2006 (1) TMI 413 - AT - Central Excise

Summary

Issues:
Imposition of penalty under Section 11AC and Rule 173Q on appellants.

Analysis:
1. The appeals challenged the confirmation of demand and penalty imposed on the appellants for misdeclaring their product as yarn covered with rubber or elastic yarn to claim an exemption they were not eligible for. The Commissioner (Appeals) confirmed the duty amount but set aside the penalty under Section 11AC while upholding the penalty under Rule 173Q in one case and both penalties in the other.

2. The appellant's representative argued that they appealed only against the non-imposition of penalty, not challenging the duty demand or product classification. They claimed a bona fide belief that their products were not excisable and highlighted the Modvat credit accepted by the Commissioner (Appeals). They cited a tribunal decision and a Supreme Court case to support their arguments against the penalties imposed.

3. The Department argued that the appellants willfully misdeclared the product classification to evade duty, making them ineligible for leniency regarding penalties under Section 11AC and Rule 173Q. They referred to a Supreme Court case emphasizing the need for specific clauses in the show cause notice for imposing penalties under Rule 173Q.

4. The Tribunal found that the dispute centered on the penalty imposition. In one appeal, the penalty under Section 11AC was deemed not imposable, and in the other, the penalty was reduced but left for lower authorities to determine the quantum. The Tribunal referenced a previous case to support the appellants' eligibility for Modvat credit exceeding the duty payable, rendering the penalties unsustainable under Section 11AC.

5. Regarding the penalties under Rule 173Q, the Tribunal noted that the show cause notices did not specify the clause violated, following a Supreme Court ruling requiring such specificity for penalty imposition. Consequently, the Tribunal set aside the penalties under both Section 11AC and Rule 173Q, allowing the appeals and overturning the orders upholding the penalties.

This detailed analysis of the legal judgment highlights the arguments presented by both sides, the Tribunal's consideration of relevant precedents, and the ultimate decision to set aside the penalties imposed on the appellants under Section 11AC and Rule 173Q.