Case Note & Summary
The case involves an appeal by the Commissioner of Central Excise & Customs against an order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) which had set aside a penalty levied under Section 11AC of the Central Excise Act, 1944. The respondent-assessee, M/s R.R. Omerbhay Pvt. Ltd., had manufactured and cleared refined oil valued at Rs. 99,99,683/- during April 2003 without payment of duty, claiming exemption under Notification No. 8/2003-CE. However, the exemption was subject to the condition that the aggregate value of clearances in the preceding year did not exceed Rs. 300 lakhs. The assessee's clearances in 2002-03 were Rs. 5507 lakhs, far exceeding the limit. During investigation, the Plant Manager admitted the wrongful availment of exemption, and on 21-1-2004, the assessee paid the duty with interest under Section 11AB. Subsequently, a show-cause notice dated 26-12-2005 was issued proposing penalty under Section 11AC for fraud with intent to evade duty. The adjudicating officer confirmed the duty demand but declined to impose penalty since duty and interest were paid before the notice. On Revenue's appeal, the Commissioner (Appeals) imposed the penalty. The assessee appealed to CESTAT, which set aside the penalty on the ground that the show-cause notice was issued in violation of Section 11A(2B), which bars issuance of a notice for demanding duty once duty and interest are paid before the notice. The High Court framed the substantial question of law and admitted the appeal. The Court held that Section 11A(2B) only prohibits issuance of a show-cause notice for demanding duty, not for penalty. Therefore, the show-cause notice for penalty under Section 11AC was valid. The Court allowed the appeal, set aside the CESTAT order, and restored the Commissioner (Appeals)'s order imposing penalty.
Headnote
A) Central Excise - Penalty under Section 11AC - Show-Cause Notice Validity - Section 11A(2B) Central Excise Act, 1944 - The issue was whether a show-cause notice for penalty under Section 11AC is barred under Section 11A(2B) when duty and interest have been paid before issuance of the notice. The High Court held that Section 11A(2B) only prohibits issuance of a show-cause notice for demanding duty, not for penalty. Therefore, the show-cause notice for penalty was valid and the CESTAT erred in setting aside the penalty on that ground. (Paras 1-6)
Issue of Consideration
Whether the CESTAT was justified in deleting the penalty levied under Section 11AC of the Central Excise Act, 1944 by holding that the show-cause notice issued for levying penalty under Section 11AC was itself bad in law being in contravention of Section 11A(2B) of the Central Excise Act, 1944.
Final Decision
Appeal allowed. Impugned order of CESTAT set aside. Order of Commissioner (Appeals) imposing penalty under Section 11AC restored.
Law Points
- Section 11A(2B) of Central Excise Act
- 1944 bars issuance of show-cause notice for demanding duty only
- not for penalty
- Section 11AC penalty can be levied even if duty paid before notice
- show-cause notice for penalty under Section 11AC is not in contravention of Section 11A(2B).
