IOCL Is PSU, No Intent To Evade Excise Duty Can Be Alleged: CESTAT
Pranav B Prem
The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Indian Oil Corporation Ltd. (IOCL), being a Public Sector Undertaking (PSU) wholly owned by the Government of India, cannot be subjected to penal provisions under the Central Excise Act in the absence of mens rea. The Tribunal emphasized that when applicable duty and interest have been voluntarily paid prior to issuance of the show cause notice, the imposition of penalty under Section 11AC is unjustified. The decision was rendered by a Bench comprising Mr. S. S. Garg (Judicial Member) and Mr. P. Anjani Kumar (Technical Member), in an appeal arising from the adjudication order passed by the Commissioner of Central Excise, Rohtak.
Background of the Dispute
The appellant, IOCL, Panipat Refinery, cleared Superior Kerosene Oil (SKO) to its Guwahati unit during the period from February 2009 to March 2012. These clearances were made availing exemption under the Public Distribution System (PDS), as the goods were intended to be used for supply through PDS.
However, upon later scrutiny, IOCL discovered that a portion of the SKO cleared under the exemption was used for purposes other than the intended PDS supply. Upon detecting this deviation, IOCL, without any prompting from the department, voluntarily paid the differential Central Excise Duty amounting to ₹1,58,73,895, along with applicable interest. This payment was made prior to the issuance of the show cause notice dated 11.04.2013.
Despite this proactive compliance, the department proceeded to issue a show cause notice proposing to appropriate the amount paid and further sought to impose penalty under Section 11AC of the Central Excise Act, 1944.
The adjudicating authority confirmed the proposal and imposed the penalty, prompting the present appeal before the Tribunal.
Appellant’s Submissions
On behalf of IOCL, it was submitted that while the appellant had a defensible position on merits, they were not contesting the duty liability in this appeal. The contention was limited to the issue of penalty, which was asserted to be unsustainable in law in view of the circumstances of voluntary compliance and lack of intent to evade.
It was highlighted that the appellant had recovered the differential duty from its Guwahati unit and deposited the same well before any proceedings were initiated by the Revenue. The appellant argued that, in the absence of any suppression or misstatement, and being a government-owned PSU, it was not plausible to allege any intention to evade duty. Reliance was placed on several judicial pronouncements, including:
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Novely Exports v. CCE, Ahmedabad, 2024-TIOL-1170-CESTAT-AHM
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U.P. State Spinning Co. Ltd. v. CCE & ST, Allahabad, 2019-TIOL-1627-CESTAT-ALL
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Sri Durga Mills v. CCE, Kanpur, 2013 (293) ELT 744 (Tri.-Del.)
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Western Coal Fields Ltd. v. CCE, Nagpur, 2003 (161) ELT 768 (Tri.-Mumbai)
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ONGC v. CCE, Vadodara, 1995 (78) ELT 117 (Trib.)
In particular, the appellant referred to its own previous case reported as 2022-TIOL-539-CESTAT-AHM, wherein the Tribunal had taken the view that no penalty can be imposed in cases involving classification disputes or issues of interpretation, especially when the assessee is a PSU.
Tribunal's Observations and Findings
The Tribunal observed that there was no material on record to indicate any deliberate intention to evade payment of duty. It was noted that the entire liability had been discharged voluntarily along with interest before issuance of the show cause notice, which demonstrated good faith on the part of the appellant.
The Bench highlighted that in several judicial precedents, including the appellant’s own earlier case, it has been held that when there is no willful suppression or misrepresentation and the issue involves interpretation or administrative error, the imposition of penalty is not warranted.
In paragraph 5 of the order, the Tribunal quoted its own findings in the 2022 decision: “It is a settled legal position that in cases where the issue involved is classification or interpretation of rules/law/exemption notifications, no penalty can be imposed. In the present matter, no penalty is imposable upon the appellant as the applicant has not violated any provision with intention to evade payment of duty.”
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It was further observed: “Since the applicant is a public sector undertaking, the allegation of misstatement or suppression of facts or contravention of rules with intent to evade duty cannot be alleged. It is unconceivable that a PSU would resort to willful suppression of facts or deliberate contravention of law.” Thus, the Tribunal held that there was no justification for imposing a penalty under Section 11AC of the Act.
Verdict
Holding that the penal provision could not be invoked in the absence of any mens rea and keeping in view the voluntary compliance and public character of the appellant entity, the Tribunal set aside the impugned order to the extent of the penalty imposed and allowed the appeal.
Appearance
Present for the Appellant: Ms. Krati Singh and Ms. Jashanpreet Kaur, Advocates
Present for the Respondent: Sh. Aneesh Dewan with Shri Narinder Singh Authorized Representatives
Cause Title: Indian Oil Corporation Ltd V. Commissioner of Central Goods & Service Tax, CGST, Panchkula
Case No: Excise Appeal No. 51149 of 2014
Coram: Hon’ble Mr. S. S. Garg [Member (Judicial)], Hon’ble Mr. P. Anjani Kumar [Member (Technical)]
[Read/Download order]
