2006 (2) TMI 575 - AT - Central Excise

Summary

Issues:
1. Imposition of penalty equivalent to duty short paid by the appellant on yarn manufactured and cleared during a specific period.
2. Whether penalty and interest can be imposed when duty was paid before the show cause notice was issued.
3. Whether intentional suppression of facts with the intent to evade duty was proven.

Analysis:
Issue 1:
The appellant, an undertaking of the U.P. State Government engaged in yarn manufacture and sale, faced a penalty equivalent to the duty short paid on yarn cleared during a specific period. The appellant initially treated the sale price of yarn as assessable value for duty discharge. Upon realizing a change in valuation law requiring inclusion of transport cost, the appellant paid the differential duty in 1999. However, a show cause notice proposing penalty and interest was issued two and a half years later. The impugned order invoked the proviso to Section 11 of the Central Excise Act, 1944 for an extended period, citing the amended Section 4 and the necessity to include freight and insurance in the assessable value for sales to depots and consignment agents. The order rejected the appellant's plea of ignorance, emphasizing the responsibility to comply with the law.

Issue 2:
The appellant argued that no penalty could be imposed as the duty was paid before the show cause notice, citing a precedent. The Tribunal referred to a ruling stating that when duty is paid before the issuance of a show cause notice, no penalty can be imposed under Section 11A. The appellant had indeed paid the duty much before the notice, making the imposition of penalty unwarranted. The Tribunal found the charge of suppression unreasonable, noting that the appellant had filed sale invoices revealing the facts fully, even though there was no legal requirement to do so. The Tribunal emphasized that intentional suppression of facts, not the mere filing of invoices, was the crux of the matter.

Issue 3:
The Tribunal concluded that the appellant's payment of duty before the show cause notice precluded the imposition of penalty. The finding of intentional suppression of facts to evade duty was deemed unreasonable, as the appellant had provided full information through filed invoices. The Tribunal set aside the impugned order and allowed the appeal, emphasizing the importance of intentional suppression as the key consideration.

In summary, the Tribunal ruled in favor of the appellant, setting aside the penalty and emphasizing the importance of intentional suppression of facts with the intent to evade duty in such cases.