Penalty under Rule 25 of Central Excise Rules relies on “intention to evade” u/s 11 of Excise Act: Punjab & Haryana HC [Read Order]

The bench noted that, “intention to evade the payment of duty is not proved by the authorities while passing the order of penalty“
Punjab and Haryana High Court - Rule 25 Central Excise Rules - Section 11 Central Excise Act - Excise - taxscan

The Punjab and Haryana High Court has noted that the penalty under Rule 25 of the Central Excise is applicable only on satisfaction of the ingredients given in Section 11 of the Central Excise Act, 1944. 

The adjudicating authority imposed a penalty under section 11AC of Central Excise Act, 1944. The appellant filed a reply and furnished returns RG-23A Part-I Register and ER-1 (monthly return) for the month of July, 2003. The appellate authority allowed the appeal of the appellant with finding that raw material and finished goods were seized merely because of non-accountal of goods and there was no reason to believe that goods were meant for clandestine removal of goods.

The counsel for the appellant contended that the Tribunal has already held that there was no evidence regarding clandestine removal of goods, therefore, presumption of Section 11AC is unwarranted.

The Bench answered the question of law involved in the present appeal, whether penalty under Rule 25 of the Central Excise Rules, 2002 can be imposed without invoking provisions of Section 11 AC of the Central Excise Act, 1944 wherein ‘mens rea’ is a necessary ingredient in favour of the assessee and against the revenue.

In view of relevant Supreme Court Decisions, the bench of Justice Sanjeev Prakash Sharma and Justice Sudeepti Sharma noted that ‘mens rea’ will play an important role while invoking the provisions of Section 11AC of the Central Excise Act, 1944.

It was observed that, “A perusal of the record shows that there was no intention to evade duty, which is requisite of Section 11AC of the Act.  And Rule 25 of the Rules 2002 is not an independent rule and cannot be invoked unless it covers the ingredients to impose penalty as imposed in Section 11AC of the Act.”

It was further noted that “So far as Rule 25 is concerned, it starts as “subject to the provisions of

Section 11AC of the Act” which shows that Rule 25 would be applicable only in cases where Section 11AC is invoked” and the order of penalty was quashed.

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