2011 (2) TMI 1161 - AT - Central Excise

Penalty set aside by Commissioner (Appeals)- whether imposition of penalty under Rule 173Q is imperative and not discretionary power - Held that - The Commissioner (Appeals) failed to take note of the fact that the imposition of penalty under Rule 173Q was mandatory and the adjudicating authority while complying its obligation under the said statutory provision in exercise of his discretion had quantified the penalty of Rs. 5 lakhs. Being so, without arriving at the finding that the discretion was arbitrarily exercised in relation to quantification of the penalty amount, it was not open to the Commissioner (Appeals) to interfere in the order relating to imposition and quantification of the penalty by the adjudicating authority. The conduct of the party in relation to default committed is one thing and the discretionary decision of the authority on the basis of appreciation of facts and circumstances is another thing. The impugned order nowhere discloses that the Commissioner (Appeals) having found that the adjudicating authority had ignored the aspect about lack of mala fide on the part of the assessee or that the adjudicating authority had failed to take note of the point regarding the requirement of interpretation of law about the applicability of the provisions of Rule 57D - appeal filed by the assessee fails - impugned order in relation to the penalty is set aside and the order passed by the adjudicating authority in that regard is restored.

Summary

Issues:
1. Setting aside of penalty imposed under Rule 173Q of Central Excise Rules, 1944.
2. Merits of the case regarding wrong availment and utilization of modvat credit under Rule 57A.

Analysis:
1. The case involved appeals arising from an order passed by the Commissioner (Appeals), Delhi III, setting aside a penalty imposed under Rule 173Q of the Central Excise Rules, 1944. The Department's appeal related to the setting aside of the penalty, while the assessee's appeal concerned the merits of the case regarding the wrong availment and utilization of modvat credit. The assessee was engaged in the manufacture of S.S. flats and had availed modvat credit under Rule 57A. A show cause notice was issued alleging inadmissible modvat credit utilization, leading to the imposition of a penalty of Rs. 5 lakhs by the adjudicating authority.

2. During the appeal hearing, the assessee submitted proof of depositing the duty amount and requested the appeal to be treated as against the penalty only. The Commissioner (Appeals) noted that there was no mala fide intention on the part of the assessee and set aside the penalty. The Department argued that penalty imposition was mandatory under Rule 173Q, citing relevant case laws. The assessee contended that the penalty should be set aside considering the circumstances and lack of mala fide intent.

3. The Commissioner (Appeals) set aside the penalty, stating that the discretion to impose a penalty under Rule 173Q is only for the quantum, not the imposition itself. The appellate authority cannot substitute its discretion for that of the adjudicating authority without finding arbitrariness. The appeal by the assessee was dismissed as the challenge to the demand confirmation was given up, and the appeal was restricted to the penalty aspect only.

4. The Tribunal held that once the default in compliance with the law is established, there is no discretion left to the authority in imposing a penalty under Rule 173Q. The Commissioner (Appeals) erred in setting aside the penalty without finding arbitrariness in the adjudicating authority's decision. Therefore, the appeal by the assessee was dismissed, and the Department's appeal was allowed, setting aside the penalty and restoring the adjudicating authority's order.

In conclusion, the Tribunal upheld the imposition of the penalty under Rule 173Q, emphasizing that the discretion lies in determining the quantum of penalty, not in imposing it. The decision highlighted the importance of establishing arbitrariness before substituting the adjudicating authority's discretion with that of the appellate authority.