M/s.Kannapiran Steel Re-rolling Mills v. The Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench

IN THE HIGH COURT OF JUDICATURE AT MADRASDated : 12.06.2008Coram :THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANandTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJACivil Miscellaneous Appeal Nos.1362 to 1364 of 2008The Commissioner of Customsand Central Excise6/7, A.T.D.StreetRace Course RoadCoimbatore – 641 018. ....Appellant in all C.M.Asv.1.M/s.Kannapiran Steel Re-rolling Mills334/1A, Mettupalayam RoadCoimbatore2.The Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench Shastri Bhawan Annexe Haddows Road Chennai – 600 006. ...Respondents in all C.M.AsAppeals in C.M.A.Nos.1362 to 1364 of 2008 are filed underSection 35(G) of Central Excise Act, 1944, against the order ofthe Customs, Excise and Service Tax Appellate Tribunal, South ZoneBench, Chennai, dated 3.4.2006 made in Final Order Nos.247 to 249of 2006 respectively. For appellant:Mr.S.Udayakumar,SCCGin all C.M.AsJUDGMENT(Judgment of the Court was delivered byK.RAVIRAJA PANDIAN, J.)The Department has filed these appeals against the order ofthe Customs, Excise and Service Tax Appellate Tribunal, South ZoneBench, Chennai, dated 3.4.2006 made in Final Order Nos.247 to 249of 2006 respectively by formulating the following questions oflaw: https://hcservices.ecourts.gov.in/hcservices/ "(1) Whether the Tribunal is right in exercisingthe non-existent element of discretion under Rule 96 ZP(3) of the erstwhile Central Excise Rules, 1944 toreduce the quantum of penalties that was rightly imposedby the adjudicating authority and upheld by the lowerappellate forum after due process of law and based onthe findings that the respondents had defaulted inpayment of duty?(2) Whether the Tribunal was right in placingreliance upon its own decision in the case of M/s.SreeLakshmi steel Re-rolling Mills without any reference tothe decision of a Division Bench of High Court ofAllahabad in the case of Pee Aar Steels Pvt.Ltd., whichwas prominently quoted by the Commissioner (Appeals) touphold the penalty imposed by the adjudicatingauthority?"2. Learned counsel appearing for the appellant has brought tothe notice of this Court that this Court in an identical set offacts passed an order on 24.3.2008 in C.M.A.No.1032 and 1033 of2008 against the Department. The said conclusion was reached bythis Court after taking into consideration of the relevantprovisions i.e., the then existing provisions Rules 96ZP(3) and96ZO(3) of the Central Excise Rules, 1944 and the similarly wordedSection 7(5) of the Entry Tax Act of the State of Madhya Pradesh,which has been considered by the Supreme Court in the case ofSTATE OF MADHYA PRADESH VS. BHARAT HEAVY ELECTRICALS reported in1998 (99) E.L.T. 33 (S.C.). We are of the view that it is aproposto extract certain portions of the above referred judgment of thisCourt dated 24.3.2008:"....7. A very similar worded Section 7(5) of theEntry Tax Act of the State of Madhya Pradesh has beenconsidered by the Supreme Court in the case of State ofMadhya Pradesh Vs. Bharat Heavy Electricals reported in1998(89)E.L.T. 44 (S.C.). Section 7(5) of the Entry TaxAct reads as follows:"(5) Where a registered dealer referred to insub-section (1) or sub-section (2) has, in thecourse of his business, sold local goods to otherregistered dealers and has failed to make thestatement referred to in sub-section (1) [...], itshall be presumed that he has facilitated theevasion of entry tax on the local goods so sold andaccordingly he shall be liable to pay penalty equalto [ten times] the amount of entry tax payable onsuch goods as if they were not goods of localorigin. https://hcservices.ecourts.gov.in/hcservices/

8. The word penalty equal to ten times of theamount of entry tax has been interpreted by the SupremeCourt. In paragraphs 12 and 13 of the above referredJudgment, the Supreme Court has held as follows:-"12. It is not necessary for us to decidewhether the provision for levy of penalty equal toten times the amount of entry tax would beconfiscatory and, therefore, ultra vires since MrSanghi, in fairness, submitted that the Statetreats it as the maximum limit and not fixed amountof penalty leaving no discretion for imposition oflesser penalty. This stand of the State itselfconcedes that the assessing authorities are notbound to levy fixed penalty equal to ten times theamount of entry tax whenever the provisions ofSection 7(5) are attracted. Depending upon thefacts of each case the assessing authority has todecide as to what would be the reasonable amount ofpenalty to be imposed, the maximum being ten timesthe amount of the entry tax. So construed, sub-section (5) of Section 7 cannot be regarded asconfiscatory. Consequently, this also cannot be aground for holding Section 7(5) to be ultra vires. 13. From the aforesaid it follows that Section7(5) has to be construed to mean that thepresumption contained therein is rebuttable andsecondly the penalty of ten times the amount ofentry tax stipulated therein is only the maximumamount which could be levied and the assessingauthority has the discretion to levy lesser amount,depending upon the facts and circumstances of eachcase. Construing Section 7(5) in this manner thedecision of the High Court that Section 7(5) isultra vires cannot be sustained."9. The above Supreme Court decision has been takennote of by the Tribunal with reference to the facts ofthe present case while passing the impugned orders. Thecircumstances of the case has been explained by sayingthat it had found an unexplained delay, albeit short, inthe payment of duty by the assessee after receipt of thesecond abatement order of the Commissioner. In thecircumstances, the assessee's prayer for doing away withpenalty could not be accepted and after havingconsidered all the facts and circumstances of the case,the Tribunal was of the view that the penalty ofRs.25,000/- would suffice the purpose of Rule 96ZO(3).We find that the reasoning given for reduction of https://hcservices.ecourts.gov.in/hcservices/ penalty is not extraneous. The Tribunal is having powerto reduce the penalty, by taking into the overallsituation of the case. The last limb of the provisionwhich states "or five thousand rupees whichever isgrater" is a point to the position that the penaltyrequired to the outstanding amount of duty stipulated isonly the maximum amount which could be levied and theauthorities have discretion to levy lesser amountdepending upon the facts and circumstances of each case.10. In a comparable provisions of the Section 125of the Customs Act, which provides for redemption offine in lieu of confiscation and also levy of penaltyfor improper importation of goods under Section 112(a)of the Customs Act, 1962, this Court has taken the sameview in T.C.(A) Nos.(sic. C.M.A.Nos.) 127 to 130 of2008 dated 31.01.2008 as the one taken by the SupremeCourt...." 3. However, before this Court, learned Counsel appearing forthe revenue has placed reliance on a decision of the Supreme Courtin the case of SONY INDIA LIMITED VS. COMMISSIONER OF CENTRALEXCISE, DELHI reported in (2004) 5 SC 751 for consideration.4. In the above referred judgment of this Court dated24.3.2008, this Court has followed the judgment of the SupremeCourt in the case of STATE OF MADHYA PRADESH VS. BHARAT HEAVYELECTRICALS reported in 1998 (99) E.L.T. 33. That case has alsobeen referred in the decision of the Supreme Court in the case ofSONY INDIA LIMITED VS. COMMISSIONER OF CENTRAL EXCISE, DELHIreported in (2004) 5 SCC 751. 5. In paragraph No.7 of the judgment of the Supreme Court inthe case of SONY INDIA LIMITED VS. COMMISSIONER OF CENTRAL EXCISE,DELHI reported in (2004) 5 SCC 751, the Supreme Court observed asfollows:"7. Now the other aspect that has to be consideredis whether penalty imposed under Section 11-AC andinterest under Section 11-AB was justified in thecircumstances that arise in the case. The Commissionerhad imposed penalty to an extent of Rs.2,07,64,870.16equivalent to the duty that was payable by the appellant.Under Section 11-AC of the Central Excise Act, the mannerin which the whole transaction went on makes it veryclear that the appellant became liable to pay duty underthe circumstances which warrant application of theprovisions of Section 11-A(i) [sic 11-A(1) first proviso]and, therefore, we think if the authorities chose toimpose penalty equivalent to duty payable by theappellant, we do not think, there is any justificationfor us to interfere with the same. The decisions adverted https://hcservices.ecourts.gov.in/hcservices/ to by the learned counsel have different complexions andbearing. These cited cases arose in the circumstanceswhere certain actions had been taken in bona fide beliefor the parties were under bona fide doubt as to underwhat tariff item they had to pay the tax in question orwhere the assessee was under bona fide belief that hiscompany was not required to be registered as dealer underthe Sales Tax Act. In the present case, earlier theappellant was paying duty at the rate of 18% ad valoremon the maximum retail price. It is only after 2-6-1998change was sought by the appellant by not printing theprice on the packed goods by removing the same to theirdepots from their factory in order to claim that thepacked goods had not been priced at the time of theirremoval from the factory and gifts were offered by theappellant to indicate that the consideration in the saletransaction was not solely the price. These factors, wethink, were rightly taken note of by the authorities andthe penalty imposed need not be considered in the presentproceedings."6. From the reading of the above observation, we are of theview that the said judgment cannot be regarded as laying down anabsolute proposition of law that wherever the provision givespower to the authorities concerned to impose penalty equivalent tothe duty payable, the authorities have to impose the maximumpenalty and cannot reduce the same depending upon the facts andcircumstances of the case.7. For the foregoing reasons, the appeals are dismissed.However, there is no order as to costs. usk Sd/- Assistant Registrar / True Copy / Sub. Assistant Registrar To1. The Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench Shastri Bhawan Annexe Haddows Road Chennai – 600 006. https://hcservices.ecourts.gov.in/hcservices/

2. The Commissioner of Customs and Central Excise 6/7, A.T.D.Street Race Course Road Coimbatore – 641 018.1 cc to Mr.S.Udayakumar, Advocate, SR.28997ssv (co)dv/3.7.CMA Nos.1362 to 1364 of 2008