2011 (6) TMI 637 - AT - Central Excise

CENVAT credit - hire purchase - buyer took CENVAT credit of excise duty paid on the machinery and utilized it - on default by buyer, respondent took over the possession of machinery - demand and penalty imposed on the buyer for non payment of duty while removal of machinery - penalty also imposed on respondent - Held that - respondent company had title to the goods till the loan was repaid by the lessee in full. Since the lessee defaulted in repayment of loan amount the lessor had the right to take possession of the machinery, which was owned by them. They have not committed any illegal activity. - Revenue loss that arose to the department was incidental and not intentional, redemption fines are imposed taking into account the profit that was likely to earn due to the activity which results in the confiscation of the goods. By taking repossession, the respondents were not earning any profit and were only trying to recover the money given on loan to lessee - a penalty of Rs.50,000/- imposed by the Commissioner (Appeals) not to be interfered. - revenue s appeal dismissed

Summary

Issues involved:
- Confiscation of machinery for alleged non-reversal of CENVAT credit
- Imposition of redemption fine and penalty by adjudicating authority
- Appeal by respondents against the order of Commissioner (Appeals)
- Revenue's appeal against reduction of redemption fine and penalty by Commissioner (Appeals)

Confiscation of Machinery for Alleged Non-Reversal of CENVAT Credit:
The case involved the sale of machinery on hire-purchase basis to a Central Excise assessee who utilized CENVAT credit for payment of duty but defaulted in payments. The Central Excise department alleged that the machinery was removed without reversing the CENVAT credit, leading to confiscation under Rule 173Q. The adjudication resulted in duty confirmation, confiscation with a redemption fine, and penalties imposed on the respondents. The Commissioner (Appeals) reduced the redemption fine and penalty, considering them excessive.

Imposition of Redemption Fine and Penalty by Adjudicating Authority:
The adjudicating authority confirmed duty, confiscated the machinery with an option to redeem on payment of a fine, and imposed penalties on the respondents for non-reversal of CENVAT credit by the buyer. The Commissioner (Appeals) found the original redemption fine and penalties to be harsh, excessive, and unreasonable, reducing them significantly.

Appeal by Respondents Against the Order of Commissioner (Appeals):
The respondents appealed against the order of the Commissioner (Appeals), arguing that they had no intention to cause revenue loss and were merely trying to recover the loan amount from the defaulting lessee. They contended that the penalties and fines imposed were excessive, considering their lack of guilty intention and the incidental nature of the revenue loss to the department.

Revenue's Appeal Against Reduction of Redemption Fine and Penalty:
The Revenue filed an appeal against the reduction of redemption fine and penalty by the Commissioner (Appeals), arguing that the original value of the capital goods should have been considered for imposing the fine. They disagreed with the Commissioner's view that the penalties were excessive, advocating for higher penalties due to the duty shortfall involved in the case.

In the judgment, the Tribunal noted that the respondents, a financing and leasing company, had the right to repossess the machinery due to the lessee's default, emphasizing that they had not engaged in any illegal activity. The Tribunal considered the lack of guilty intention and the incidental nature of the revenue loss, concluding that the penalties and fines imposed were excessive. They upheld the order of the Commissioner (Appeals), dismissing the Revenue's appeal and emphasizing the respondents' lack of intent to cause revenue loss.