2012 (10) TMI 947 - AT - Central Excise

Duty demand - Annual Capacity Determination Rules - Penalty under Rule 96ZQ(5) of Central Excise Rule 1944 - Held that - According to the decision of the Hon ble High Court of Gujarat in the case of Krishna Processors 2012 (11) TMI 954 - GUJARAT HIGH COURT Rule 96ZQ(5)(ii) is ultra-virus and therefore no penalty can be imposed for default in payment. Therefore penalties imposed on the Appellant for default during the period from May 1999 to July 1999 cannot be sustained and have to be set aside. Hence the impugned order is set aside resulting in setting aside the penalty imposed. As regards second appeal filed by the Appellants against appropriation of the amount sanctioned as refund towards penalty appropriation of refund of penalty towards penalty is set aside - Decided in favour of assessee.

Summary

Issues:
1. Liability to pay penalty for default from May 1999 to July 1999.
2. Validity of adjusting penalty against refund sanctioned.

Analysis:
1. The Appellant was required to pay the duty determined by the Annual Capacity Determination Rules by the 15th of the month, failure of which led to penalty imposition under Rule 96ZQ(5) of Central Excise Rule, 1944. Proceedings were initiated against the Appellant for default in payment from May 1999 to July 1999. The show-cause notice alleged default, leading to penalty imposition. However, citing the decision of the Hon'ble High Court of Gujarat in the case of Krishna Processors, it was held that Rule 96ZQ(5)(ii) is ultra-virus, rendering penalty imposition invalid. Consequently, the penalties imposed on the Appellant for the default period were set aside, resulting in the impugned order being overturned.

2. While the penalty proceedings were ongoing, the Appellant separately filed a refund claim. The claim was based on the department's error in including the length of the gallery in the duty calculation, which was not in accordance with the Supreme Court's ruling. The refund claim was approved, but the refunded amount was adjusted against the penalty imposed for default in payment. In the second appeal, the issue was whether the adjustment of the penalty against the sanctioned refund was valid. The Tribunal ruled that the appropriation of the refund towards the penalty was not justified. Therefore, the adjustment was set aside, allowing both appeals filed by the Appellants and granting consequential relief.

In conclusion, the Tribunal held that the penalties imposed on the Appellant for default in payment from May 1999 to July 1999 were invalid due to the ultra-virus nature of Rule 96ZQ(5)(ii). Additionally, the adjustment of the refunded amount against the penalty was deemed inappropriate and was consequently set aside, resulting in both appeals being allowed in favor of the Appellants.