2010 (12) TMI 1141 - AT - Central Excise

Valuation - capacity based production - penalty - Held that - The writ petition of the assessees are allowed and impugned provisions in Rules 96(ZO) (ZP) and (ZQ) permitting minimum penalty for delay in payment without any discretion and without having regard to extent and circumstances for delay are held to be ultra vires the Act and the Constitution

Summary

Issues Involved:
Appeal against Commissioner's order upholding duty demand, penalty imposition based on capacity of production for M.S. Ingot, Bar & Rods, Tor, M.S. Angles under Chapter 72 of CETA, 1985. Applicability of declarations filed by appellants opting for actual production-based duty payment. Validity of penalty imposition under Rule 96ZO and 96ZP. Interpretation of Supreme Court orders on assessment based on actual production.

Analysis:

Issue 1: Capacity of Production vs. Actual Production Declarations
The appellants, manufacturers of specified goods, challenged duty levy based on capacity of production. They cited Hon'ble Supreme Court's order permitting applications for assessment based on actual production. The Commissioner upheld duty demand and penalty. The appellants argued that their letters declaring intention to pay duty based on actual production should be considered as opting out of the capacity-based scheme. The Tribunal agreed that the initial declaration filed in 1997 remained valid for subsequent years. However, the letters in 1998 and 1999 expressing intent to pay based on actual production should be treated as opting out of the capacity-based scheme. The Tribunal emphasized that the declaration filed in October 1998 could not be applied to the financial year starting from April 1998, but could be considered for the following year. The Tribunal noted the appellants' consistent communication and filings supporting actual production-based duty payment.

Issue 2: Penalty Imposition
The Department argued that the initial declaration in 1997 was valid for subsequent years and that the penalty under Rule 96ZO(3)(ii) was mandatory. They cited legal precedents to support their stance. The Tribunal acknowledged the Department's position but emphasized that the appellants' subsequent communications and actions indicated a clear intention to opt out of the capacity-based scheme. The Tribunal highlighted the High Court's decision on mandatory penalties, deeming them excessive and arbitrary. Consequently, the Tribunal ruled that the imposition of a mandatory penalty equal to the duty involved was not valid. The Tribunal directed the Commissioner to reconsider the penalty issue in light of the High Court's decision, ensuring a fair hearing for the appellants.

Conclusion:
The Tribunal upheld duty demand for the year 1998-1999 due to the timing of the declaration but allowed duty payment based on actual production for the subsequent financial year. The Commissioner was instructed to reassess duty payment for the year 1999-2000 and reconsider the penalty imposition, taking into account the High Court's ruling on mandatory penalties. The appellants were granted further opportunities for a fair hearing in the penalty assessment process.