2006 (10) TMI 324 - AT - Central Excise

Summary

Issues:
- Whether penalty is attracted under Section 11AC of the Central Excise Act in the present case.

Analysis:
1. The case was remanded by the Hon'ble High Court of Punjab and Haryana, Chandigarh, following a judgment in another case. The appellate tribunal considered the issue of penalty under Section 11AC of the Central Excise Act.

2. The key issue was whether the elements of "fraud, collusion, or any wilful misstatement or suppression of facts with intent to evade payment of duty" were present in the case to attract penalty under Section 11AC. The section provides for penalties in specific cases of duty evasion due to fraudulent activities.

3. The appellant, a manufacturer of coated paper, procured paper from paper mills and claimed Modvat credit on the paper received. Damaged paper not used in manufacturing was sold as waste paper, with Central Excise Duty discharged on the quantity disposed of. The appellant disclosed these transactions in statutory records and returns.

4. Central Excise authorities disputed the appellant's entitlement to credit on damaged paper, leading to deposits made by the appellant. A show cause notice was issued, proposing recovery and penalty under Section 11AC. The penalty imposed was later reduced by the Commissioner (Appeals).

5. The appellant argued that Section 11AC did not apply as there was no intent to evade duty. It was emphasized that the appellant maintained detailed accounts, disclosed transactions, and paid duty on the cleared damaged paper. The main contention against the appellant was the inclusion of duty in insurance claims, which the appellant argued was not illegal.

6. The tribunal examined the facts and held that the appellant's actions did not amount to fraud or suppression of facts with intent to evade duty. Not declaring insurance claims did not constitute suppression, especially when statutory records and returns disclosed other relevant details. The duty paid on damaged paper was significant, indicating compliance.

7. Consequently, the tribunal found that the ingredients of Section 11AC were not present in the case, leading to the conclusion that the penalty under the section was not justified. As a result, the appeal was allowed, and the penalty imposed was set aside.

This detailed analysis of the judgment highlights the considerations made by the appellate tribunal in determining the applicability of penalty under Section 11AC of the Central Excise Act in the case at hand.