2014 (12) TMI 1258 - HC - Central Excise

Demand of CENVAT credit - imposition of interest and penalty - clearance of imported/indigenous batteries as warranty replacements without payment of duty and without expunging the Cenvat credit amount availed by the petitioner - Held that - It is settled legal principle that, the scope of interference of the order passed by the Settlement Commissioner is circumscribed, considering the scheme of Act and the power vested with the Commission so as to bring about a resolution to the dispute in a proper manner thereby balancing the interest of the assessee and protecting the interest of the Revenue. Bearing that legal principle in mind, if the impugned order is examined, the Settlement Commission has given elaborate reasons to justify their stand with regard to the demand of duty. With regard to the fixation of amount to be remitted to have the benefit of settlement, this Court cannot make a roving enquiry into the factual issues which has been dealt with by the Commission after taking note of the submission of the petitioner as well as the report submitted by the Revenue. Therefore, the findings rendered by the Commission directing the petitioner to pay the Central Excise duty at ₹ 37,80,089/- is confirmed. With regard to the levy of penalty on the first applicant/petitioner and the demand of interest, it is seen that the Settlement Commission did not give a specific finding that the conduct of the applicant/petitioner is contumacious or wilful with an intention to evade the duty. In fact, the Settlement Commission observed that the department s case has been proved by applying the yardstick of possibility and probability and not because of the availability of adequate evidence. If such is the case, obviously, there is no reason to levy penalty of ₹ 2 lakhs on the first, applicant/petitioner nor to levy interest. Petition disposed off - decided partly in favor of petitioner.

Summary

Issues:
Challenge to order passed by Settlement Commission under Central Excise Act, 1944.

Analysis:
The petitioner, a company manufacturing UPS systems, was registered under the Central Excise Act, 1944 and availed credit under Cenvat Credit Rules, 2002. An investigation revealed irregularities in clearance of imported/indigenous batteries as warranty replacements without payment of duty and without expunging the Cenvat credit amount. A show cause notice was issued demanding Cenvat credit and proposing penalties. The petitioner approached the Settlement Commission, disputing the demand. The Commission settled the case, directing the petitioner to pay a reduced Central Excise duty amount and imposed a penalty on the company, granting immunity to the authorized signatory. Interest was also levied. The petitioner challenged the order, disputing the penalty and interest imposed.

Upon review, the Court acknowledged the legal principle limiting interference with Settlement Commission orders, emphasizing the need to balance the interests of the assessee and the Revenue. The Commission's detailed reasoning justifying the duty demand was upheld. However, regarding the penalty and interest, the Court noted the lack of a specific finding of contumacious conduct by the petitioner to warrant penalty imposition. The Commission's reliance on possibility and probability, rather than concrete evidence, was highlighted. The Court deemed the interest levied as part of the settlement package as akin to a penalty, requiring specific justification for imposition. As such, the Court found the interest imposition unsustainable.

In its decision, the Court partly allowed the writ petition. It confirmed the Central Excise duty settlement amount but deleted the penalty imposed on the company. Additionally, the direction to pay interest at 10% was set aside, and the immunity from prosecution granted by the Commission was upheld. The Court concluded by stating no costs were awarded, and the connected miscellaneous petition was closed.