Duty paid before Show Cause Notice – the Machino effect no more valid?
The recent judgement of the P&H High Court (which we are carrying today) over ruling the Larger Bench decision of the Tribunal that no interest is payable and penalty imposable if the duty had been paid before issue of Show Cause Notice, must come as music to the ears of Revenue. But is it the end of the story? In Tax litigation, there is no period, only a pause.
The latest judgement of the High Court raises some very tricky issues.
1. The High Court has remanded the issue of penalty to the Commissioner (Appeals) and the question of interest to the Tribunal. The order says, “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……..The Tribunal will also take a fresh decision on the question of liability to pay interest” . When the matter is remanded to the Commissioner (Appeals), how can the Tribunal take a fresh look? Or is it a mistake?
2. The Machino judgement of the Larger Bench was based on the RashtriyaIspat case upheld by the Supreme Court. Now for an adjudicating or appellate authority bound by the decisions of higher judicial authority, there are two judgements – one of the Supreme Court confirming that there can be no penalty or interest when duty is paid before issue of Show Cause Notice and one from the P&H High Court holding otherwise. These authorities are bound more by the Supreme Court order than the High Court one.
3. There is an order of the Madras High Court that penalty cannot be imposed even if the duty is paid before adjudication (not necessarily before Show Cause Notice). At least this is binding in Tamil Nadu.
May be the issue has to go back the Supreme Court and after that the government can undo it with a retrospective legislation. Today we are carrying a detailed analysis of the issue in our special column.