2011 (1) TMI 746 - HC - Central Excise

Penalty - Evasion of duty - it is clear from Section 11A after a notice is issued under Section 11AC the assessee has a right to make a representation contesting the claim - Section 11A(C) makes it clear that the liability to pay the penalty arises on the person who is liable to pay duty as determined under sub-Section 2 of Section 11A - Held that the determination of liability to pay duty is a condition precedent for imposing penalty - the entire duty and interest was paid voluntarily on being pointed out. It held that no case for imposing the penalty is made out - Decided in favor of the assessee

Summary

Issues:
- Challenge to order imposing penalty
- Determination of duty liability for penalty imposition

Analysis:
1. Challenge to order imposing penalty:
The case involves an appeal by the revenue challenging the tribunal's decision that set aside the penalty imposed by the Revisional Authority. The assessee, a manufacturer of various components, was found to have cleared goods without paying appropriate Central Excise Duty. The tribunal held that since there was no determination of duty liability under Section 11A(2) of the Central Excise Act and no specific allegations in the notice, the penalty was not justified. The Commissioner of Central Excise had imposed a reduced penalty of 25%, but the tribunal set aside this decision. The High Court upheld the tribunal's decision, stating that the duty was voluntarily paid by the assessee before the show cause notice, and there was no evidence of deliberate evasion. Therefore, the penalty imposition was unwarranted.

2. Determination of duty liability for penalty imposition:
The High Court emphasized that the determination of duty liability is a prerequisite for imposing a penalty. Section 11-A of the Central Excise Act provides that after a notice is issued, the assessee can contest the claim, and the Central Excise Officer determines the duty amount. Only when duty evasion is established through fraud, willful misstatement, or suppression of facts, can a penalty be imposed. In this case, the tribunal found that there was no determination of duty liability, and the cause of duty evasion was not mentioned in the show cause notice. The assessee voluntarily paid the duty and interest upon notification, indicating no intent to evade payment. As a result, the High Court concluded that the penalty imposition was unjustified, as there was no determination of duty liability and no evidence of deliberate evasion. The tribunal's decision to set aside the penalty was upheld, and the appeal by the revenue was dismissed.