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Machino Montell 11AC shock for manufacturers

AIT News Network

MUMBAI. A recent ruling of High Court AIT-2006-166-HC has come as a shock to manufacturers; wherein the High Court has overruled Machino Montell ruling in case of AIT-2004-12-CESTAT-LB which laid down that when the duty amount is paid by the assessee before issuance of show cause notice, no penalty can be imposed under Section 11AC of Central Excise Act. As a fallout of ruling; it is going to be tough time for Manufacturers and Advocates to contest the Adjudication Orders wherein Penalty has been imposed under Section 11 AC.

T H E F A C T S:

The respondent is a manufacturer of polypropylenecompounding falling under Chapter heading 39 of the Schedule to the Central Excise Tariff Act, 1985. It was noticed that for the years ending 31.03.1997, 31.03.1998 and 31.03.1999, forged entries were shown in RG-I register. Show cause notice dated 19.06.2001 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.

· 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 willfully 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.

Penalty of Rs.1,12,900/- under Section 11 AC 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. The revenue preferred an appeal, which was dismissed by the Tribunal.

Provision of Section 11 AC of the Act providing for penalty reads as under:-
“11 AC. 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 short levied 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 11 AB, 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.”

T H E R U L I N G:

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 11 A of the Act will not necessarily negate the situation mentioned in the said Section.

Applicability of Section 11 AC is not excluded at the threshold merely on deposit of the amount after having been caught and before the issue of show cause notice.

( Click here for full text of unreported HC ruling AIT-2006-166-HC)