2007 (5) TMI 121 - AT - Central Excise

Refund - Alleged that appellant liable for Penalty u/s 11AC and interest u/s 11AB on the ground that delay in returning the credit on inputs found short - Held that allegation was not sustained and set aside penalty and interest

Issues Involved:

1. Liability for penalty under Section 11AC of the Central Excise Act.
2. Liability for interest under Section 11AB of the Central Excise Act.
3. Allegations of suppression or mis-statement with intent to evade duty.
4. Validity of duty payment before the issuance of the Show Cause Notice (SCN).

Issue-wise Detailed Analysis:

1. Liability for Penalty under Section 11AC of the Central Excise Act:

The appellant, a leading car manufacturer, conducted periodic stock verifications which revealed shortages in inputs for the financial years 1996-97 to 1999-2000. The appellant debited the Modvat credit attributable to these shortages, amounting to about Rs. 17 lakhs, without claiming additional credit for excesses. A Show Cause Notice (SCN) was issued on 28th June 2001, alleging delayed credit return and attracting penalty under Section 11AC. The appellant argued that there was no suppression or mis-statement with intent to evade duty and that the discrepancies were due to incorrect accounting and differences in book and physical stock balances. The adjudicating authority, however, held that the appellant had suppressed facts with intent to evade duty, as shortages were known but not reported annually. The Commissioner (Appeals) upheld this view, citing the Supreme Court decision in Z.B. Nagarkar v. UOI, which mandates penalty if provisions are contravened with intent to evade duty.

2. Liability for Interest under Section 11AB of the Central Excise Act:

The appellant contended that interest under Section 11AB was not justified as the duty was paid before the SCN issuance. The adjudicating authority and Commissioner (Appeals) disagreed, stating that the appellant was aware of shortages but failed to report them, thus intending to evade duty. The Tribunal initially set aside the penalty and interest, referencing the Larger Bench decision in Machino Montell (I) Ltd., which held that penalty and interest are not sustainable if duty is paid before SCN issuance. However, upon Revenue's appeal, the High Court remanded the case, emphasizing that mere pre-SCN deposit does not negate the liability for penalty and interest if the situation falls under Section 11AC.

3. Allegations of Suppression or Mis-statement with Intent to Evade Duty:

The appellant maintained that the discrepancies were due to accounting errors and not intentional suppression or mis-statement. They argued that the shortages and excesses were normal in large-scale operations and had been reconciled with departmental officers' involvement. The adjudicating authority and Commissioner (Appeals) found that the appellant's failure to report shortages annually indicated an intent to evade duty. The Tribunal, in its earlier decision in the appellant's case (Maruti Udyog Limited v. CCE, Delhi - III), accepted that such discrepancies are normal and not indicative of fraud or suppression, setting aside the demand and penalties.

4. Validity of Duty Payment Before Issuance of the Show Cause Notice (SCN):

The Tribunal initially ruled in favor of the appellant, stating that penalty and interest are not applicable if duty is paid before SCN issuance, following the Larger Bench decision in Machino Montell (I) Ltd. However, the High Court remanded the case, stressing that pre-SCN payment does not automatically negate penalty and interest if the case falls under Section 11AC. The Tribunal, upon reconsideration, upheld its earlier view that the discrepancies were normal and not due to fraud or suppression, thus setting aside the penalty and interest.

Conclusion:

The Tribunal concluded that interest and penalty under Sections 11AB and 11AC are not applicable in this case, as the discrepancies were normal and not due to intentional suppression or mis-statement. The appeal was allowed, setting aside the penalty and interest.

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