2003 (6) TMI 371 - AT - Central Excise

Summary

Issues: Duty liability under Section 3A, imposition of penalty under Rule 173Q, applicability of penalty despite payment before show cause notice.

Duty Liability under Section 3A:
The appellants were initially discharging duty liability under Section 3A of the Central Excise Act, 1944 for a specific period. However, they later reverted to paying duty on value determined under Section 3, as duty under Section 3A was no longer applicable to their manufacturing activities involving processed fabrics. Upon switching over, they inadvertently cleared processed fabrics liable to ad valorem duty without payment, assuming they had already discharged the duty under Section 3A until a certain date. The lapse was due to a mix-up in their packing section. Upon discovering the error, they voluntarily deposited the central excise duty along with interest. A show cause notice was issued proposing duty confirmation, denial of credit, and imposition of penalty.

Imposition of Penalty under Rule 173Q:
The Commissioner confirmed the duty demand and imposed a penalty of Rs. 1 Lakh under Rule 173Q (1)(a) of the Central Excise Rules. The penalty was justified based on the gross negligence of the appellants in clearing goods without payment of duty, considering them to be previously cleared stock. The penalty imposition was supported by the applicability of Rule 173Q as per Section 38A of the Central Excise Act, 1944. The appellants contested the penalty, citing tribunal decisions in other cases to argue against negligence and highlighting the timely payment of duty and interest before the show cause notice.

Applicability of Penalty despite Payment before Show Cause Notice:
The Tribunal analyzed the submissions and case laws presented by both sides. It was noted that the payment of duty before the issuance of a show cause notice does not automatically preclude the imposition of a penalty, especially when the penalty is mandatory under Rule 173Q. The Tribunal emphasized the need to examine the circumstances of each case individually to determine the appropriateness of penalties based on the nature of the violation and established conduct. In this case, considering the facts and circumstances, the Tribunal deemed the penalty of Rs. 1 Lakh excessive and reduced it to Rs. 5,000, ultimately partially allowing the appeal in this regard.