2007 (3) TMI 457 - AT - Central Excise

Summary

Issues:
Appeal against dropping of personal penalty by Commissioner (Appeals) after ban on "Gutkha" and "Pan Masala" production in Maharashtra.

Analysis:
The appeal was filed by the revenue against the dropping of personal penalty imposed by the original adjudicating authority on the respondents. The respondent was involved in the manufacture of "Gutkha" and "Pan Masala" and was availing Modvat credit for various inputs, including packing material. However, due to a ban on these products in Maharashtra from 1-8-2002, the packing material became unusable, leading to a visit by Central Excise Officers to the factory on 8-3-2003. The appellant's Manager admitted the ban and agreed to reverse the credit of Rs. 7,15,538/- in respect of the packing material.

Subsequently, a show cause notice was issued confirming the debit entry and imposing a personal penalty of Rs. 7,85,203/-. The Commissioner (Appeals) set aside the personal penalty based on precedents like the Tribunal decision in Rashtriya Ispat Nigam v. CCE, Vishakhapatnam and the Larger Bench decision in CCE, Delhi-III v. Machino Montell (I) Ltd. The revenue challenged this decision, arguing that the Tribunal's Larger Bench decision had been set aside by the Hon'ble High Court of Punjab & Haryana.

Upon careful consideration, it was observed that the respondents had complied with all formalities under the Central Excise Law while availing credit on the packing material. The surplus credit arose only after the ban on their final products, rendering the credit non-usable. The Manager's statement confirmed that neither the inputs nor the credit could be utilized for five years, leading to the agreed reversal of the entry in the Cenvat credit account. The Tribunal found no evidence of mala fide intentions on the part of the respondents to attract penal provisions. The credit was merely a paper entry, acknowledged by the respondents for reversal. Consequently, the Tribunal upheld the dropping of the penalty, deeming it justified and rejecting the revenue's appeal.