uses different circumstances for levy of penalty; (i) by reason of fraud (ii) by reason of collusion or by reason of any wilful mis-statement or (iii) suppression of facts or (iv) contravention of any of the provisions of this Act or the Rules made thereunder with intent to evade payment of duty. 25.Of course, all the circumstances are grave enough but amongst them gravity of wilful act or intention differs in degrees. However, under Rule 173Q, under which show cause notices have been issued and with which we are concerned, provides levy of penalty for the same defaults as under Section 11AC, under sub-rule (d) in general terms viz. with intent to evade payment of duty. Bad intention or lack of bona fide is part of Section 11AC read with Rule 173Q(d). The two had to be read together. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efault made by him. 29.It is also clear from the amendment brought in Section 11AC by way of inserting second proviso that where the duty determined under sub-section (2) of Section 11A along with interest thereon is paid within thirty days from the date of notice of demand, the amount of penalty has to be reduced to 25% of the duty levied. Thus, prescribing minimum leviable penalty, since amendment under Section 11AC, to 25% of the duty on deposit of the amount for which demand has been created along with interest within prescribed time and waived amount over and above it. Therefore, keeping in view this provision, we are persuaded to hold that where show cause notice under Section 11AC as well as 173Q has been issued for the same defaults, the assessing officer cannot overlook the provisions of Rule 173Q for the purpose of levying maximum penalty only using his discretion to levy penalty under Section 11AC without considering the provision of Rule 173Q. If he has discretion to use, and case is made out for imposing lesser penalty, he cannot use his discretion not to invoke the provisions of Rule 173Q at all and insist on levying maximum penalty only. 30.The two provisions rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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