2011 (6) TMI 439 - AT - Central Excise

Penalty u/s 11AC - appellants contended that they were ignorant about requirement of maintenance of separate records relating to the inputs used for dutiable and non-dutiable final product - Held that - Appellants while contending ignorance, at the same time had not failed to avail the benefit of cenvat credit in terms of Rule 3 of the Cenvat Credit Rules, 2002 whereas it was apparent that the appellants had consciously claimed the benefit of cenvat credit, after getting themselves acquainted with the knowledge of such entitlement of benefit, it is not only difficult to believe that they were ignorant about the requirement of maintenance of separate records but only discloses intentional avoidance of maintenance of such records so as to gain benefit of evasion of duty. Authorities were justified in imposing 100% penalty - Decided in favor of revenue.

Summary

Issues:
1. Imposition of penalty for non-compliance with Cenvat Credit Rules.
2. Applicability of penalty under Section 11AC.
3. Requirement of separate records for dutiable and non-dutiable final products.

Analysis:
1. The case involved the imposition of penalty on the appellants for non-compliance with the Cenvat Credit Rules. The appellants, engaged in manufacturing bodies for passenger vehicles, were availing cenvat credit on inputs used in both exempted and dutiable final products without maintaining separate records as required by Rule 3 of the Cenvat Credit Rules, 2002. The authorities initiated proceedings after discovering discrepancies in the maintenance of records during a preventive staff visit. The Assistant Commissioner confirmed the duty demand, penalty, and interest, which was later challenged by the appellants.

2. The Tribunal allowed the appeal, citing judgments from the Hon'ble Rajasthan High Court and Hon'ble Punjab & Haryana High Court, stating that if duty is paid before the issuance of a show cause notice, the imposition of penalty under Section 11AC is not sustainable. However, the Hon'ble Supreme Court set aside this order and remitted the case back to the Tribunal for fresh consideration based on the law laid down in Commissioner of Customs and Central Excise vs. Lanco Industries Ltd. The Supreme Court clarified that penalty under Section 11AC is applicable in cases of deliberate deception by the assessee to evade duty.

3. The appellants claimed ignorance regarding the requirement of maintaining separate records for dutiable and non-dutiable final products. However, the Tribunal found that the appellants had consciously availed cenvat credit and intentionally avoided maintaining separate records to gain an undue benefit. The Tribunal dismissed the appeal, upholding the imposition of a 100% penalty as justified based on the deliberate deception to evade duty. The decision aligned with the law laid down by the Apex Court in Lanco Industries Ltd., emphasizing the intentional nature of the act for penalty applicability.

This comprehensive analysis covers the issues of penalty imposition, applicability of Section 11AC, and the requirement of separate records in the legal judgment delivered by the Appellate Tribunal CESTAT, DELHI.