Case Note & Summary
The petitioner, M/s. Indorama Synthetics (India) Ltd., a company incorporated under the Companies Act, 1956, challenged an order dated 8/2/2011 of the Settlement Commission, Customs and Central Excise, to the extent it rejected a claim for reduction of demand of Rs. 29,65,850, imposed a penalty of Rs. 15 lacs, and directed payment of simple interest at 10%. However, at the hearing, the petitioner only challenged the penalty of Rs. 15 lacs. The background of the case involves a search leading to a show cause notice dated 30/11/2005 demanding duty of Rs. 3.30 crores, alleging that during April 2001 to September 2002, the petitioner cleared partially oriented yarn (POY) of higher grade by downgrading the variety in invoices, and during 2000-01 to 2002-03, allowed special discounts to select customers to reduce value, which were later received back, resulting in duty evasion. The petitioner filed a Settlement Application under Section 32E of the Central Excise Act, 1944 on 1/6/2006, accepting duty liability of Rs. 1.89 crores and praying for immunity from penalty, interest, and prosecution. The Settlement Commission passed the impugned order, which the petitioner challenged. The High Court considered the submissions of the petitioner that the penalty was excessive given full duty payment and co-operation, and the respondent's argument that the penalty was justified. The court held that while the Settlement Commission has discretion under Section 32K to impose penalty, considering the full payment of duty and co-operation, the penalty of Rs. 15 lacs was on the higher side and reduced it to Rs. 5 lacs. The petition was partly allowed.
Headnote
A) Central Excise - Settlement Commission - Penalty under Section 11AC - The Settlement Commission imposed a penalty of Rs. 15 lacs on the petitioner for alleged evasion of duty by downgrading POY and allowing special discounts. The petitioner had paid the full duty of Rs. 1.89 crores and co-operated in the proceedings. The High Court held that the penalty was excessive and reduced it to Rs. 5 lacs, considering the full payment and co-operation. (Paras 1-10)
B) Central Excise - Settlement Commission - Interest under Section 11AB - The Settlement Commission directed payment of simple interest at 10% from the date the settled amount was due till payment. The petitioner did not challenge this aspect. (Para 1)
Issue of Consideration
Whether the Settlement Commission was justified in imposing a penalty of Rs. 15 lacs on the petitioner despite the petitioner having paid the full duty amount and co-operated in the proceedings, and whether the penalty should be reduced.
Final Decision
The High Court partly allowed the petition and reduced the penalty from Rs. 15 lacs to Rs. 5 lacs. The rest of the impugned order was not challenged and remained undisturbed.
Law Points
- Settlement Commission's discretion under Section 32K of Central Excise Act
- 1944
- penalty imposition under Section 11AC
- reduction of penalty when full duty paid and co-operation extended
- interest under Section 11AB
Case Details
WRIT PETITION NO.3613 OF 2011
J.P. DEVADHAR, M.S. SANKLECHA
Mr. Sridharan, Sr. Advocate with Mr. Prakash Shah i/by PDS Legal for the Petitioners, Mr. Vijay Kantharia with Mr. J.B.Mishra for the Respondent
M/s. Indorama Synthetics (India) Ltd.
Union of India, Settlement Commission, Customs & Central Excise, Commissioner of Central Excise, Nagpur, Directorate General of Central Excise Intelligence
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Nature of Litigation
Writ petition under Article 226 of the Constitution of India challenging an order of the Settlement Commission, Customs and Central Excise.
Remedy Sought
The petitioner sought to quash the order of the Settlement Commission to the extent it rejected reduction of demand, imposed penalty of Rs. 15 lacs, and directed interest, but at hearing only challenged the penalty.
Filing Reason
The petitioner was aggrieved by the imposition of a penalty of Rs. 15 lacs by the Settlement Commission despite having paid the full duty and co-operated.
Previous Decisions
The Settlement Commission passed an order dated 8/2/2011 rejecting the petitioner's claim for reduction of demand, imposing penalty of Rs. 15 lacs, and directing interest at 10%.
Issues
Whether the Settlement Commission was justified in imposing a penalty of Rs. 15 lacs on the petitioner under Section 11AC of the Central Excise Act, 1944.
Whether the penalty should be reduced considering the petitioner's full payment of duty and co-operation.
Submissions/Arguments
The petitioner argued that the penalty of Rs. 15 lacs was excessive as the full duty of Rs. 1.89 crores had been paid and the petitioner had co-operated with the proceedings.
The respondent argued that the penalty was justified given the nature of the evasion and the discretion of the Settlement Commission.
Ratio Decidendi
The Settlement Commission has discretion under Section 32K of the Central Excise Act, 1944 to impose penalty, but when the assessee has paid the full duty and co-operated, the penalty should not be excessive. In this case, the penalty of Rs. 15 lacs was reduced to Rs. 5 lacs.
Judgment Excerpts
This petition under Article 226 of the Constitution of India challenges the order dated 8/2/2011 of the Settlement Commission, Customs and Central Excise (Settlement Commission) to the extent it (i) rejects the claim of the petitioner for reduction of demand of Rs.29,65,850 from and out of the demand of duty of excise on special discount; (ii) imposes a penalty of Rs.15 lacs on the petitioner; and (iii) directs payment of simple interest at the rate of 10% from the period settled amount is due till the date of payment.
However, at the hearing, Mr. Sridharan, the learned Senior Counsel appearing for the petitioner has made submissions only challenging imposition of penalty of Rs.15lacs by the impugned Order.
Procedural History
A search led to show cause notice dated 30/11/2005 demanding duty of Rs. 3.30 crores. The petitioner filed a Settlement Application under Section 32E on 1/6/2006, accepting duty liability of Rs. 1.89 crores. The Settlement Commission passed the impugned order on 8/2/2011. The petitioner filed the present writ petition on an unspecified date, challenging the order. The High Court heard the matter and delivered judgment on 19/12/2012.
Acts & Sections
- Central Excise Act, 1944: 11AC, 11AB, 32E, 32K
- Constitution of India: Article 226
