2008 (2) TMI 747 - AT - Central Excise

Summary

Issues:
1. Benefit of deemed credit and penalty imposition under Section 11AC of the Central Excise Act, 1944.

Analysis:
The case involved the appellants engaged in manufacturing Chenille Fabrics and unprocessed Woven Fabrics. Central Excise Officers seized Chenille Fabrics and found the appellants manufacturing and clearing them without duty payment. The appellants later paid the duty and interest for the goods manufactured up to a certain date. A show cause notice was issued proposing duty demand, penalty, and interest. The adjudicating authority confiscated the seized goods, allowing redemption on payment of a fine. No penalty was imposed due to lack of mala fide. The Commissioner (Appeals) modified the order disallowing deemed credit and imposing a penalty under Section 11AC.

The appellant's advocate argued that the appellants made a bona fide mistake as they believed Chenille fabrics were duty-free, citing a Settlement Commission decision and a Supreme Court case. The Revenue representative contended that the appellants mis-declared goods in invoices, suppressing facts to evade duty, supported by a High Court decision. The adjudication found a bona fide mistake by the appellants, noting regular issuance of challans and invoices to a sister concern and other departments. The Commissioner disallowed deemed credit due to misdeclaration in invoices, which the adjudicator disagreed with, stating that clearance in the brand name did not constitute misdeclaration.

The Settlement Commission's decision was considered persuasive, settling a similar issue with duty payment and penalty immunity. The Supreme Court's ruling in a related case highlighted that mere negligence or failure to pay duty in doubtful cases does not attract extended limitation. The Revenue relied on a High Court decision emphasizing that depositing duty before a show cause notice does not preclude penalty imposition if elements of mens rea are present. The adjudicator upheld the penalty, considering the party's conduct and established suppression of facts. Consequently, the Commissioner (Appeals) decision was overturned, and the adjudication order was reinstated, allowing the appeal.