2013 (7) TMI 755 - HC - Central Excise

Penalty under Rule 173Q(1)(d) of the Central Excise Rules, 1944 - In the second round when the penalty issue was being considered by the Commissioner some material/evidence was produced by the appellant in an attempt to discharge its burden and to establish its bona fides Held that - It was incumbent upon the Commissioner to have examined the evidence that was produced at the stage of remand by the appellant which would in any way alter the case for levy of penalty on the appellant - Burden to prove the defence of bona fides was on the appellant - impugned order ought to be set aside and the matter ought be remitted to the Tribunal for considering the said material while taking a view on the levy of penalty under Rule 173Q(1)(d) of the said Rules Decided in favor of Assessee.

Summary

Issues Involved:
1. Whether the Customs, Excise and Service Tax Appellate Tribunal was correct in law in upholding the penalty of Rs. 2 crores under Rule 173Q(1)(d) of the Central Excise Rules, 1944.
2. Whether the Tribunal's finding in confirming the penalty under Rule 173Q(1)(d) was perverse due to the non-consideration of evidence produced by the appellant before the Commissioner in remand proceedings.

Issue-wise Detailed Analysis:

1. Legality of Penalty under Rule 173Q(1)(d):

The High Court analyzed whether the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) was correct in upholding the penalty of Rs. 2 crores. The penalty was initially imposed under Rule 173Q(1)(d) of the Central Excise Rules, 1944, which provides for a penalty up to three times the value of the goods or Rs. 5000, whichever is higher, for manufacturing excisable goods without registration or removing excisable goods in contravention of provisions with the intent to evade duty.

The appellant argued that the penalty should be reworked following the Tribunal's remand order dated 01.10.1999, which directed the Commissioner to reconsider the quantum of penalty in light of the applicability of notification No. 121/94-CE. The Supreme Court had previously concluded that the appellant failed to demonstrate its bona fides by not producing evidence to show a one-to-one relationship between the clearances of perfumed kimam from the two units and its receipt by other units manufacturing chewing tobacco.

The appellant contended that the penalty was imposed without considering the new evidence produced during the remand proceedings, which showed that the perfumed kimam was captively consumed in the manufacture of chewing tobacco, on which full duty was paid. This evidence, according to the appellant, indicated no intent to evade duty, as compliance with statutory provisions would have resulted in a neutral revenue effect due to the availability of modvat credit.

2. Perverse Finding Due to Non-consideration of Evidence:

The High Court examined whether the Tribunal's finding was perverse because the evidence produced by the appellant before the Commissioner was not considered. The Tribunal had dismissed the appellant's appeal without addressing the penalty issue, leading to a rectification of mistake application, which was subsequently disposed of by the impugned order dated 17.07.2012.

The Tribunal relied on the Supreme Court's findings that the appellant was aware of the need for registration but failed to register its units, indicating deliberate non-compliance and suppression. The Tribunal concluded that the penalty of Rs. 2 crores was justified given the quantum of duty demand upheld against the appellant.

However, the High Court noted that the penalty proceedings were separate and independent of the quantum proceedings. The remand by the Tribunal required the Commissioner to examine the new evidence produced by the appellant. The High Court found that neither the Commissioner nor the Tribunal considered this evidence, which could potentially alter the case for the levy of penalty.

Conclusion:

The High Court set aside the impugned order dated 17.07.2012 and remitted the matter to the Tribunal to consider the question of imposition of penalty under Rule 173Q(1)(d) in light of the material available on record, including the evidence furnished by the appellant during the remand proceedings. The High Court emphasized that it had not expressed any opinion on the effect of the new evidence on the penalty but stated that the Tribunal should have considered it before upholding the penalty. The appeal was disposed of with these observations, and the two questions were decided in favor of the appellant.