2011 (1) TMI 281 - AT - Central Excise

Penalty - clearance of inputs as such - after reversal of the credit of CVD and education cess - submissions on behalf of the respondents that it was, by mistake, that they have failed to reverse SAD component appears bonafide and the same has been rightly accepted by the Commissioner (Appeals) - ground of appeal seeks relief in terms of Rule 25 of Central Excise Rules, 2002 read with Section 11AC - Rule 25 is subject to the provision of section 11AC implies that the penalty imposed under Rule 25 can never exceed the duty evaded which is the prescribed penalty under provisions of section 11AC. Rule 25 does not envisage that the penalty should be always equal to the duty short levied or short paid or evaded and discretion is inbuilt under Rule 25 - Commissioner (Appeals) reducing the penalty from Rs.1,12,246/- to Rs.25,000/- is justified and the same calls for no interference - appeal by the department, rejected

Issues:
Reduction of penalty by Commissioner (Appeals) | Interpretation of Rule 25 of Central Excise Rules, 2002 | Application of Rule 15(2) of Cenvat Credit Rules, 2004 | Extending option for concessional penalty under Section 11AC | Justification of penalty amount | Discretion in penalty imposition under Rule 25

Reduction of Penalty by Commissioner (Appeals):
The department appealed against the Commissioner (Appeals) order reducing the penalty from Rs.1,12,246 to Rs.25,000. The department argued that the reduction ignored Rule 15(2) of Cenvat Credit Rules, 2004 and Rule 25 of Central Excise Rules, 2002 along with Section 11AC of the Central Excise Act, 1944. The department contended that penalties should align with the duty evaded, emphasizing the importance of these rules and provisions.

Interpretation of Rule 25 of Central Excise Rules, 2002:
The learned SDR asserted that Rule 25, derived from Section 11AC, should lead to penalties equal to the duty evaded. Specifically, in cases where finished goods were cleared without accounting for duty, the penalty should match the duty evaded. The department argued that Rule 25 does not mandate penalties always being equal to the duty evaded, allowing for discretion in penalty imposition.

Application of Rule 15(2) of Cenvat Credit Rules, 2004:
Regarding the clearance of inputs without paying the SAD component, the department contended that penalties imposed should align with Rule 15(2) of Cenvat Credit Rules, 2004 read with Section 11AC. The penalty amount of Rs.92,285 was deemed appropriate, emphasizing the necessity to adhere to these rules and provisions.

Extending Option for Concessional Penalty under Section 11AC:
The Advocate supported the Commissioner (Appeals) decision, citing a High Court case where the option for paying a concessional penalty was extended when duty was paid before the show cause notice. The Advocate argued that in such cases, the penalty should be reduced to 25% of the evaded duty, highlighting the importance of considering such options.

Justification of Penalty Amount:
The department argued for penalties equal to the duty evaded, emphasizing strict adherence to the rules and provisions governing penalty imposition. Conversely, the Respondent contended that inadvertent errors in duty payment should not warrant penalties equal to the evaded duty, stressing the lack of intentional evasion in the case.

Discretion in Penalty Imposition under Rule 25:
The Tribunal analyzed the application of Rule 25 in conjunction with Section 11AC, emphasizing that penalties need not always match the duty evaded. The Tribunal upheld the Commissioner (Appeals) decision to reduce the penalty, justifying the exercise of discretion in penalty imposition based on the circumstances of the case.

In conclusion, the Tribunal rejected the department's appeal and disposed of the cross objection, affirming the Commissioner (Appeals) decision to reduce the penalty from Rs.1,12,246 to Rs.25,000. The Tribunal underscored the importance of considering circumstances and exercising discretion in penalty imposition, aligning with the provisions of Rule 25 and Section 11AC.

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