2009 (9) TMI 600 - AT - Central Excise

Duty based on their cost of production - As per Rule 8 of the Central Excise (Valuation) Rules, 2000, the assessee was required to discharge duty liability on poles manufactured and cleared for captive consumption on 115% of the cost of production till 4-8-2003 and on 110% of the cost of production with effect from 5-8-2003 - assessee short paid the duty - interest on the short paid duty under Section 11AB of the Act Held that - duty short payment had occurred owing to the ignorance of the appellants - penalty imposed under Section 11AC of the Act on the appellants affirmed by him is liable to be set aside - demand of interest, Section 11AB of the Act mandates that an assessee shall pay any amount of duty short paid or not paid by it on demand along with applicable interest.

Issues:
Duty liability calculation under Rule 8 of Central Excise (Valuation) Rules, 2000; Short payment of duty; Demand of interest and penalty; Applicability of case law on penalty and interest; Ignorance as a factor in penalty imposition.

Analysis:

1. Duty Liability Calculation under Rule 8 of Central Excise (Valuation) Rules, 2000:
The case involved the manufacture of PSCC Poles falling under Chapter sub-heading No. 6807.90 of the Central Excise Tariff Act, 1985 for captive consumption. The assessee cleared these poles based on their cost of production during the period from 1-7-2000 to 31-3-2005. The duty liability calculation was governed by Rule 8 of the Central Excise (Valuation) Rules, 2000, which required the assessee to discharge duty based on a certain percentage of the cost of production. The appellant had short paid a total amount of Rs. 2,45,329/- during the material period.

2. Short Payment of Duty:
After due process, the original authority issued a notice demanding the amount of Rs. 2,45,329/- as the differential duty short paid under Section 11A of the Central Excise Act, 1944. Additionally, interest on the short paid duty under Section 11AB of the Act was demanded. The authority also imposed a penalty equivalent to the duty demand on the appellant under Section 11AC of the Act.

3. Demand of Interest and Penalty:
The Commissioner (Appeals) sustained the demand of duty, interest, and penalty imposed on the appellant. The appellant challenged this order, arguing that they had submitted periodical returns and that the demand of differential duty invoking a longer period of limitation was not sustainable. They also contended that as they had paid over 80% of the duty due before the show cause notice, no interest or penalty could be imposed on them. The Tribunal observed that there was no dispute about the duty liability but found that the short payment had occurred due to the ignorance of the appellants.

4. Applicability of Case Law on Penalty and Interest:
The appellants relied on various case laws to support their claim that penalty and interest were not sustainable in their case. During the hearing, the appellants did not press the challenge against the demand of duty. The Tribunal considered these arguments and found that the penalty imposed under Section 11AC of the Act on the appellants was liable to be set aside due to the ignorance factor. However, the demand of interest under Section 11AB of the Act was upheld as per the law.

5. Ignorance as a Factor in Penalty Imposition:
The Tribunal, after careful consideration of the facts and rival submissions, noted that the short payment was due to the ignorance of the appellants. Consequently, the penalty imposed on the appellants was set aside. The demand of duty and interest was sustained, and the penalty was vacated. The appeal was partially allowed, with the operative portion of the order pronounced in court on 7-11-2009.

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