2004 (1) TMI 541 - AT - Central Excise

Imposition of Penalty - Demand - Limitation - Cenvat/Modvat - Customs duty - HELD THAT - The mandatory penalty as arrived at under Rule 57-I(4) also cannot be upheld, in the facts of this case, when it is found that there was no knowledge on part of the appellants herein to have known that the Bills of Entries being sent to them were fabricated in any fashion. The fact that letterheads were given to the Clearing Agents, with instructions to deal with the situations at Chennai, should be a normal course of transactions, a commercial business risk being taken by the Company at Hyderabad. Nothing else could be read in that act. The mandatory penalty, as arrived at, based on facts and on the reasons in the impugned order is therefore not upheld. As regards the penalty on the appellants under Rule 209A of the Central Excise Rules, it is found that all the inputs in these proceedings are imported goods, therefore not being excisable goods, they are not liable for confiscation under the Central Excise Act, nor have they being found so. Therefore no goods are found to be liable for confiscation. Hence penalties under Rule 209A are not called for and cannot be upheld. The plea of limitation in this case is also upheld since in the terms of Trade Notice based on Board s letter F. No. 211/23/68-CX-6, dated 28-5-1986 requires the officer to verify the genuineness of the documents before de-facing the same. If these instructions were complied then this detection would have come to knowledge much earlier. In any case if the verification by the officers could not detect to be fraud it is too late for the day to held the appellants and its Directors to be in the knowledge of the same. The demands are also held to be complied by the same. Thus, demands of reversals and/or penalties as imposed could not sustain. Order is therefore required to be set aside. Appeals allowed. Ordered accordingly.

Summary

Issues involved:
The issues involved in this case are:
1. Demand of Modvat credit irregularly taken under Rule 57-I of the Central Excise Rules, 1944.
2. Imposition of penalties under various rules on the Company and its officials.
3. Allegations of deliberate evasion of duty and misuse of Bills of Entry by the Clearing agent.
4. Interrelation of proceedings under the Central Excise Act and Customs Act.

Summary of Judgment:

1. Demand of Modvat Credit:
The Company had imported chemicals for manufacturing, and after due payment of duties, used to advise the clearing agent to clear the goods. The Commissioner proposed to deny Modvat credit based on fabricated Bills of Entry. The Tribunal found that if duties were paid to the Commissioner of Customs, the Modvat credit availed by the Company should be considered valid. Previous orders had also absolved the appellants of any liability under the Customs Act, supporting the validity of the Modvat credit.

2. Penalties Imposed:
The Tribunal ruled that penalties under Rule 173Q and Rule 57-I(4) could not be upheld. The Company had sent required duty amounts to the Commissioner of Customs, indicating no intention to evade duty. The lack of evidence implicating the Company or its Directors in the Clearing agent's actions led to the dismissal of penalties. The finding of deliberate evasion by the Commissioner was not supported.

3. Allegations of Evasion and Misuse:
The Commissioner's allegation of deliberate evasion of duty by taking Modvat credit was not upheld. The Tribunal found no evidence implicating the Company in any fraudulent activities related to the Bills of Entry. The Company's actions were deemed part of normal commercial transactions, and penalties were not justified.

4. Interrelation of Proceedings:
The Tribunal held that the proceedings under the Central Excise Act were dependent on the outcome of Customs proceedings. Since previous orders had cleared the appellants of Customs Act liabilities, the Central Excise proceedings could not be sustained. The plea of limitation was also upheld, indicating that the demands were not valid.

In conclusion, the Tribunal allowed the appeals, setting aside the demands of reversals and penalties imposed on the Company and its officials.