2008 (8) TMI 758 - AT - Central Excise

Summary

Issues:
1. Applicability of Rule 25 of the Central Excise Rules for penalty imposition.
2. Allegation of full control over another company leading to undervaluation.
3. Justification of penalty imposition and requirement for pre-deposit.

Analysis:

Issue 1: Applicability of Rule 25
The appellant, M/s. Mahindra & Mahindra (M&M), contested the penalty imposition of Rs. 50,00,000 under Rule 25 of the Central Excise Rules, claiming that they are not a producer, manufacturer, registered warehouse person, or dealer to fall under the purview of this rule. The Tribunal noted that Rule 25 did not apply to M&M as they did not fit the specified categories. Additionally, it was acknowledged that M/s. Lokesh Machines Ltd. (LML) had already paid the duty demand before the Show Cause Notice was issued, indicating revenue neutrality. As M&M had not taken credit for the paid duty, the Tribunal granted a waiver of the penalty pre-deposit, staying its recovery.

Issue 2: Allegation of Full Control and Undervaluation
The Respondent alleged that M&M had full control over LML, influencing the production, planning, dispatch, and supply of materials, resulting in undervaluation of goods. Despite the argument that M&M did not play a role in undervaluation and the duty paid by LML should be considered as credit by M&M, the Respondent justified the penalty imposition of Rs. 50 lakhs. However, the Tribunal found the submissions in favor of the appellant to be prima facie acceptable, granting the waiver of the pre-deposit of the penalty based on the lack of applicability of Rule 25 and the absence of credit taken by M&M.

Issue 3: Justification of Penalty Imposition
The Respondent emphasized the penalty imposition due to the alleged decisive role of M&M in the undervaluation of goods and the failure to plead financial hardship. However, the Tribunal observed that there was an arithmetical error in quoting Rule 25 instead of Rule 26 and that the appellant's arguments regarding the duty payment by LML and the lack of credit taken by M&M were valid. Therefore, the Tribunal granted the waiver of the pre-deposit of the penalty, staying its recovery pending further proceedings.

In conclusion, the Tribunal ruled in favor of M/s. Mahindra & Mahindra (M&M) by granting a waiver of the pre-deposit of the penalty imposed under Rule 25 of the Central Excise Rules, considering the lack of applicability of the rule to M&M and the prima facie acceptance of their submissions regarding the duty payment and credit situation.