Pre-SCN Penalty Deposit Can’t Be Reappropriated as Duty: CESTAT Upholds ₹5.32 Crore Excise Duty Demand [Read Order]
The tribunal observed that the company had already utilised the amount to claim the 25% reduced penalty benefit under Section 11AC. It held that the same sum cannot be counted twice for different purposes, thereby rejecting the plea for duty adjustment and refund.
pre - Show - cause - notice - Taxscan
pre - Show - cause - notice - Taxscan
The Principal bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi in a recent case has upheld the central excise duty demand of ₹5.32 crore against M/s Balaji Wire Pvt. Ltd., ruling that a pre-SCN penalty deposit cannot be reappropriated as duty.
In Excise Appeals, the appellants challenged the Order-in-Original dated 24.11.2022 passed by the Additional Director General (Adjudication), Directorate General of GST (DGGST). The appeals were filed by M/s Balaji Wire Pvt. Ltd. and its Director, Mr. Arun Kumar Gupta, respectively.
The disputes arose from investigations conducted by the Directorate General of Central Excise Intelligence (DGCEI) at a residential flat in Delhi. During the search, officers seized documents and electronic data pertaining to six manufacturing units of the Bansal Group, including Balaji Wire Pvt. Ltd. Mr Arun Kumar Gupta is a director of Balaji.
The investigation revealed that certain goods manufactured and cleared by Balaji were not subject to central excise duty, leading to the issuance of a Show Cause Notice (SCN) dated 06.04.2012 proposing a duty demand of ₹9,44,15,478/- along with interest and penalties. Additionally, penalties were proposed against Mr Arun under Rules 26 and 27 of the Central Excise Rules, 2002, read with Section 174(2) of the CGST Act, 2017.
During the investigation, Balaji deposited ₹4,07,11,279/- towards duty, ₹88,19,908/- towards interest, and ₹61,06,692/- towards penalty. Following adjudication, the Additional Director General confirmed a reduced duty demand of ₹5,32,85,623/-, along with interest and a penalty of equal amount under Section 11AC of the Central Excise Act, 1944.
The Additional Director General appropriated amounts deposited towards duty and interest but did not adjust the pre-SCN penalty deposit against duty, citing procedural compliance with Section 11AC.
Balaji’s appeal was limited to seeking appropriation of the pre-SCN penalty deposit of ₹61,06,692/- towards confirmed duty. The company argued that since the amounts deposited during the investigation had already been adjusted for duty and interest, there was no logical reason to exclude the penalty deposit.
Appropriation, it contended, would reduce interest liability from ₹1,41,96,003/- to ₹1,14,37,004/-, resulting in a refund of ₹27,58,999/-.
The department countered that the pre-SCN deposit had been made under the head “other receipts” as an anticipated penalty. Once the O-I-O was passed, Balaji adjusted this amount towards the 25% reduced penalty under Section 11AC, fulfilling conditions for availing the reduced penalty. Allowing appropriation towards duty would result in double-counting, as the 25% penalty benefit could no longer be claimed.
The Tribunal observed that Balaji had correctly adjusted the pre-SCN deposit against the 25% penalty, meeting statutory requirements. Therefore, the same amount could not also be used to reduce duty liability. The tribunal upheld the duty demand of ₹5,32,85,623/- and dismissed Balaji’s appeal.
The two-member bench comprising Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) dismissed the appeal, holding that the pre-SCN penalty deposit cannot be re-appropriated toward duty. Duty demand of ₹5.32 crore confirmed.
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