2010 (8) TMI 321 - HC - Central Excise

Interest and Penalty cenvat credit Held that - It is true that Rules 57-I(4) and 57-I(5) of the Central Excise Rules 1944 which were brought into force with effect from 23-7-1996 would not have any retrospective effect. However the said Rules would be prospectively applicable to the case of the assessee. This Court in the case of Commissioner of Central Excise and Customs Raigad v. Fibre Foils Ltd. 2009 -TMI - 35270 - BOMBAY HIGH COURT has held that penalty under Rule 57-I(4) is mandatory. In these circumstances the Tribunal was not justified in deleting the imposition of penalty and interest merely on the ground that the said Rules came into force with effect from 23-7-1996.

Summary

Issues:
1. Interpretation of penalty under Rule 173Q of the Central Excise Rules, 1944.
2. Apportionment of penalty under Rule 173Q and Rule 57-I(4) of the Central Excise Rules, 1944.
3. Tribunal's decision on penalty under Rule 173Q.

Analysis:

Issue 1: Interpretation of penalty under Rule 173Q
The case involved the interpretation of penalty under Rule 173Q of the Central Excise Rules, 1944, read with Rule 57-I(4). The question was whether the penalty imposed under Rule 173Q should be considered as mandatory under Rule 57-I(4) of the same rules. The court held that penalty under Rule 57-I(4) is mandatory, as established in previous judgments. The Tribunal erred in deleting the penalty solely based on the retrospective effect of the rules introduced in 1996. The court emphasized that while the rules may not have retrospective effect, they are prospectively applicable. Therefore, the imposition of penalty should not have been deleted solely on the grounds of the rules' introduction date.

Issue 2: Apportionment of penalty under Rule 173Q and Rule 57-I(4)
The court addressed the issue of apportionment of penalty under Rule 173Q and Rule 57-I(4) of the Central Excise Rules, 1944. The case involved an assessee who availed Modvat credit based on fabricated invoices. The Assessing Officer disallowed the credit and imposed penalty and interest. The Commissioner of Central Excise upheld this decision. However, the Tribunal deleted the interest and penalty, citing the introduction date of the rules. The court clarified that the rules should be prospectively applied, and the Tribunal should not have deleted the penalty solely based on the rules' introduction date. The matter was remanded back to the Tribunal for a fresh decision in accordance with the law.

Issue 3: Tribunal's decision on penalty under Rule 173Q
The Tribunal's decision to allow the respondent's appeal regarding the penalty under Rule 173Q was questioned. The respondent did not dispute the duty liability but contested the penalty. The court emphasized that the Tribunal's decision to delete the penalty solely based on the rules' introduction date was not justified. The court quashed the Tribunal's order and remanded the matter back for a fresh decision.

In conclusion, the High Court of Bombay set aside the Tribunal's decision and remanded the case for a fresh decision, emphasizing the prospective application of the rules and the mandatory nature of the penalty under Rule 57-I(4) of the Central Excise Rules, 1944.