2002 (5) TMI 379 - AT - Central Excise

Summary

Issues:
1. Imposition of penalty under Rule 173Q of the Central Excise Rules on the General Manager of Diesel Locomotive Works.

Analysis:
The appeal raised the question of whether a penalty under Rule 173Q of the Central Excise Rules should be imposed on the General Manager of Diesel Locomotive Works. The dispute arose from the manufacture of Diesel Electric Locomotives exempted from Central Excise duty under a specific notification. The Collector of Central Excise confirmed a duty demand and imposed a penalty of Rs. 75 lakhs, asserting that Diesel Electric Generating Sets/Power Packs were intermediate products classifiable under Heading 85.02 of the Central Excise Tariff Act. The Committee on Disputes permitted the Ministry of Railways to pursue the appeal in CEGAT, emphasizing that substantive legal questions were involved.

The appellant, represented by Shri R.V. Sinha, argued that there was no intention to evade duty, as they believed their final product was diesel locomotives, not D.G. sets. Citing legal precedents, including Hindustan Steel Ltd. v. State of Orissa, the appellant contended that penalties were not justified for technical breaches or when there was a genuine belief in compliance. Referring to a Ministry of Finance letter, the appellant claimed that D.G. Sets were eligible for duty exemption before specific dates, thus challenging the penalty imposition.

On the contrary, Shri M.P. Singh, the Departmental Representative, asserted that D.G. Sets were intermediate products in Diesel Locomotive manufacture, subject to duty under Rule 173Q. Citing Zunjarrao Bhikaji Nagarkar v. Union of India, it was argued that penalties were imperative for non-payment of duty. The Supreme Court's interpretation of Rule 173Q was highlighted, emphasizing the mandatory nature of penalties when goods were removed without duty payment.

After considering both arguments, the Tribunal found that excisable goods used in manufacturing other products were deemed removed immediately before such utilization, making DG sets subject to duty. While acknowledging the penalty imposition, the Tribunal deemed the initial penalty of Rs. 75 lakhs excessive, considering the exemption status of the goods before specific dates. Consequently, the penalty was reduced to Rs. 1 lakh, taking into account the appellant's status as a Government Department and the availability of Modvat credit for duty paid on inputs. The appeal was disposed of accordingly, with the cross objection also being addressed.

This detailed analysis of the judgment highlights the legal arguments, precedents, and considerations that led to the final decision to reduce the penalty imposed under Rule 173Q on the General Manager of Diesel Locomotive Works.