2011 (4) TMI 984 - AT - Central Excise

Suppression of fact and consequential invocation of extended period of limitation and failure on the part of the appellants to establish their specific plea of bona fide belief appellants received back some goods without any cenvatable document issued by the branch offices under cover of challans issued by those branches - admissibility of the cenvat credit in respect of inputs utilised in repairs of the rejected goods which were cleared at the same price - appellants are undertaking repair of the goods which were cleared on payment of duty and they are using some inputs on which credit has been taken for repair only - Held that - it is a clear case of suppression of fact leading to evasion of duty warranting penalty in terms of the provisions of Section 11AC, decision of the Apex Court in the matter of Dharamendra Textile Processors (2008 (9) TMI 52 - SUPREME COURT) clearly applicable, appeal dismissed

Summary

Issues Involved:
1. Applicability of 100% penalty under Section 11AC of the Central Excise Act, 1944.
2. Admissibility of Cenvat credit on inputs used for repairing rejected goods.
3. Suppression of facts and invocation of the extended period of limitation.

Issue-wise Detailed Analysis:

1. Applicability of 100% Penalty under Section 11AC of the Central Excise Act, 1944:
The core issue at this stage is whether the penalty under Section 11AC is justified. The High Court remanded the matter to the Tribunal to reassess the penalty, emphasizing that without a finding of concealment, the penalty under Section 11AC was not justified. The Tribunal had previously reduced the penalty without providing appropriate justification. The Tribunal, upon review, concluded that the appellants had suppressed facts and evaded duty, thus warranting a penalty under Section 11AC. The Tribunal cited the Supreme Court decisions in Dharamendra Textile Processors and Rajasthan Spinning & Weaving Mills, which support the imposition of penalties in cases of duty evasion due to suppression of facts.

2. Admissibility of Cenvat Credit on Inputs Used for Repairing Rejected Goods:
The appellants argued that they were entitled to Cenvat credit for inputs used in repairing rejected goods, which were cleared at the same price. However, the Tribunal noted that repair is not considered a manufacturing activity, and Cenvat credit can only be availed for inputs used in the manufacture of excisable goods. The Tribunal upheld the adjudicating authority's decision to deny Cenvat credit, as the inputs were used solely for repair purposes, which does not qualify as manufacturing under the Central Excise Rules.

3. Suppression of Facts and Invocation of the Extended Period of Limitation:
The adjudicating authority found that the appellants had suppressed facts by not declaring that the inputs were used for repairing rejected goods, thus justifying the invocation of the extended period of limitation under Section 11A of the Act. The Tribunal and the High Court upheld this finding. The appellants' claim of a bona fide belief that Rule 16(1) applied was rejected, as they had not raised this claim earlier, and the rule does not cover repairs. The Tribunal further noted that a corporate body cannot claim a bona fide belief without identifying the responsible individual.

Conclusion:
The Tribunal concluded that the appellants had suppressed facts and evaded duty, justifying the imposition of a 100% penalty under Section 11AC. The appeal was dismissed, and the original penalty was reinstated. The Tribunal emphasized the importance of transparency and adherence to the provisions of the Central Excise Rules in claiming Cenvat credit and fulfilling excise duties.