2009 (8) TMI 1070 - AT - Central Excise

Summary

Issues involved:
The issues involved in this case are whether penalty under Section 11AC of the Central Excise Act, 1944 and Rules 25 and 26 of the Central Excise Rules, 2002 should be imposed on the respondents for short payment of excise duty on clearances made to their sister unit, and whether the respondents' payment of the short paid duty and applicable interest before the issue of show cause notice absolves them from penalty.

Summary:

Issue 1: Imposition of Penalty under Section 11AC and Rules 25 and 26 of CER
The Revenue contended that the respondent had short paid duty on clearances to its sister unit, willfully suppressing the fact of stock transfer with intent to evade duty. The respondent rectified the short payment upon detection by the authorities. The Revenue argued that penalty under Section 11AC and Rule 26 of CER should be imposed due to fraud or wilful misstatement. However, the Tribunal found that the initial short payment was due to ignorance, not evasion. The respondents rectified the duty shortfall and interest before the show cause notice, making penalty imposition unwarranted. The Tribunal upheld the lower authority's decision of no penalty imposition.

Issue 2: Absolution from Penalty due to Timely Payment
The Revenue contended that penalty and interest should be imposed despite the duty payment post-detection. They argued that the law does not exempt penalty when duty is paid after detection but before the show cause notice. However, the Tribunal held that the intention of the law is not to protect those who evade duty initially but rectify upon detection. Citing judicial precedents, the Tribunal found that penalty is warranted only in cases of intentional evasion, which was not present in this situation. The Tribunal concluded that the respondents' timely rectification of the duty shortfall absolved them from penalty liability.

In conclusion, the Tribunal rejected the Revenue's appeal, upholding the lower authority's decision and finding no grounds for interference in the impugned order.