2002 (1) TMI 1115 - AT - Central Excise

Summary

Issues Involved:
1. Duty demand confirmation and penalty imposition.
2. Modvat credit utilization and reversal.
3. Alleged discrepancies in clearance procedures.
4. Invocation of Section 11A(1) and Rule 173Q.
5. Bona fide belief and mens rea.
6. Quantum of penalty.

Detailed Analysis:

1. Duty Demand Confirmation and Penalty Imposition:
The appeal was filed against the order confirming a duty demand of Rs. 54,20,188/- and imposing an equal penalty under Rule 173Q of the CE Rules, 1944. The Commissioner also adjusted amounts already paid by the appellants against the confirmed duty.

2. Modvat Credit Utilization and Reversal:
HML procured raw materials and components through imports, indigenous sources, and manufactured components, availing Modvat credit under Rule 57A. Discrepancies were noticed during a special audit, revealing that some quantities sent to job workers were diverted to the Parts Distribution Center (PDC) for sale without proper documentation and without reversing the Modvat credit.

3. Alleged Discrepancies in Clearance Procedures:
The audit revealed that HML cleared Modvat availed inputs to PDC at enhanced values without discharging duty on the selling price, contravening Rule 57F(1)(ii). Additionally, for the period 1989-90 to 1991-92, the credit taken was not expunged when inputs were diverted to PDC.

4. Invocation of Section 11A(1) and Rule 173Q:
The Commissioner invoked the proviso to Section 11A(1) for demanding duty and imposed penalties under Rule 173Q, citing suppression of facts and intent to evade duty. The appellants argued that they had voluntarily paid the duty before any proceedings were initiated and that the penalty was unjustified.

5. Bona Fide Belief and Mens Rea:
The appellants contended that the lapses were due to inadvertence and clerical errors, not deliberate intent to evade duty. They argued that the penalty was unwarranted as they had paid the duty voluntarily and informed the department of the lapses.

6. Quantum of Penalty:
The Commissioner initially imposed a penalty equal to the duty amount. However, the Tribunal, upon examining the facts, reduced the penalty to Rs. 10,00,000/-. The Tribunal noted that the appellants had paid the duty before the detection by the audit and that there was no deliberate suppression of facts.

Majority Order:
The majority order reduced the penalty to Rs. 10,00,000/-, considering the appellants' voluntary payment of duty and the absence of mens rea. The appeal was allowed in part, modifying the impugned order to reduce the penalty.

Conclusion:
The Tribunal acknowledged the appellants' voluntary compliance and the absence of deliberate intent to evade duty. The penalty was reduced, aligning with the principles of proportionality and judicial discretion.