2011 (3) TMI 134 - HC - Central Excise

Demand of duty with interest and penalty - Exemption - Concessional rate of duty - The assessee is registered with the Central Excise Department for manufacture of knitted fabrics - It availed concessional rate of duty during the period from 1.9.2002 to 31.3.2003 as per notification dated 1.3.2002, under which exemption is available on goods manufactured from inputs on which duty has already been paid - The Hon ble Supreme Court held that the assessee would not get benefit of exemption if duty had not been paid on inputs, the assessee held a bonafide view about interpretation of the notification - Thus, it may not be a case of deliberate evasion of duty - While the Tribunal rightly rejected the claim of the assessee that exemption was applicable, the setting aside of penalty cannot be held to be illegal - Levy of penalty is not automatic merely because an exemption was wrongly availed, even when plea of the assessee is found to be erroneous. Held that view taken by the Tribunal that though interpretation of the assessee was erroneous, it did not lack bonafides and in such a situation, levy of penalty was not called for, is a possible view - The appeals are dismissed.

Summary

Issues:
- Interpretation of a notification for concessional rate of duty
- Justification for penalty imposition
- Bonafide belief of the assessee regarding exemption

Interpretation of a notification for concessional rate of duty:
The case involved the appellant, a manufacturer of knitted fabrics, who availed a concessional rate of duty during a specific period. The issue arose when the inputs used had not suffered duty, making the exemption unavailable as per a Supreme Court judgment. The Tribunal observed that the penalty imposition was unjustified due to the interpretation of the notification. The appellant argued that the matter was settled by a previous Supreme Court judgment, but the Tribunal disagreed, stating that the applicability of the judgment to the notification in question remained a point of contention. The Tribunal highlighted the evolution of circulars and the explanation clause in the notification, creating a fiction on treating exempted inputs as duty paid. Despite the Supreme Court's ruling, the Tribunal found that the appellant held a bonafide belief about the interpretation of the notification, leading to the dismissal of the appeals.

Justification for penalty imposition:
The appellant contended that penalty imposition was warranted based on a previous Supreme Court judgment. However, the Tribunal noted that the appellant's belief, though erroneous, was held in good faith due to the circulars in force at the time. The Tribunal emphasized that the levy of penalty is not automatic, especially when the appellant's plea was found to be based on a genuine misunderstanding. The Tribunal concluded that the setting aside of the penalty was not illegal, as the appellant's interpretation, though incorrect, was not deliberate evasion of duty. Therefore, the Tribunal found the levy of penalty unnecessary in this case.

Bonafide belief of the assessee regarding exemption:
Despite the Supreme Court's ruling against the appellant's eligibility for exemption, the Tribunal acknowledged that the appellant maintained a bonafide belief based on the circulars and notifications in effect until their withdrawal in 2002. The Tribunal held that the appellant's mistaken belief, even after the Supreme Court judgment, did not amount to deliberate evasion of duty. Consequently, the Tribunal concluded that the penalty imposition was not warranted in this scenario, as the appellant's interpretation, though incorrect, was made in good faith. The Tribunal dismissed the appeals, stating that the question raised did not constitute a substantial question of law.