Has the Tribunal any discretion to reduce the amount of penalty under Section 11 AC?

By Vijay Kumar

The Department’s view is that the penalty equal to the duty under Section 11AC of the Central Excise Act is mandatory and there is no discretion. Though it is nine years since the section came into force, strangely this question is not so far decided by the Supreme Court or any High Court. The famous Escorts JCB case - 2002-TIOL-26-CESTAT-DEL – was all about valuation, but there was a very interesting decision made by the Tribunal in that case. The Tribunal held that the penalty equal to duty is the maximum and not mandatory. It is not mandatory that in all cases such maximum should be imposed as penalty. Authority is having discretion to impose lesser penalty. And the Tribunal reduced the penalty from Rs 30 Lakhs to Rs 10 Lakhs. The party took the matter in appeal to the Supreme Court on the issue of demand and Revenue also took the matter to Supreme Court challenging the reduction in penalty. The Supreme Court allowed the party’s appeal and so there was no demand and consequently no penalty – mandatory or otherwise. Therefore there was no decision on the Revenue appeal. Tribunal continued to hold that mandatory penalty was not all that mandatory. And Revenue is constantly aggrieved. A few reference applications are pending in various High Courts. On the 1st of April 2005, the Supreme Court had another occasion to decide this issue in COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH-I v M/s DABUR INDIA LIMITED. This was also a case where the Tribunal reduced the penalty. The Supreme Court did not find any reason to interfere with the Tribunal’s order and dismissed the Revenue appeal with the remarks, We leave open the question whether the Tribunal has power to reduce penalty to be decided in an appropriate case.

Till then Tribunal will give relief.

See full text of Judgement 2005-TIOL-64-SC-CX-LB