2011 (10) TMI 83 - AT - Central Excise

Clearance of inputs and capital goods on loan basis to another unit of the assessee - scope of SCN - held that - In the show cause notice dated 18/10/2004 there is no proposal for recovery of duty under Section 11A(1) of the Central Excise Act, 1944 and the proposal was restricted to imposition of penalty under Rule 173Q of Central Excise Rules, 1944 read with Rule 25 of the Central Excise (No.2) Rules,2000 and Section 11AC of the Central Excise Act, 1944. The show cause notice also proposed recovery of interest at appropriate rates under Section 11AB. However, while passing the order dated 23/12/2005 the adjudicating authority confirmed a duty demand of Rs. 1,53,394/- under Section 11A of the Act and appropriated the duty amount already paid. Thus, it is clear that the adjudicating authority has traversed beyond the show cause notice. In the instant case inasmuch as the appellant had discharged the duty liability on his own ascertainment on 05/01/2002, the question of issue of a notice under Section 11A(1) did not arise. - in respect of the demand which arising from 11/05/2001, interest liability accrue under Section 11AB and even in respect of demands arising prior to 11/05/2001 interest liability will accrue if the payments have been made on or after 11/05/2001. Thus, the demand for interest at the appropriate rates under Section 11AB is sustainable for the period from 11/05/2001 onwards - Levy of interest confirmed - levy of penalty u/s 11AC dropped.

Issues Involved:
1. Non-payment of duty and non-preparation of Central Excise invoices.
2. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.
3. Recovery of interest under Section 11AB of the Central Excise Act, 1944.
4. Allegation of suppression of facts and intent to evade duty.
5. Traversing beyond the show cause notice by the adjudicating authority.
6. Revenue neutrality argument by the appellant.

Detailed Analysis:

1. Non-payment of duty and non-preparation of Central Excise invoices:
The appellant, M/s. Ispat Industries Ltd., cleared certain inputs and capital goods to another unit without payment of duty and without preparing Central Excise invoices during the period from 04/04/2000 to 06/08/2001. Upon being pointed out, the appellant debited the duty amount of Rs. 1,53,394/- on 05/01/2002 but did not pay interest on the said amount as required under Section 11AB.

2. Imposition of penalty under Section 11AC of the Central Excise Act, 1944:
A show cause notice issued on 18/10/2004 proposed a penalty under Rule 173Q of the Central Excise Rules, 1944 read with Rule 25 of the Central Excise Rules, 2001 and Section 11AC of the Central Excise Act, 1944. The adjudicating authority confirmed the duty demand and imposed a penalty of Rs. 1,53,394/- under Section 11AC. The Tribunal found that the adjudicating authority had traversed beyond the show cause notice, which did not propose recovery of duty under Section 11A(1). Therefore, the imposition of penalty under Section 11AC was deemed unsustainable in law.

3. Recovery of interest under Section 11AB of the Central Excise Act, 1944:
The Tribunal noted that interest liability under Section 11AB arises the moment there is a delay in payment of duty, even if the duty is discharged on the assessee's own ascertainment. Since the appellant discharged the duty on 05/01/2002, the interest liability under Section 11AB was applicable from 11/05/2001 onwards. The Tribunal held that the demand for interest at appropriate rates under Section 11AB was sustainable for the period from 11/05/2001 onwards.

4. Allegation of suppression of facts and intent to evade duty:
The appellant argued that there was no intention to evade payment of duty as the duty paid would have been available as CENVAT credit to the recipient unit, making the exercise revenue neutral. The High Court noted that the Tribunal had not addressed whether the fundamental requirement of an intent to evade payment of duty was established to attract the extended period of limitation. The Tribunal, upon remand, found that the penalty under Section 11AC was unsustainable due to the lack of determination of duty under Section 11A(2) and the revenue-neutral nature of the transaction.

5. Traversing beyond the show cause notice by the adjudicating authority:
The Tribunal observed that the adjudicating authority confirmed a duty demand under Section 11A, which was not proposed in the show cause notice. This action was deemed ultra vires, and the imposition of penalty under Section 11AC could not be sustained without a proper determination of duty under Section 11A(2).

6. Revenue neutrality argument by the appellant:
The appellant contended that the duty paid would have been available as CENVAT credit to the recipient unit, making the exercise revenue neutral. The Tribunal acknowledged this argument and cited judicial precedents supporting the view that in cases of revenue neutrality, the intent to evade payment of duty could not be established. Consequently, the imposition of penalty under Section 11AC was not justified.

Conclusion:
The Tribunal concluded that the imposition of penalty under Section 11AC was unsustainable, while the demand for recovery of interest under Section 11AB was sustainable for the period from 11/05/2001 onwards. The appeal was disposed of accordingly.

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