Excise Penalty u/r 25 Sustainable Even Without Fraud: CESTAT Orders Appropriation of Duty and Interest Already Paid [Read Order]

The Hyderabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that penalty under Rule 25 of Central Excise Rules can be imposed even when there is no fraud and also allowed adjustment of duty and interest already paid.

Little Star Foods Pvt. Ltd., the appellant, was manufacturing “Cadbury Perk with Glucose Energy” on job work basis. There was dispute about classification and department said product is not eligible for concessional duty. The authority classified it under CTH 19053290, denied exemption and confirmed duty with interest and penalty.

The appellant did not challenge classification or duty. It only disputed that duty and interest already paid was not adjusted, and also challenged penalty under Rule 25.

The appellant’s counsel argued that penalty is not valid because no specific clause of Rule 25 was mentioned. They argued that Rule 25 depends on Section 11AC and earlier it was held that Section 11AC not applicable. They also argued there was no fraud or intention to evade tax.

The revenue counsel argued that matter already reached higher level earlier and demand is final. They argued only penalty under Section 11AC was removed earlier but Rule 25 penalty was not removed and also argued penalty can still apply even if issue is interpretational.

The two-member bench comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) observed that the demand of duty and interest is not disputed and the appellant has already paid the same. It observed that such payments must be appropriated against the confirmed demand and no further demand can be raised.

On the issue of penalty, the tribunal observed that Rule 25 provides for penalty in different situations. It observed that while clause (d) requires intent to evade duty, clauses (a), (b), and (c) do not require such intent. The tribunal also observed that Section 11AC covers cases where no fraud or suppression is present and allows penalty up to 10% of duty.

The tribunal explained that even in absence of fraud, penalty can be imposed under Rule 25 read with Section 11AC(1)(a). It pointed out that the adjudicating authority has restricted penalty to 10% of duty which is in line with legal provisions.

The tribunal upheld the imposition of penalty under Rule 25 and held that duty and interest already paid by the appellant will stand appropriated. The appeal was partly allowed.

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