1. The respondent is a manufacturer of polypropylene compounding falling under Chapter heading 39 of the Schedule to the Central Excise Tariff Act, 1985. It was noticed that for the years ending 31-3-1997, 31-3-1998 and 31-3-1999, forged entries were shown in RG-I register. Show cause notice dated 19-6-2001 was issued under Section 11A of the Central Excise Act, 1944 (for short “the Act”), requiring the assessee to show cause why additional duty and penalty be not imposed.
2. After considering the view point of the assessee, the adjudicating authority held that the party had clandestinely removed finished goods without issue of invoice and without payment of duty. Interest and penalty was levied thereon wilfully and intentionally evading payment of duty. The said duty was however, deposited without any protest on 23-5-2001 prior to the show cause notice dated 19-6-2001. The adjudicating authority concluded as under:—
“I come to the unmistakable conclusion that the differential quantity has been surreptitiously removed without following the prescribed Central Excise procedure and without payment of duty. In view of this I hold that the sum of Rs. 1,12,900/- demanded from the notice by invoking the extended period in terms of first proviso to Section 11A of Central Excise Act 1944 is liable to be demanded under this provision and the sum of Rs. 56,927.28 sought to be recovered towards interest under section 11AB ibid is liable to be recovered. I also hold that notice is liable to be penalized under Section 11AC, ibid.”
3. Thereafter, penalty of Rs. 1,12,900/- under Section 11AC was imposed. On appeal, Commissioner, Central Excise (Appeal) set aside the order of penalty, holding that the assessee had already deposited the duty fixed before issuance of show cause notice and as such, imposition of penalty is not called for. In view of the decision of the Tribunal in CCE Madurai v. Jkon Engg. Ltd., 2003 (151) E.L.T 453 (Tri.) : 2003 (54) RLT 449 (CEGAT-Che) and Ashok Leyland Ltd. v. CCE, Chennai, 2003 (156) E.L.T 995 (Tribunal) : 2003 (55) RLT 816 (CEGAT-Che.), the revenue preferred an appeal, which was dismissed by the Tribunal. Learned counsel for the revenue submitted that view taken in the impugned order and the decisions relied upon therein, is not legally sustainable. Once there was requisite mens rea, which conferred jurisdiction to levy penalty, mere deposit of the amount of duty and interest by itself did not deprive the authority of jurisdiction to levy penalty, as the said deposit could not be conclusive of their being no intention to evade payment of duty or duty being short levied or for having not paid by reasons of fraud, collusion or any wilful misstatement or suppression-of facts, or contravention of any of the provisions of this Act. Learned counsel for the assessee quoted judgment of the Tribunal and decisions relied upon therein.
4. We have considered rival contentions and perused the records and statutory provisions.
5. Provision of Section 11AC of the Act providing for penalty reads as under:—
“11AC. Penalty for short-levy or non-levy of duty in certain cases.— Where any duty of excise has not been levied or paid or has been hortlevied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of section 11-A, shall also be liable to pay a penalty equal to the duty so determined:
Provided that where such duty as determined under sub-section (2) of section 11A, and the interest payable thereon under section 11AB, is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such duty, the amount of penalty liable to be paid by such person under this section be twenty-five per cent of the duty so determined:
Provided further that the benefit of reduced penalty under the first proviso shall be available if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso:
Provided also that where the duty determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the duty, as reduced or increased, as the case may be, shall be taken into account:
Provided also that in case where the duty determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the first proviso shall be available, if the amount of duty so increased, the interest payable thereon and twenty-five per cent of the consequential increase of penalty have also been paid within thirty days of the communication of the order by which such increase in the duty takes effect.”
6. A perusal of the above provision, shows that the said provision incorporates liability to pay penalty in the situations mentioned therein. Once a case is covered by the situation mentioned in the 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.
7. Learned counsel for the assessee referred to sub-section 2B of Section 11A of the Act, wherein the statute itself has provided a situation, that on deposit being made, the assessee will not be served notice under Section 11(1) of the Act. Though learned counsel for the revenue made reference to the explanation which limits applicability of sub-section 2B, we need not go into this question in view of sub-section 2C of Section 11 of the Act, which makes it clear that sub-section 2B will not apply where duty has become payable prior to the date on which Finance Bill, 2001 was passed. Present case being governed by subsection 2C of Section 11, issuance of notice under Section 11 was not barred.
8. In view of the above, 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. Question will remain whether situation mentioned in Section 11AC exists, which has to be determined irrespective of the deposit of duty due, prior to issuance of notice. Since this question has not been determined by the Commissioner (Appeals) or by the Tribunal, whose decisions are based on the only consideration of deposit, we set aside the order of the Commissioner (Appeals) and the Tribunal and remand the matter back to the Commissioner (Appeals) for a fresh decision on the question of penalty after determining the question whether the non-payment of duty in the present case at the relevant time, which was made up later, was on account of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty as laid down under Section 11AC and as held by the adjudicating authority. The Tribunal will also take a fresh decision on the question of liability to pay interest.
9. Parties are directed to appear before the Commissioner (Appeals) for further proceedings on 4-9-2006.