2007 (6) TMI 433 - AT - Central Excise

Demand - Clandestine manufacture and removal by 100% EOU - Penalty - Held that - There is no dispute about the duty demand on finished goods diverted. Inasmuch as duty has been demanded on the diverted goods, the question of demand of duty on the inputs which has gone into the finished goods which stand diverted is not sustainable. A composite penalty under different sections of the Customs Act and Central Excise Act together cannot be sustained. The penalty imposed on the company is not sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Imposition of composite penalty under both Customs Act and Excise Act.
2. Demand of excise duty on inputs used in manufacturing diverted goods.
3. Reduction of penalty by the Commissioner (Appeals) in a case of clandestine removal.

Analysis:
1. The judgment deals with an appeal against the Order of the Commissioner (Appeals) regarding the imposition of a composite penalty on an appellant who is a 100% E.O.U. The appellant cleared finished goods manufactured using non-duty paid material clandestinely, resulting in a duty demand of Rs. 1,94,705. The penalty was imposed invoking Sections 112, 114A of the Customs Act, and Section 11AC of the Central Excise Act. The appellant contended that a combined penalty under both Acts without segregation cannot be upheld, citing the case of Mahindra Ugine Steel Co. Ltd. The Tribunal noted that a composite penalty under different sections of the Customs Act and Central Excise Act together cannot be sustained, as per the decision in the mentioned case.

2. The issue of demanding excise duty on inputs used in manufacturing diverted goods was raised. The Tribunal clarified that since duty had already been demanded on the diverted finished goods, the demand of duty on the inputs used in manufacturing those goods was not sustainable. This decision was supported by referring to the case of Euro Coatspin Ltd. The Tribunal emphasized that when duty has been demanded on diverted goods, demanding duty on the inputs for those goods is not justified.

3. The Commissioner (Appeals) had substantially reduced the penalty imposed on the appellant, considering it a case of clandestine removal. The Tribunal acknowledged the reduction but ultimately found that the penalty imposed on the company was not sustainable due to the reasons discussed above. The Tribunal allowed the appeal, indicating that the penalty imposed on the appellant was not justified in the given circumstances.