2006 (11) TMI 435 - AT - Central Excise

Summary

Issues:
Penalty imposition under Rule 173Q of Central Excise Rules, 1944 for removal of goods without payment of duty after re-conditioning and re-making. Interpretation of Chapter Notes to Chapter 29 of Central Excise Tariff Act, 1985. Allegation of intention to evade duty and violation of provisions leading to penalty imposition.

Analysis:
The appeal challenged the penalty imposed under Rule 173Q of the Central Excise Rules, 1944 on the appellant for clearing goods without payment of duty after re-conditioning and re-making. The appellant, a manufacturer of Bulk Drugs, had brought back rejected goods for re-processing under Rule 173H and subsequently cleared them without duty payment. The issue revolved around whether this activity amounted to manufacturing under Chapter Note 2 of Chapter 29. The initial demand and penalty were set aside by the Tribunal, but on de novo adjudication, the penalty of Rs. 5,00,000/- was imposed under Rule 173Q while duty demand was offset by Modvat credit.

The appellant contended that the absence of specific allegations of intention to evade duty in the show cause notice rendered the penalty invalid, citing the decision in Amrit Foods v. Commissioner of Central Excise. The respondent argued that the appellant knowingly avoided duty payment by clearing goods after re-processing, thus justifying the penalty. The Tribunal noted that the appellant operated under Rule 173H, allowing duty-free clearance after re-conditioning, and that the intention to evade duty was not evident. The adjudicating authority's finding of manufacturing was questioned as a misinterpretation of Chapter Notes.

The Tribunal further analyzed Rule 173Q, noting that penalty imposition required violations with intent to evade duty, which was not established in this case. Referring to the Supreme Court judgment in Amrit Foods, it emphasized the necessity of specifying the contravention under Rule 173Q for penalty imposition. As the specific sub-clause of Rule 173Q was not invoked in the present case, the penalty imposition was deemed invalid. Consequently, the impugned penalty order was set aside, and the appeal was allowed with any consequential relief.