a)Department initiated prosecution proceedings for wrongful credit.
b)Revisional court discharged assessee on ground that penalty proceedings were decided in its favour and department's appeal thereagainst before High Court was dismissed.
c)Department argued that penalty was dropped on ground of limitation and not on merits and appeal before High Court was dismissed for non-appearance; hence, same cannot be relied upon in criminal matters, where there is no time-limitation.
High Court held in favour of revenue as under:
1)Proceedings for recovery of duty with penalty and prosecution/ punishment are separate proceedings. For recovery, there is time-limit of 1 year/5 years in section 11A, but, for prosecution there is no time-limit in section 9.
2)In this case, despite arguments on merits, adjudication/recovery/penalty was dropped on ground of limitation and not on merits and appeal thereagainst was dismissed on ground of non-appearance and not on merits.
3)Since exoneration in adjudication/penalty proceedings is not on merits, assessee-accused cannot take shelter thereof to avoid prosecution proceedings. Since there is no time-limit in section 9, prosecution proceedings can be launched despite recovery/penalty becoming time-barred. Hence, prosecution was valid - Superintendent (Prosecution) Central Excise & Customs Department v. Ashok Leyland Ltd. (2015) 56 taxmann.com 309 (Rajasthan).
In adjudication, the appellate authority may decide appeal on grounds of limitation and not on merits despite strong case on merits. In such cases the prosecution may be initiated by the department since there is no adjudication on merits. It appears that in adjudication proceedings on huge tax demand, the assessee must press more on merits (if they are strong enough) and not on limitation to avoid prosecution.