The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), observed that mens rea is necessary ingredient for imposing penalty under Rule 25 of the Central Excise Rules, 2002.
The present appeal has been filed by the Revenue assailing the impugned order passed by the Commissioner of Central Excise, whereby the Commissioner has confirmed the demand of Rs. 1,09,49,725/- against the respondent under Section 11A of the Central Excise Act, 1944 along with interest under Section 11AB of the Central Excise Act and the said amount has already been deposited by the respondent, Khyber Industries (P) Ltd.
However, the Commissioner has refrained from imposing any penalty on the respondent under Rule 25(1)(a), 25 (1) (d) and 27 of the Rules and the Revenue in the present appeal has only challenged the non-imposition of penalties under above said rules.
The Departmental Representative appearing for the Revenue submitted that the impugned order dropping the penalties under Rule 25 and 27 of the Central Excise Rules, 2002 is not sustainable in law and further submitted that the adjudicating authority has held in para 12 of the order that exemption Notifications including the amending Notifications are effective prospectively only unless it is specifically mentioned in the relevant Notification about its retrospective effect as provided under sub section 5 of Section 5A of the Central Excise Act, 1944.
On the other hand, the Counsel for the Respondent has justified the impugned order and submitted that the Commissioner has not imposed any penalty under rule 25 and 27 of the Rules, 2002 by giving detailed reasons in Para 19 of the impugned order wherein the Commissioner has observed that the respondent has duly informed the department before availing the benefit under the said notification.
It was further submitted that the penal provisions under Rule 25(1) of the Central Excise Rules, 2002 are subject to Section 11AC of the Central Excise Act and unless the Revenue proves that there was a fraud, suppression, collusion or wilful mis-statement of the facts with intend to evade payment of duty, penalty under Section 25 and 27 cannot be imposed.
A Two-Member Bench comprising SS Garg, Judicial Member and P Anjani Kumar, Technical Member observed that “We find that the revenue in the present appeal is only aggrieved by non-imposition of penalty under the above said rules. Here, we note that the penal provisions under Rule 25(1) of the Central Excise Rules, 2002 are subject to Section 11AC of the Central Excise Act, 1944 which shows that penalty is imposable if there is intention to evade payment of duty as mens rea is a necessary ingredient before imposition of penalty under Rule 25.”
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