Mandatory penalty – Happy Board commends CESTAT LB decision to the field.
On 26th July 2007, we carried the landmark decision of the Larger Bench of the Tribunal holding that mandatory penalty is not the maximum penalty and if suppression, collusion etc, are proved, there is no option and penalty equal to the duty demanded has to be imposed. 2007-TIOL-1017-CESTAT-DELHI-LB.
Obviously the Board is very happy and has communicated our citation to the field, with extracts from the Larger Bench decision. The Board letter says,
The above cited Tribunal's decision is an important authority on the subject and has considered the legal provisions in a very comprehensive, holistic and detailed manner, setting to rest the controversies as created by a host of decisions on the subject matter creating all round confusion in the field.
Board wants the field officers to keep in mind this decision, while deciding the question of imposition of penalty under Section 11AC of the Central Excise Act or Section 114A of the Customs Act as it lays to rest the disparity of practices in the field formations arising out of two diametrically opposite viewpoints as held by various judicial bodies and for the guidance and action of the field officers in similar circumstances.
Board actually has no reason to worry as perhaps not a single officer in the country had imposed a penalty less than the amount of duty, under Section 11AC.
Remember we had carried an article last week by Jai Kumar and Natarajan, where the authors felt that the Tribunals and courts can still impose lesser penalty. Maybe the issue is not finally settled and the issue can still be agitated in the Supreme Court.
In his budget speech of 1996, the Finance Minister said,
I am proposing suitable changes in the Customs and Excise Acts to provide for mandatory penalty, together with interest, for evasion of duties on account of fraud, collusion, mis-statement or suppression of facts. Henceforth, the mandatory penalty for evasion of duty on these counts shall be equal to the amount of duty evaded. Tax evaders would also be required to pay interest starting from the first day of the succeeding month in which the duty evaded ought to have been paid and also face criminal prosecution.
The Board letter explaining the Budget said,
The Finance Bill also contains a proposal regarding mandatory penalty in cases of non-levy, short levy or non-payment or short payment of duty or erroneous refund arising from fraud, collusion or any wilful statement or suppression of facts or contravention of provisions of Act or rules with intent to evade payment of duty. A new Section 11AB has been inserted in the Central Excises and Salt Act. It may be seen that in such cases the adjudicating officer shall have no discretion to determine the amount of penalty and the penalty shall be equal to the amount of duty or refund which is determined as payable under Section 11A(2).
Any idea who the FM was? Our very own Chidambaram!
So the original idea appears to have been to impose a mandatory penalty equal to the duty demanded, but somewhere down the line with Machino montell and RINL, it somehow became the law that if duty is paid before issue of notice, there should be no mandatory penalty. This was too good to last, though a perfectly good logic. Even when the assessees came up voluntarily to pay any excise duty which escaped inadvertently, they were stuck with penalty and interest notices.
Anyway it is celebrations time for Revenue and the Board has gladly circulated the case reported by us. Penalty or interest, revenue or assessee, it is good economics to log on to www.taxindiaonline.com for the latest.
CBEC letter in F.No. 275/67/2007-CX.8A Dated August 24, 2007