2003 (8) TMI 432 - AT - Central Excise

Summary

Issues Involved:
1. Whether duty of Excise is payable on goods cleared as free warranty replacement.
2. Imposition of penalty under Section 11AC of the Central Excise Act and Rule 173Q of the Central Excise Rules, 1944.

Analysis:

Issue 1: Duty of Excise on Free Warranty Replacement
The appeals by M/s. Bharat Heavy Electricals Ltd. raised the question of whether duty of Excise is payable on goods cleared as free warranty replacement. The appellant's advocate referred to a Supreme Court decision in their own case, emphasizing that duty on replacement parts is payable separately at the time of clearance. The advocate argued against the imposition of penalty under Rule 173Q, stating that it involves a legal interpretation issue. However, the respondent contended that the appellant was clearing goods without paying duty, indicating an intention to evade duty. The Tribunal considered the arguments and referred to the Supreme Court's ruling that goods, even when replaced under warranty, remain excisable and duty is payable. Consequently, the Tribunal upheld the demand for Central Excise duty on the warranty free replacement.

Issue 2: Imposition of Penalties
Regarding the penalty under Section 11AC of the Central Excise Act, the Tribunal ruled that it could only be imposed in cases of fraud, collusion, wilful misstatement, or contravention of provisions with intent to evade duty. Since the Supreme Court had already decided the duty issue, the Tribunal found that the penalty under Section 11AC was not applicable. However, the Tribunal agreed with the respondent that penalties under Rule 173Q of the Central Excise Rules were justified. Rule 173Q mandates penalties for contravention of excise rules, and the Tribunal upheld penalties of Rs. 1 lakh each in two appeals and reduced the penalty in another appeal from Rs. 5 lakhs to Rs. 1 lakh. The Tribunal concluded by disposing of all appeals based on the above decisions.

In summary, the Tribunal upheld the demand for Central Excise duty on goods cleared as free warranty replacement, citing the Supreme Court's ruling that such goods remain excisable. While setting aside the penalty under Section 11AC due to the Supreme Court's decision, the Tribunal imposed penalties under Rule 173Q for contravention of excise rules. The penalties were upheld in two appeals and reduced in one appeal, bringing closure to all the appeals in question.