2009 (11) TMI 801 - AT - Central Excise

Summary

Issues:
1. Availing of SSI Exemption under Notification No. 16/97-C.E.
2. Utilization of credit on capital goods and duty payment.
3. Show Cause Notice for denial of exemption and demand of differential duty.
4. Imposition of penalty under Rule 173Q and 226 of the Central Excise Rules, 1944.
5. Appeal against the imposition of penalty.

Analysis:
1. The assessees availed the Small Scale Industries (SSI) Exemption under Notification No. 16/97-C.E. for the financial year 1997-98 up to a clearance value of Rs. 30 lakhs. Upon exceeding this limit, they utilized credit of Rs. 1,89,684/- on capital goods and used Rs. 1,89,106/- for duty payment on final products. A Show Cause Notice was issued proposing denial of the exemption and demanding a differential duty of Rs. 12.66 lakhs, along with penal action. The Additional Commissioner dropped the denial of exemption and the demand for differential duty but imposed a penalty of Rs. one lakh under Rule 173Q and 226 of the Central Excise Rules, 1944.

2. The adjudicating authority accepted the assessee's argument that the notification restricts the utilization of Modvat credit only under Rule 57A, not Rule 57Q. It was acknowledged that there was no intention to evade duty payment or cause loss to the exchequer. Consequently, the demand for differential duty was waived. Given these findings, it was deemed that the assessees should not be liable for any penalty. The Tribunal, after considering the submissions from both sides, concluded that since there was no intent to evade duty and the demand was dropped, the penalty imposed was unwarranted. Therefore, the penalty was set aside, and the appeal was allowed.

This judgment highlights the importance of interpreting the provisions of the law accurately, especially concerning exemptions and utilization of credits. It also underscores the significance of establishing intent when determining liability for penalties in excise matters.