Penalty:

Penalty is imposed under any of the following provisions of the Central Excise Act, 1944 or the rules made thereunder: –

(i) Mandatory penalty for short/non levy, short/non payment and erroneous refund of excise duty by reason of fraud etc. [Section 11AC]: With effect from 14.05.2015, penalty provisions under section 11AC have been substituted. The penalty provisions under new section 11AC can be broadly classified under two categories:

(A) penalty provisions where duty has been short/non levied or short/non paid or erroneously refunded for reasons other than fraud etc.

(B) penalty provisions where duty has been short/non levied or short/non paid or erroneously refunded by reason of fraud, collusion etc.

The provisions of section 11AC are explained hereunder:

(A) Duty has been short/non levied or short/non paid or erroneously refunded for reasons other than fraud etc.

(i) Where any excise duty has been short/non levied or short/non paid or erroneously refunded, for any reason other than the reason of fraud/collusion/wilful mis-statement/ suppression of facts/contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under section 11A(10) will also be liable to pay a penalty not exceeding 10% of the duty so determined or ` 5,000, whichever is higher [Sub-section 1(a)].

(ii) Nil penalty: If such duty along with interest payable under section 11AA is paid either before the issue of show cause notice or within 30 days of issue of show cause notice (but before adjudication order), no penalty shall be payable by the person liable to pay duty or the person who has paid the duty and all proceedings in respect of said duty and interest will be deemed to be concluded [Proviso to sub-section (1)(a)].

(iii) 25% penalty: However, if the duty and interest is not so paid and the matter is adjudicated and a order determining duty is passed under section 11A(10), the penalty would be reduced to 25% of the penalty imposed if the following amounts are paid within 30 days of the date of communication of the order of the Central Excise Officer who has determined such duty:

•  Duty as determined under sub-section 11A(10);
•  Interest payable thereon under section 11AA; and
•  Reduced penalty (25% of the penalty imposed) [Sub-section (1)(b)].

(B) Duty has been short/non levied or short/non paid or erroneously refunded by reason of fraud, collusion etc.

(i) Where any excise duty has been short/non levied or short/non paid or erroneously refunded, by reason of fraud/collusion/wilful mis-statement/ suppression of facts/contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, theperson who is liable to pay duty as determined under section  11A(10) will also be liable to pay a penalty equal to the duty so determined [Subsection(1)(c)].

(ii) In respect of cases where the details relating to such transactions are recorded in the specified records for the period between 08.04.2011 and 14.05.2015 (date on which the Finance Bill, 2015 received the assent of the President [both days inclusive]), the penalty will be 50% of the duty so determined [Proviso to sub-section (1)(c)]. As per Explanation 2, ‘specified records’ means records maintained by the person chargeable with the duty in accordance with any law for the time being in force and includes computerized records.

(iii) 15% penalty: However, if the duty in points [B(i) and B(ii)] and the applicable interest is paid within 30 days of the communication of show cause notice, the amount of penalty liable to be paid by such person will be reduced to 15% of the duty demanded, subject to the condition that such reduced penalty is also paid within the period so specified. Further, all proceedings in respect of the said duty, interest and penalty will be deemed to be concluded [Sub-section (1)(d)].

(iv) 25% penalty: If the duty in points [B(i) and B(ii)] and the applicable interest is not so paid and the matter is adjudicated and a order determining duty is passed under section 11A(10), the penalty would be reduced to 25% of the duty so determined if the following amounts are paid within 30 days of the date of communication of the order of the Central Excise Officer who has determined such duty:

•  Duty as determined under sub-section 11A(10);
•  Interest payable thereon under section 11AA; and
•  Reduced penalty [25% of the duty determined under section 11A(10)] [Sub-section (1)(e)].

(C) If the duty amount gets modified in any appellate proceeding, then the penalty amount mentioned in [B)(i)] and [B(ii)] above and interest shall also stand modified accordingly. Where the duty amount or penalty is increased in the appellate proceedings, the benefit of reduced penalty as specified in [A(iii)] and [B(iv)] above will be admissible if duty, interest and reduced penalty in relation to such increased amount of duty is paid within 30 days of the date of such appellate order [Sub-sections (2) and (3)].

(D) Cases where no show cause notice has been issued prior to 14.05.2015 will be governed by amended provisions of section 11AC [Explanation 1(i)].

(E) Proceedings in the pending show cause notices can be closed – (i) on payment of duty, interest and penalty @ 15% of the duty in fraud cases and (ii) on payment of duty and interest in cases not involving fraud etc., within 30 days of 14.05.2015.

(F) In all cases where show cause notices are adjudicated after 14.05.2015, reduced penalty @ 25% of the duty in fraud cases and 25% of the penalty imposed in cases not involving fraud etc. can be paid within 30 days of communication of the adjudication order if the duty, interest and penalty is paid within such time.

(ii) Penalty on manufacturer/producer etc. for violation of Rules [Rule 25]: Rule 25 of the Central Excise Rules 2002 provides for penalty on any producer, manufacturer, registered person of a warehouse, an importer who issues an invoice on which CENVAT credit can be taken or a registered dealer not exceeding the duty on the excisable goods in respect of which any of the specified contravention have been committed, or ` 5,000, whichever is greater. The penalty is subject to the provisions of section 11AC of the Central Excise Act, 1944. The offending goods are also liable to confiscation. The specified contraventions are:

(a) Removal of any excisable goods in contravention of any of the provisions of the said rules or the notifications issued under the said rules; or

(b) Non-accountal of any excisable goods produced or manufactured or stored; or

(c) Manufacture, production or storage of any excisable goods without having applied for the registration certificate required under section 6 of the Central Excise Act; or

(d) Contravention of any of the provisions of the said rules or the notifications issued under the said rules with intent to evade payment of duty.

Simultaneous penalty under rule 25 and section 11AC cannot be imposed: If penalty is imposed under section 11AC, penalty under rule 25 will not be imposed. This, however, does not preclude the Department from confiscating the goods, imposing any fine in lieu of confiscation and prosecuting a person.

(iii) Penalty on persons knowingly dealing in goods liable to confiscation [Rule 26] : Under rule 26 of the Central Excise Rules 2002 it is provided that any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or the said Rules, shall be liable to a penalty not exceeding the duty on such goods or ` 2000, whichever is greater. It may be noted here that rule 25 is applicable only in respect of manufacturer, registered person of a warehouse etc. Thus, other persons like transporters, person concealing goods etc. shall be liable to penalty under rule 26.

Further, sub-rule (2) of rule 26 provides for penal action against the person who issues:

(i) excise duty invoice without delivery of goods mentioned therein or abets in making such invoice; or

(ii) any other document shipping bill, bill of lading, etc. or abets in making such document,

on the basis of which the user of said invoice or document is likely to take or has taken any ineligible benefits like CENVAT credit or refund.

Such person shall be liable to a penalty not exceeding the amount of such benefit or ` 5,000 whichever is greater.

(iv) General penalty [Rule 27]: Rule 27 of the Central Excise Rules, 2002 provides for imposition of a general penalty which may extend to f ive thousand rupees and with confiscation of the goods in respect of which the offence is committed. This is attracted when no other specific penalty is provided for.