2005 (3) TMI 643 - AT - Central Excise

Summary

Issues:
- Failure to debit Modvat credit on clearance of exempted goods
- Imposition of penalty on the appellants
- Applicability of penalty despite payment of duty before show cause notice

Analysis:
1. Failure to debit Modvat credit on clearance of exempted goods:
The appellants were found to have cleared exempted goods without debiting the Modvat credit taken on the inputs used for their manufacture. This failure was discovered during a visit by preventive officers to the factory. The appellants later rectified this error by debiting the amount but were still subjected to adjudication proceedings for penalty imposition.

2. Imposition of penalty on the appellants:
The Commissioner (Appeals) upheld the penalty imposed on M/s. Perfect Thread Mills Ltd. for their failure to debit the Modvat credit at the time of clearance of exempted goods. However, the penalty imposed on Shri S.P. Mehta, General Manager of the company, was reduced. The issue revolved around the intention to evade payment of duty, as the appellants utilized the credit for clearance of dutiable goods despite not debiting it for exempted goods.

3. Applicability of penalty despite payment of duty before show cause notice:
The appellant's advocate argued that since the duty was paid before the show cause notice was issued, no penalty should be imposed. Citing a Tribunal decision in a similar case, it was contended that penalty is not applicable when duty is voluntarily paid. However, the respondent's representative argued that the intention to evade payment was evident in this case, justifying the penalty imposition despite the duty payment before the notice.

4. Judgment and Penalty Imposition:
After considering the arguments from both sides, the judge found that the appellants' failure to debit the Modvat credit on clearance of exempted goods indicated an intention to evade payment of duty. Therefore, a penalty was imposed on M/s. Perfect Thread Mills Ltd., but it was reduced to Rs. 50,000 considering the deposit of the disputed amount before the show cause notice. The penalty imposed on Shri S.P. Mehta was set aside, providing consequential relief. The judgment was pronounced on 28-3-2005.