2009 (11) TMI 252 - HC - Central Excise

Penalty-The first respondent/assessee had taken 50% of the duty paid on the capital goods as Modvat Credit in 1999-2000 and taken Cenvat Credit to the value of Rs.1, 42, 559/- for capital goods along with spares received from M/s. Cadmach Machinery Company Limited Ahmedabad. The Department therefore issued a show cause notice dated 31-12-2003 calling upon the first respondent/assessee to show cause as to why duty should not be levied on the capital goods under Section 11A along with interest under Section 11AB and levy of penalty under Section 11AC of the Act. After issuance of the show cause notice and during the course of adjudication of the case the first respondent came forward to reverse the credit which had been irregularly availed on the capital goods. Held that- the order of the Commissioner of Central Excise (Appeals) dated 31-8-2004 as well as the Appellate Tribunal dated 20-7-2005 insofar as reducing the penalty under Section 11AC is set aside and that of the Original Authority dated 15-6-2004 shall stand confirmed. The question of law is answered in favour of the appellant and the appeal stands allowed.

Summary

Issues Involved:
Challenge to order of CESTAT regarding penalty amount under Section 11AC of Central Excise Act, 1944.

Detailed Analysis:

1. Substantial Question of Law:
The primary issue raised in this case was whether the penalty amount specified in Section 11AC of the Central Excise Act, 1944, is at the discretion of the Quasi Judicial Authority, i.e., the Tribunal.

2. Factual Background:
The case revolved around the first respondent/assessee availing Modvat Credit on capital goods, later removing them without payment of duty, and subsequently being issued a show cause notice for duty, interest, and penalty under Sections 11A, 11AB, and 11AC of the Act.

3. Adjudication Process:
The adjudicating authority found the assessee liable for duty, penalty, and interest. The Commissioner of Central Excise upheld the liability but reduced the penalty, which was further reduced by the Tribunal on appeal, leading to the Department challenging the Tribunal's decision.

4. Legal Precedents:
Reference was made to a Supreme Court decision regarding the mandatory nature of penalty under Section 11AC, emphasizing that once the section applies, there is no discretion in quantifying the penalty, which must be equal to the duty determined under Section 11A(2) of the Act.

5. Tribunal's Findings:
The Tribunal concluded that the assessee's conduct was blameworthy, sustaining the allegation of suppression of facts to evade duty. As such, the levy of penalty under Section 11AC was deemed necessary, with the amount reduced to Rs. 50,000.

6. Final Judgment:
The High Court, considering the legal position and the Tribunal's findings, set aside the reduction of penalty and confirmed the Original Authority's decision, emphasizing that the penalty under Section 11AC should be equal to the duty levied under Section 11A(2) of the Act.

In conclusion, the High Court allowed the appeal in favor of the appellant, confirming the imposition of penalty under Section 11AC as equal to the duty determined under the Act.