The Madras High Court has upheld the imposition of penalty on Balamurugan Chemicals Pvt. Ltd., holding that payment of duty prior to issuance of show cause notice does not absolve an assessee from penalty where suppression of facts is established.
The Bench of Justice N. Anand Venkatesh and Justice K.K. Ramakrishnan dismissed the appeal filed by the assessee, affirming the orders of the adjudicating authority, the Commissioner (Appeals), and the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
The dispute arose following a central excise audit conducted in 2017, during which it was found that the assessee had availed CENVAT credit on capital goods during 2013–14 and 2014–15. However, scrutiny of financial records revealed that no such capital goods were reflected in the fixed asset register. Instead, the goods were allegedly cleared to another entity within the same period.
This led to issuance of a show cause notice in December 2017 proposing recovery of duty, interest, and imposition of penalty under Section 11AC of the Central Excise Act read with Rule 15(2) of the CENVAT Credit Rules.
Notably, the assessee had already paid the duty component prior to issuance of the show cause notice and later paid interest after adjudication. The dispute, therefore, centered only on the imposition of penalty.
The assessee contended that the show cause notice failed to specify the exact limb of Section 11AC under which penalty was proposed, and argued that since duty was paid prior to the notice, the benefit of Section 11AC(1)(a) proviso—granting immunity from penalty—should apply.
The High Court held that the case clearly fell under Section 11AC(1)(c), which deals with cases involving fraud, suppression of facts, or wilful misstatement with intent to evade duty.
The Court observed the assessee had availed CENVAT credit but failed to comply with Rule 3(5) while removing capital goods. The irregularity was not voluntarily disclosed but detected during audit. Payment of duty after detection indicates tacit admission of suppression.
The Court clarified that merely because duty was paid before issuance of the show cause notice, the benefit of penalty waiver under Section 11AC(1)(a) proviso would not apply where the case involves suppression of facts.
The Court further noted that the show cause notice and subsequent orders sufficiently indicated invocation of penalty for suppression under Rule 15(2) read with Section 11AC, and therefore, the assessee was fully aware of the nature of allegations.
The Bench undertook a detailed analysis of Section 11AC and clarified that Clause (a) applies to cases without fraud or suppression, where penalty can be waived if duty and interest are paid promptly. Clause (c) applies to cases involving suppression or intent to evade duty, where penalty is mandatory and equal to the duty amount. The benefit of reduced or waived penalty is not available where suppression is established.
The High Court held that the case squarely falls under suppression of facts. Payment of duty before show cause notice does not negate penalty in such cases. The orders of lower authorities imposing penalties were legally valid.
The appeal was dismissed, and the penalty imposed on the assessee was upheld.
Case Details
Case Title: Balamurugan Chemicals Pvt. Ltd. Versus The Commissioner of CCST & Central Excise
Citation: JURISHOUR-1017-HC-2026(MAD)
Case No.: CMA. (MD)No.592 of 2022
Date: 28.04.2026
Counsel For Petitioner: S.Ramakrishnan
Counsel For Respondent: N.Dilipkumar
