Commissioner Central Excise vs Sarvpriya Industries Ltd.

Adarsh Kumar Goel, J.—This appeal has been preferred by the revenue u/s 35G of the Central Excise Act, 1944 (in short, "the Act") against the order dated 15.4.2009 passed by the Customs, Excise & Service Tax Appellate Tribunal, New Delhi (hereinafter referred to as "the Tribunal") proposing to raise the following substantial question of law:

Whether the Hon''ble Tribunal is right in refraining from imposing mandatory penalty in terms of Section 11AC of the Central Excise Act, 1944 when it has confirmed the demand of duty of extended period in terms of provisions of Section 11A of the Central Excise Act, 1944?

The assessee is engaged in the manufacture of motor seat parts. As a result of search operation on 20.12.2001, there was allegation of illegal utilization of credit on AED (T) on the basis of invoices referred to in the show cause notice dated 14.12.2005. After considering the stand of the assessee, the original authority vide order dated 31.7.2006 confirmed the demand of duty and also imposed penalty. The said order was affirmed by the Commissioner (Appeals) vide order dated 18.4.2007. On further appeal, the demand of duty of Rs. 80,493/- was upheld but penalty was set aside by the Tribunal with the following finding:

I find that the credit was taken on the basis of documents. It is also noted that the amount involved Rs. 80,493/- which the appellants reversed on the spot on 20.12.2001 at the instance of the Central Excise Officers. After four years by show cause notice dated 24.12.2005, it was proposed to impose penalty u/s 11AC of the Central Excise Act, 1944 on the allegation of suppression of fact with intent to evade payment of duty. But, there is no material available for suppression of facts with intent to evade payment of duty. Accordingly, the imposition of penalty u/s 11AC of the Act is not warranted.

We have heard learned Counsel for the parties.

Learned Counsel for the appellant submitted that levy of penalty was automatic once duty was paid less even if there was no intention to evade the payment of duty. Reliance has been placed on the judgments of the Hon''ble Supreme Court in Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, and Union of India (UOI) Vs. Rajasthan Spinning and Weaving Mills, .

We are unable to accept the submission. Law laid down in Dharmendra Textile as well as in Rajasthan Spinning & Weaving Mills is that mandatory penalty u/s 11AC of the Act was not applicable to every case of non-payment or short-payment of duty. Thus, even though the authorities may have no discretion once conditions stipulated u/s 11AC of the Act exist, in absence of fulfilment of such conditions, penalty could not be levied. In this view of the matter and the finding of the Tribunal that there was no allegation of suppression of facts with intent to evade the payment of duty, the penalty u/s 11AC of the Act was not warranted. No substantial question of law arises.

Accordingly, the appeal is dismissed.