2007 (1) TMI 309 - AT - Central Excise

Penalty - Imposition of in remand proceedings - Principle of Natural justice - HELD THAT - In view of this imposition of penalty to the extent of Rs. 2,93,68,768/- appears to be totally irrational even if the same is treated to have been imposed under Rule 9(2), 173Q, 210 and 226 which were mentioned in the show cause notice also. As has been held in the above 12 show cause notices that this was a matter of interpretation where no penalty is warranted, we reduce the penalty from Rs. 2,93,68,768/- to Rs. 5 Lakhs only under Rule 173Q etc. As regards show cause notice dated 26-2-1996 the allegation is that the appellants have made a mis-declaration by declaring that the unprocessed tyre cord fabric used in the manufacture of processed tyre cord fabric was duty paid even though the imported tyre cord fabric had not borne any excise duty. The exemption was subject to the condition that duty @ Rs. 4/Kg. has been paid on the unprocessed fabric. This is not a case of payment of appropriate duty as is being made out by the appellants. On the contrary there is a specific requirement that the duty should have been paid on the unprocessed tyre cord fabric @ Rs. 4/Kg. and therefore the appellants were clearly not entitled the exemption and the imposition of penalty for mis-declaration cannot therefore to be faulted with. However this penalty cannot be more than Rs. 1 Lakh which was imposed in the first round of proceedings and the same cannot be enhanced in the remand proceedings. We accordingly reduce the penalty from Rs. 7.5 Lakhs to Rs. 1 Lakh only. As regards show cause notice dated 22-1-1998, 28-3-1998 and 14-7-1998 where penalty aggregating to Rs. 80 Lakhs have been imposed, we hold that since in the earlier cases no penalty has been imposed on the ground that the matter was of legal interpretation, the same holds goods for the present show cause notices also as the facts are no different. These penalties are accordingly set aside. As regards three show cause notices dated 29-11-2001, 3-7-2002 and 5-5-2000 we find that neither any notice of hearing has been issued in respect of them nor they were covered in the personal hearing. This has certainly resulted in the denial of principle of natural justice and we accordingly remand the matter back to the Commissioner with a direction that he should grant a personal hearing to the appellant to present their case and after hearing them to pass order as per law. The appeals are disposed of in above terms.

Summary

Issues Involved:
1. Marketability and excisability of Dipped Tyre Cord Warp Sheet (DTCWS).
2. Imposition of penalties on various show cause notices.
3. Alleged mis-declaration regarding duty paid on inputs.
4. Violation of principles of natural justice.

Issue-Wise Detailed Analysis:

1. Marketability and Excisability of DTCWS:
The appellants (M/s MRF) were engaged in converting unprocessed Tyre Cord Warp Sheet into Dipped Tyre Cord Warp Sheet (DTCWS) used captively in tyre manufacturing. They did not declare this activity to the department, leading to demands for Additional Excise Duty (AED) on DTCWS. The Tribunal initially held that DTCWS was classifiable under Chapter Heading 5906 and exempt from AED. The Supreme Court remanded the matter for fresh determination on marketability and excisability, leading to the Commissioner's impugned order.

2. Imposition of Penalties on Various Show Cause Notices:
The Commissioner's order covered 26 show cause notices. Six notices were dropped due to exemption from AED post-2-6-1998. For three notices dated 29-11-2001, 3-7-2002, and 5-5-2000, penalties were imposed without notice of hearing, violating natural justice principles, and were remanded for rehearing.

For 12 show cause notices remanded by the Supreme Court, the Commissioner imposed penalties aggregating to Rs. 25 Crores, despite not imposing any penalties in the initial proceedings. The Tribunal set aside these penalties, stating that non-imposition of penalties in the first round was not challenged by the department, thus penalties could not be imposed in the remand order.

3. Alleged Mis-declaration Regarding Duty Paid on Inputs:
In the show cause notice dated 26-2-1996, the appellants were alleged to have mis-declared duty-paid status on imported unprocessed tyre cord fabric, claiming exemption under Notification 157/83-C.E. The Tribunal upheld the penalty but reduced it from Rs. 7.5 Lakhs to Rs. 1 Lakh, as the initial penalty was Rs. 1 Lakh and could not be enhanced in remand proceedings.

4. Violation of Principles of Natural Justice:
For three show cause notices dated 29-11-2001, 3-7-2002, and 5-5-2000, the Commissioner imposed penalties without issuing a notice of hearing or including them in the personal hearing. This was deemed a violation of natural justice, and the matters were remanded for a fresh hearing.

Conclusion:
- The penalties imposed on 12 show cause notices were set aside due to the finality of non-imposition in initial proceedings.
- The penalty of Rs. 2,93,68,768/- was reduced to Rs. 5 Lakhs due to lack of suppression and applicability of Section 11AC.
- The penalty for mis-declaration in the show cause notice dated 26-2-1996 was reduced to Rs. 1 Lakh.
- Penalties aggregating to Rs. 80 Lakhs for three show cause notices were set aside as they involved legal interpretation issues.
- Three show cause notices were remanded for rehearing due to violation of natural justice principles.

The appeals were disposed of accordingly, emphasizing adherence to legal interpretations and natural justice principles.