The Punjab And Haryana High Court has held that a show cause notice is required to be issued for imposition of penalty under section 11AA Of Excise Act.
The bench of Justice Sanjeev Prakash Sharma and Justice Jasjit Singh Bedi has observed that the financial implications identified in the audit were required to be placed before the petitioner company and it should have been given an opportunity of hearing and put up its defence thereafter a speaking order was required to be passed. If such an order would have been passed, the petitioner would also have an opportunity to file an appeal against the same.
The petitioner/assessee is a company registered under the Companies Act, 1956 and is a unit of SKN Group. It is authorized by the Petroleum and Natural Gas Regulatory Board and the State Government of Haryana which distribute CNG and PNG in Gurugram. It is duly registered under the provisions of the Central Excise Act, 1944.
The Superintendent has requisitioned records for the period April 2018 to March 2023. It was informed that the audit would be conducted Another letter was issued as a reminder. Again a letter was issued by the Superintendent informing the petitioner company that during the audit conducted by the CAG, it was found that excise duty has not been deposited within time, therefore, interest and penalty are liable to be paid.
The assessee contended that the entire process of recovery has been initiated based on the CAG Audit Report which was conducted for the period 2018- 2019. The provisions of Section 11A(1) and 11A(14) of the Excise Act, which are applicable for recovery of interest have been ignored. The audit report could be only a basis for assessment. Since the assessment order is required to be passed after following the due procedure established under the Excise Act and Rules, at the stage of the audit report no recovery proceedings could be initiated.
Section 11AA provides for interest on delayed payment of duty and generally lays down that in addition to the duty, the person would be liable to pay interest at the rate as specified in sub-section (2) of Section 11AA of the Excise Act whether such payment is made voluntarily or after determination of amount under Section 11A of the Excise Act. Similarly, the penalty on short levy or short paid also results in liability to pay penalty not exceeding 10% of the duty so determined.
However, as per Section 11AC (1)(a) of the Excise Act, no penalty shall be payable by the person liable to pay duty where such duty and interest payable under Section 11AA is paid before the issuing of show cause notice or within thirty days of issuance of show cause notice.
The petitioner has been demanded interest and penalty on the excise duty, which the petitioner company has already paid on the basis of an audit report. The same was admittedly paid after due date. The amount was paid voluntarily before any interest or penalty could have been imposed, show cause notice was required to be given to it to explain the delay as Section 11AA as well as Section 11AC lay down different circumstances wherein the interest would be payable.
If the petitioner would have been given an opportunity of hearing, the authorities would have reached to a conclusion whether the duty paid by the petitioner can be said to be delayed or not firstly and secondly whether the same was voluntarily deposited and the benefit was available to it
The court noted that a bare reading of the complete provisions of recovery of duties under Section 11AA of the Act reflects that the principles of natural justice are inherent and imbibe the same. Therefore, merely on the basis of CAG findings of non-compliance of duty payment timelines and potential interest and penalty demand, it cannot be said that the penalty and interest would be automatic.
The court held that the action of demanding the amount from the petitioner and imposing penalty is not sustainable in law.
Case Details
Case Title: Haryana City Gas Distribution Limited Versus Commissioner of Central Excise and Central Goods and Service Tax and others
Case No.: CWP No. 14167 of 2024 (O&M)
Date: 20.12.2024
Counsel For Petitioner: Senior Advocate Rajesh Garg
Counsel For Respondent: Senior Standing Counsel Suman Jain
