2008 (6) TMI 438 - AT - Central Excise

Penalty - Cenvat/Modvat credit - Irregular availment - entire credit reversed before issuance of Show Cause Notice

Summary

Issues:
Penalty under Rule 57-I(4) and Rule 173Q of the Central Excise Rules, 1944.

Analysis:
The appeal was against penalties imposed under Rule 57-I(4) and Rule 173Q of the Central Excise Rules, 1944. The appellants had irregularly taken MODVAT credits on inputs from January 1994 to June 1998, which were later reversed before any show-cause notice was issued. The original authority imposed penalties totaling Rs. 1,82,022/- and demanded interest on the reversed credit amount. The first appellate authority reduced the penalties but the party was still aggrieved, leading to the present appeal.

Regarding the penalty under Rule 57-I(4), it was contended that the necessary ingredients for imposing the penalty were not alleged in the show-cause notice. The Tribunal noted that for such a penalty to be imposed, there must be evidence of fraud, wilful misstatement, collusion, suppression of facts, or contravention of provisions with intent to evade duty. The show-cause notice alleged contravention of rules with intent to evade duty, which was a ground for imposing the penalty under Rule 57-I(4). The Tribunal found that the reversal of MODVAT credit was an admitted fact, but there was no evidence to establish intent to evade payment of duty. The argument that the company was paying substantial duty amounts monthly during the material period supported the finding that no mens rea was established against the appellants. Consequently, the penalty under Rule 57-I(4) was set aside.

Regarding the penalty under Rule 173Q, the Tribunal found that the show-cause notice did not contain specific allegations related to this rule, unlike in the case of Rule 57-I(4). As a result, the Tribunal could not sustain the penalty imposed under Rule 173Q. However, due to the specific allegation of contravention of rules with intent to evade payment of duty in the show-cause notice, the penalty under Rule 57-I(4) could not be set aside entirely. Therefore, both penalties were set aside, and the appeal was allowed.

This detailed analysis of the judgment highlights the issues involved, the arguments presented, and the Tribunal's reasoning for setting aside the penalties under Rule 57-I(4) and Rule 173Q of the Central Excise Rules, 1944.