2006 (4) TMI 420 - AT - Central Excise

Summary

Issues:
Demand of duty and penalty for manufacturing and clearing computers without payment of duty, challenge to show cause notice and demand of duty post partnership dissolution, retraction of confessional statements, abatement of duty and input duty credit benefits.

Analysis:
The appeal challenged a demand of duty and penalty for manufacturing and clearing computers without payment of duty, valued at Rs. 7,35,000, during July 1995 to August 1996. The lower appellate authority found the appellants liable for penalty under Rule 173Q of the Central Excise Rules due to contravention of various provisions of the Central Excise Rules, 1944.

The partnership firm 'Divine Solutions' was formed by two individuals in 1996. The department alleged clandestine assembly and sale of computer systems until October 1996. A show cause notice was issued demanding duty on 21 computers manufactured and cleared during the said period. One partner had passed away, and the surviving partner replied to the notice. Both partners had admitted to manufacturing and clearing computers without duty payment based on their statements under relevant Acts. The lower appellate authority sustained the duty demand but vacated the penalty under Section 11AC.

The challenge to the show cause notice was based on the partnership firm's dissolution post one partner's death. The surviving partner later retracted his earlier statements, but no copy of the reply to the notice was produced. The Tribunal held the retraction as belated and drew adverse inference against the appellants, upholding the confessional statements as evidence.

The decision upheld the duty demand for clandestinely manufactured goods but highlighted the need to allow abatement of duty and input duty credit benefits to the party as per relevant law provisions. The case was remanded to the original authority for re-quantification of duty and penalty determination under Rule 173Q.

In conclusion, the orders of both lower authorities were set aside, and the appeal was allowed by remand for a fresh order in compliance with the law, ensuring the party's right to be heard.