(Per:
HONOURABLE MS. HARSHA DEVANI)
1. The appellant revenue has, in this appeal under Section 35G of the Central Excise Act, 1944, challenged the judgement and order dated 04.11.2004 passed by the Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as "the Tribunal") whereby the appeal of the respondent-assessee has been allowed.
2. Briefly stated facts of the present case are that the respondent No.1-assessee was engaged in the business of manufacture of Texturised Polyester Yarn which was captively consumed by it. The officers of the Central Excise (Audit) and (Preventive) Department, visited the factory premises of the respondent No.2 M/s Cee Veeh Synthetics Ltd. as well as the premises of the respondent No.1 it was found that the texturised yarn of a particular quantity was removed without payment of duty to the twisting section. Since the texturised yarn was removed without payment of duty even though it was for captive consumption, the respondents immediately paid the Central Excise duty as detected by the Preventive Unit. Subsequently, proceedings came to be taken by issuance of show-cause notice to the respondent for recovery of duty and levy of penalty under the provisions of section 11AC of the Act and rule 173 Q (1) read with rule 209-A of the Central Excise Rules, 1944 (hereinafter referred to as "the Rules"). The show-cause notice culminated into an order-in-original dated 10.10.2001 whereby the duty leviable on illicitly cleared goods came to be confirmed and penalty equal to the amount of duty came to be levied under section 11AC of the Act read with rule 173 Q (1) of the Rules on respondents No.1 and 2. Penalty came to be imposed under rule 173Q (1) read with rule 209-A of the Rules on the respondents No.3 and 4. The respondents carried the matter in appeals before the Commissioner (Appeals) but did not succeed. Against the order of the Commissioner (Appeals), the respondents preferred appeals before the Tribunal. By the impugned order, the Tribunal set aside the penalties imposed under section 11AC read with rule 173 Q (1) as well as penalty imposed on the individuals under rule 209-A of the Rules by following its earlier decision in the case of Machino Montell(I) Ltd.
3. While admitting this appeal, this Court had by an order dated 15.09.2006, formulated the following substantial question of law:
"Whether penalty under Section 11AC is liable to be imposed on the assessee in cases where duty has been deposited by the assessee before issue of show cause notice?"
4. Heard Mr. Gaurang Bhatt, learned standing counsel for the appellant. Despite service of notice, the respondent has not entered appearance.
5. From the facts noted hereinabove, it is apparent that the Tribunal has set aside the penalties levied under section 11AC of the Act read with rule 173 Q (1) as well as the penalties levied under rule 173Q (1) read with rule 209-A of the Rules merely on the ground that the amount of duty had been paid prior to issuance of show-cause notice, by following its earlier decision in the case of Machino Montell (I) Ltd. It appears that above referred decision of the Tribunal was carried in appeal by the revenue before the Punjab and Haryana High Court. The Punjab and Haryana High Court in case of Commissioner of Central Excise, Delhi III Vs. Machino Montell (I) Ltd., 2006 (202) E.L.T. 398 (P & H), has reversed the decision of the Tribunal by holding that section 11AC of the Act incorporates liability to pay penalty in the situations mentioned therein. Once a case is covered by the situation mentioned in the said section, mere deposit prior to issuance of show cause notice under section 11A of the Act will not necessarily negate the situation mentioned in the said section. The court referred to sub-section 2B of section 11A of the Act which provides that where any duty of excise has not been levied or short-paid or erroneously refunded, the person, chargeable with the duty, may pay the amount of duty before service of notice on him under sub-section (1) in respect of the duty, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the duty so paid but did not go into the question in view of the fact that sub-section (2C) of section postulates that sub-section (2B) shall not apply to any case where duty had become payable or ought to have been paid before the date on which the Finance Bill, 2001 receives the assent of the President. The court observed that in the facts of the said case sub-section (2C) would not be applicable and held that the applicability of section 11AC is not excluded at the threshold merely on deposit of the amount after having been caught and before the issue of show cause notice.
6. This court is in respectful agreement with the reasoning adopted by the Punjab and Haryana High Court in the case of Commissioner of Central Excise, Delhi III Vs. Machino Montell (I) Ltd. (supra).
Insofar as applicability of sub-section (2B) is concerned, it would not be necessary to enter into the said arena, inasmuch as in the facts of the present case the adjudicating authority as well as the Commissioner (Appeals) have concurrently found that the respondents had committed breach of the provisions of the Act and the rules with the intention to evade payment of Central Excise duty. Under the circumstances, in the light of Explanation 1 to sub-section (2B) to section 11A which provides that where duty has not been levied or not paid or short levied or short paid or erroneously refunded, by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of the Act or of the rules made thereunder with intent to evade payment of duty, the provisions of sub-section (2B) would not be applicable in the facts of the present case. On a plain reading of Explanation 1, it is apparent that the benefit of sub-section (2B) is available only in cases where section 11AC would not be attracted, which is not so in the present case. Thus, even for the period subsequent to the Finance Bill, 2001 receiving the assent of the President, in cases where section 11AC of the Act is attracted, sub-section (2B) of section 11A would not be applicable.
7. In the light of the aforesaid discussion, the question is answered in the affirmative, that is, in favour of the revenue and against the assessee.
8. The appeal is accordingly allowed. The impugned order dated 04.11.2004 passed by the Tribunal in appeal No. A-1062-65/WZB/04 C-IV is hereby quashed and set aside.
[AKIL KURESHI, J.] [HARSHA DEVANI, J.] JYOTI Top