2003 (10) TMI 362 - AT - Central Excise

Show cause notice - Non-mention of rule - Cenvat/Modvat - Modvat on capital goods - Cenvat/Modvat - Modvat on capital goods

Summary

Issues:
1. Charge of interest and levy of penalty on appellants who availed Modvat credit on Capital goods and depreciation under the Income-tax Act for 1996-97 and 1997-98.
2. Confirmation of orders by Commissioner (Appeals) regarding interest and penalty.
3. Appellants' grounds related to Rule 57U(8) and 57U(6) and show cause notice.
4. Professional management of the company and invocation of Rule 57U(2).
5. Justification of penalty equivalent to the amounts involved.
6. Reduction of penalty and confirmation of interest.

Issue 1:
The judgment revolves around the charge of interest and levy of penalty on the appellants who had availed Modvat credit on Capital goods and depreciation under the Income-tax Act for the years 1996-97 and 1997-98. The show cause notice for penalty was issued on 14-3-2000, and penalties were imposed under Rule 57U(6) of the Central Excise Rules, 1944 along with interest. The Commissioner (Appeals) confirmed the orders of the lower authorities, emphasizing that interest is chargeable on wrongly taken Modvat credit regardless of its utilization. The interest was reduced for a specific period based on the effective date of the relevant rule.

Issue 2:
The Commissioner (Appeals) upheld the penalty imposed on the appellants for illegitimately availing and utilizing Modvat benefits in contravention of the Central Excise Rules. Despite the appellants' contentions, the penalty was deemed maintainable, albeit at a reduced amount. The appellants challenged this decision, reiterating their arguments related to interest and the specific rules under which penalties were imposed.

Issue 3:
The appellants reiterated their arguments concerning interest and the provisions of Rule 57U(8) and 57U(6) during the appeal. The Departmental Representative highlighted the professional management of the company and invoked Rule 57U(2) based on the nature of the charges. The Tribunal found that the non-mention of a specific rule in the notice did not invalidate it, especially considering the appellants' professional management status. The Tribunal rejected the plea of no mala fides and upheld the penalty and interest on the appellants.

Issue 4:
The Tribunal emphasized that the appellants, being a professionally managed company, should have been aware of the ineligibility of Modvat credit if depreciation under the Income-tax Act was claimed. The Tribunal found that the appellants utilized the credit for payment of Central Excise Duty after a significant delay. Despite arguments regarding mala fides and previous tribunal decisions, the appellants were held liable for penalty and interest due to their actions.

Issue 5:
The Tribunal discussed the imposition of a mandatory penalty equivalent to the amounts involved and the need for adequate reasons for such a decision. While acknowledging the appellants' utilization of credits and liability for interest, the Tribunal reduced the penalty amount, considering the payments made and the duration of the case. The penalty was reduced to Rs. 50,000, and interest was confirmed to be calculated as per rules.

Issue 6:
Ultimately, the Tribunal allowed the appeal in the above terms, reducing the penalty amount and confirming the interest calculation based on the rules. The decision highlighted the appellants' liability for penalty and interest due to their actions, despite attempts to challenge the penalties imposed.