The section 11A of the Central Excise Act, 1944 plays a vital role in collection of revenue. The collection of duties, interest and penalty wholly depends upon issuance of show cause notice under this section. Finance Bill, 2011 has brought up major changes in this section. These changes and their impacts are the theme of this article.
Section 11A of the Central Excise Act, 1944, as it stood before the amendment, provided that where any duty is short levied/paid or not levied/paid or erroneously refunded, the Central Excise Officer may issue a show cause notice upon that person within one year from the relevant date. This time period to issue show cause notice may extend to five years in case of fraud, collusion, willful misstatement or suppression of facts as per proviso to this section.
Thus, the show cause notice can be issued for the above referred reasons of short levy/payment, non levy/payment of duty or erroneous refund. If the assessee pays the duty on being pointed out, whether show cause notice could be issued as per this old provision? No – says the language but in reality the show cause notices were issued by the department even when the duty was already paid. The issue was very hot in last few years and it was categorily held by various appellate authorities that when there is no short-levy/payment, the conditions of section 11A are not satisfied and as such, show cause notice cannot be issued. It was held in the case of Union of India vs Perfect Thread Mills Ltd. [2009 (234) ELT 49 (Raj.)] and UOI vs. Rajasthan Spinning & Weaving Mills [2009-TIOL-63- SC-CX]. As a consequence of similar decisions, this Budget has brought amendments in this section wherein these decisions have been affirmed.
Finance Bill, 2011 has substituted the language of this section. The basic theme of this section has been kept alive alongwith certain additions. The new section states as follows:-
° Sub section 1 to section 11A says that where any duty is short levied/paid or not levied/paid or erroneously refunded by way of any reason other fraud, collusion or willfull misstatement of suppression of fact of contravention of this Act or of the rules made thereunder with intent to evade payment of duty:–
a) The Central excise office may issue show cause notice within one year from relevant date.
b) The person chargeable with duty may pay the duty alongwith interest before show cause notice either on self assessment or on the basis of duty assessed by Central excise officer.
° Sub section 2 says that if the intimation of duty so paid is given to the officer in writing; no show cause notice will be issued to him.
° Sub section 3 says that if the duty assessed by the Central Excise Officer is less than as paid by the assessee, the show cause notice can be issued within one year of such intimation.
° Sub section 4 provides that where any duty is short levied/paid or not levied/paid or erroneously refunded by the reason of fraud/ collusion/ willful misstatement/ suppression of facts or contravention of any of the provisions of the Act or the rules made thereunder with the intent to evade payment of duty, show cause notice may be issued within five years from the relevant date.
The above sub-sections reiterate the old provisions of this section. The only addition is made which is in respect of payment of duty before issuance of show cause notice which is done to affirm various judgments. The major amendments have been done to expand the powers of officers in case of fraud, collusion, wilful misstatement or suppression of facts. These amendments are in form of following sub sections to section 11A:-
° Sub section 5 of this section is being inserted which reads as follows:-
“Where, during the course of any audit, investigation or verification, it is found that any duty has not been levied or paid or short-levied or short-paid or erroneously refunded for the reason mentioned in clause (a) or clause (b) or clause (c) or clause (d) or clause (e) of sub-section (4) but the details relating to the transactions are available in the specified record, then in such cases, the Central Excise Officer shall within a period of five years from the relevant date, serve a notice on the person chargeable with the duty requiring him to show cause why he should not pay the amount specified in the notice along with interest under section 11AA and penalty equivalent to fifty percent of such duty.
The consequences of the aforementioned provision can be read in the following points:-
° The discrepancy of non-levy/ short-levy of duty is found during the audit, investigation or verification.
° The discrepancy is due to the reasons of fraud, collusion, wilful misstatement or suppression of facts or contravention of any provision of this Act or rules with intent to evade payment of duty.
° The details of discrepancy/mis-match are available in specified records. Specified records means records including computerized records maintained by the person chargeable with the duty in accordance with any law for the time being in force. Earlier when these were recorded, the assessee used to say that when these are recorded in accounts, then there is no intention to evade payment of duty. But now section itself speaks about the same. Hence, it will difficult to take such pleadings.
° If all the above conditions are satisfied, show cause notice may be issued within five years from the relevant date.
° Show cause notice should prescribe to state reasons as to why duty, interest and penalty equivalent to 50% of such duty should not be recovered from him.
Thus, this section prescribe certain conditions on satisfaction of which show cause notice can be issued for recovery of duty, interest and penalty @ 50% of duty amount.
° In line with the insertion of section (5) the next amendment is made vide inserting the new section (6) in section 11A which provides that,
Any person chargeable with duty under sub-section (5), may, before service of show cause notice on him, pay the duty in full or in part, as may be accepted by him along with the interest payable thereon under section 11AA and penalty equal to one percent of such duty per month to be calculated from the month following the month in which such duty was payable, but not exceeding a maximum of twenty-five percent of the duty, and inform the Central Excise Officer of such payment in writing.
In this provision the quantum of penalty is reduced when the duty along with interest and penalty is paid before issuance of show cause notice. In such cases, the penalty will be 1% per month or maximum upto 25% of the duty. However, the payment is required to be intimated to Central Excise officer in writing.
° Sub section 7 is inserted in this section which says that on receipt of above intimation regarding payment of duty, interest and penalty under sub section 6, no show cause notice will be issued. However, if any amount is found short-paid, the show cause notice will be issued for balance amount within one year of date of intimation.
° Sub section 8 says that for counting the period of one year or five year, the period of stay granted by the Tribunal or court will be excluded.
° Sub section 9 says that where the extended period is not found invokable by the Court/ Tribunal, the duty will be re-calculated for the period of one year by the Central excise officer.
° Sub section 10 says that the matter will be adjudicated after providing the opportunity of being heard.
° By inserting the sub section (11) a deadline has been given to the Central Excise Officers for adjudication of case. This provision allows a maximum period of one year for deciding the case if the show cause notice was issued by invoking the extended period. This period is reduced to six months if the show cause notice pertains to normal period.
° Sub section 12 says that where the amount finally decided by the adjudicating officer is enhanced by the appellate authority, the time of payment of the same shall be counted from the date of order of appellate authority.
In the nutshell, the scope of this section is increased drastically. Keeping the time limits of issuing show cause notice intact, time limits have been inserted for deciding the case. The provision for giving opportunity of being heard has been specifically included in the Act. If the duty is paid before issuance of show cause notice, the proceedings stand dropped or if initiated, they are for differential amount provided the intimation of payment is given to the concerned officer. The changes in this section has direct impact on the penal provisions under section 11AC and accordingly this section also stands modified.
Prior to this Budget, a fixed penalty was prescribed under this section which was equivalent to duty involved in the case. However, from this budget, three tier penal provisions have been prescribed which are discussed as follows:-
° The penalty in the cases fraud, collusion, wilful misstatement or suppression of facts or contravention of any provisions with the intent to evade payment of duty has been kept intact which is equal to amount of duty.
° Section 11AC is modified to be line with the section 11A. The penalty in the cases arising out of audit/investigation/verification has been fixed at 50% of duty involved.
° If the duty determined by the adjudicating authority is paid within 30 days of such adjudication, penalty will be reduced to 25% of the duty.
° If the duty is modified by the appellate authority, penalty will also be modified accordingly.
° Where there is modification of amount by the appellate authority, the time period will be counted from the date of such order.
Thus, there are drastic changes in section 11A of the Central Excise Act, 1944. This section now also covers the penal provisions. For aligning these provisions, section 11AC is also modified to have three tier system. The old penal provisions were only contained in section 11AC. The language of old section 11AC was simple, yet it was on fire all the time. Now, the language has been changed completely and new penal provisions have been prescribed in two sections – 11A and 11AC. Thus, after analysis of whole section it can be said that the section 11A which was meant only for invocation of period of limitation is now extended to the imposition of penalty also. For which a section 11AC is already prescribed the penal provision. This will create more complexities in the law of excise which is already a complicated one.
CA Pradeep Jain,
CA Preeti Parihar and
CA Rajani Thanvi