2004 (4) TMI 404 - AT - Central Excise

Demand - Manufacture - Cenvat/Modvat - Packing material - Mandatory penalty and interest - Confiscation of plant and machinery - Valuation - Cum-duty price

Summary

Issues Involved:

1. Whether the activity of re-packing of thinner amounted to manufacture and whether the longer period of limitation in terms of the proviso to Section 11A(1) can be invoked.
2. Whether the appellants wrongly took the benefit of Modvat credit on packing materials.
3. Confiscation of 18 drums of Thinners.
4. Penalty under Section 11AC and interest under Section 11AB.
5. Penalty under Rule 173Q.
6. Penalty under Rule 209A on the Managing Director.
7. Penalty under Rule 57-I and interest under Rule 57-I(5).
8. Confiscation of Plant and machinery.
9. Whether the value of clearance should have been taken as cum-duty price.
10. Applicability of mandatory penalty under Section 11AC prior to its introduction.

Detailed Analysis:

1. Whether the activity of re-packing of thinner amounted to manufacture and whether the longer period of limitation in terms of the proviso to Section 11A(1) can be invoked:

The Tribunal observed that the appellants' activity of re-packing thinners did not amount to manufacture until 28-2-1997. It was only from 1-3-1997, due to the insertion of Chapter Note 5 to Chapter 38 by the Finance Act, 1997, that such activity was deemed to be manufacture. The Tribunal noted that the department was aware of the appellants' activities, as evidenced by a letter from the Jurisdictional Superintendent of Central Excise dated 18-3-1996. This letter indicated that the appellants were engaged in trading activities, which were reflected in their Central Excise records and RT 12 returns. Consequently, the Tribunal concluded that the longer period of limitation could not be invoked, and no duty could be demanded for the period prior to 28-2-1997. For the period from 1-4-1997, the appellants had shifted the activity outside their factory premises, and the duty liability was accepted and paid by them.

2. Whether the appellants wrongly took the benefit of Modvat credit on packing materials:

The appellants admitted to diverting Modvat availed containers for packing thinners, which were traded by them. The duty on this account, amounting to Rs. 1,29,917/-, was accepted by the appellants, and they had pre-deposited Rs. 1,50,000/-. This demand was confirmed by the Tribunal.

3. Confiscation of 18 drums of Thinners:

The Tribunal found no material to sustain the order of confiscation of 18 drums of thinners and set aside the redemption fine of Rs. 20,400/-.

4. Penalty under Section 11AC and interest under Section 11AB:

The Tribunal held that the longer period of limitation could not be invoked as the Revenue failed to prove suppression of facts by the appellants. Consequently, the mandatory penalty of Rs. 7,35,384/- under Section 11AC and the demand for interest under Section 11AB were set aside. It was also noted that Section 11AC could not be applied retrospectively.

5. Penalty under Rule 173Q:

The Tribunal found that there was no proposal in the show cause notice for imposing a penalty under Rule 173Q. Therefore, the penalty imposed under Rule 173Q was set aside.

6. Penalty under Rule 209A on the Managing Director:

The Tribunal noted that the Department failed to prove suppression of facts by the appellants. The statement of the supplier, Hariprasad of M/s. Y. Chem, claiming that he only issued Modvatable documents without supplying goods, could not override the documentary evidence provided by the appellants. The Tribunal also found no detailed discussion in the impugned order regarding the Managing Director's role in the alleged violations. Therefore, the penalty of Rs. 5,00,000/- imposed on the Managing Director under Rule 209A was set aside.

7. Penalty under Rule 57-I and interest under Rule 57-I(5):

The appellants admitted to wrongly taking Modvat credit and accepted the liability, paying the amount as directed. The Tribunal upheld the penalty of Rs. 1,29,917/- and confirmed the demand for interest.

8. Confiscation of Plant and machinery:

The Tribunal found no evidence of mala fide intention on the part of the appellants and set aside the order of confiscation of the plant and machinery.

9. Whether the value of clearance should have been taken as cum-duty price:

The Tribunal referred to the Supreme Court's judgment in CCE, Delhi v. Maruti Udyog Ltd., which held that the sale price realized by the assessee is inclusive of duty when no additional amount is sought from the purchaser. Therefore, the Tribunal concluded that the value of clearance should be taken as cum-duty price.

10. Applicability of mandatory penalty under Section 11AC prior to its introduction:

The Tribunal reiterated that Section 11AC, introduced on 28-9-1996, could not be applied retrospectively to cases prior to its introduction.

Conclusion:

The Revenue's appeal was dismissed as devoid of merits. The appeal filed by the assessee-appellants was partly allowed, and the appeal of the Managing Director was allowed.