No Penalty for Indian Oil: CESTAT Finds No Mens Rea in Duty Payment Case [Read Order]

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has set aside the penalty imposed on Indian Oil Corporation Ltd ( IOCL ), Panipat Refinery, in a Central Excise dispute involving the clearance of Superior Kerosene Oil ( SKO ) during the period February 2009 to March 2012. CESTAT held that there was no intention to evade duty on part of the public sector undertaking and thus, the imposition of penalty under Section 11AC of the Central Excise Act, 1944 was not justified.

The appellant, Indian Oil Corporation Ltd, had cleared SKO to its Guwahati unit by availing exemption meant for supply under the Public Distribution System (PDS). Upon realising that a part of the SKO was utilised for purposes other than the intended PDS use, the appellant voluntarily paid the applicable differential Central Excise duty along with interest, prior to the issuance of a show cause notice dated 11th April, 2013. Despite this, the Revenue authorities issued a show cause notice proposing to appropriate the duty paid and also imposed a penalty under Section 11AC. This was confirmed by an adjudication order dated 26th November, 2013, which led to the present appeal.

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During the hearing, counsel for the appellant submitted that though IOCL had grounds to contest the case on merits, they were not doing so, as the duty and interest had already been paid. They contended that no penalty could be imposed when the payment had been made before issuance of the show cause notice, especially in the case of a government-owned public sector unit. Several case laws were cited to support the contention that in the absence of mens rea, no penalty under Section 11AC can be sustained.

The Bench relied on several judgments, including Western Coal Fields Ltd. v. CCE, Nagpur(2003) and ONGC v. CCE, Vadodara (1995), wherein it was held that penalties cannot be imposed on PSUs in the absence of wilful suppression or deliberate evasion. In those cases, the Tribunals observed that being government-owned entities, PSUs are unlikely to engage in fraudulent conduct or suppression of facts to avoid duty.

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CESTAT, after considering the arguments and material on record, observed that there was no evidence of deliberate suppression or intention to evade duty by the appellant. The Bench noted that similar views had been taken in earlier decisions, including in the appellant’s own case, where it was held that disputes involving classification or interpretation do not warrant penalty.

The final order was pronounced by the Division Bench comprising S. S. Garg, Member (Judicial) and P. Anjani Kumar, Member (Technical), who allowed the appeal and set aside the penalty imposed by the adjudicating authority.

To Read the full text of the Order CLICK HERE

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