2006 (11) TMI 461 - AT - Central Excise

Summary

Issues:
1. Appellant's liability for Central Excise Duty on processed fabrics.
2. Denial of deemed Modvat Credit under Notification No. 53 of 2001.
3. Imposition of penalty for non-payment of duty due to fraud.

Analysis:

1. The appellant, a processor of fabrics, was liable to Central Excise Duty at compounded rates. The appellant cleared processed fabrics by debiting duty payable in their Personal Ledger Account (PLA) against challans showing deposits in the bank, which were later found to be false. This led to show cause notices being issued by revenue authorities demanding duty not paid, denying deemed credit, and proposing penalties amounting to about Rs. 7 Lakhs.

2. The appellant argued that the failure to make deposits in the PLA was due to financial difficulties, and the company eventually went under new management. The appellant contended that denial of credit under para 7 of the notification was a substantial penalty, and further penalties would be unjust. The revenue authorities maintained that fraud was established, justifying the demands and penalties imposed.

3. The Tribunal found no dispute regarding short levy and upheld the duty demands, citing para 7 of Notification No. 53/2001, which prohibits Modvat Credit in cases involving fraud. However, the Tribunal set aside the separate demand for Modvat Credit, reducing penalties imposed equal to the demand of duty and Modvat Credit to Rs. 4.00 Lakhs. In a separate appeal against the penalty imposed on the partner of the assessee for duty evasion, the Tribunal justified the penalty but reduced the amount to Rs. 1.00 Lakh.

In conclusion, the Tribunal upheld the duty demands but set aside the demand for Modvat Credit, reducing penalties imposed on the appellant and the partner. The appeals were decided in favor of the revenue authorities, with penalties reduced to Rs. 4.00 Lakhs for the appellant and Rs. 1.00 Lakh for the partner, respectively.