2014 (8) TMI 368 - AT - Central Excise

Levy of penalty - mandatory penalty u/s 11AC - Commissioner (appeals) while confirming the duty reduced the penalty - Excisability - Marketability - Intermediate product - manufacturing of intermixture of vitamin - captive use in the manufacture of instant baby food - Exemption Notification No. 67/1995-CE - Held that - in the denovo decision of the Tribunal in NESTLE INDIA LTD. 2011 (4) TMI 675 - CESTAT, NEW DELHI , while the Tribunal held that the intermixture of vitamin is marketable and, hence, excisable, in para 95 of the judgment, the Tribunal held that the demand would be limited only to normal limitation period in view of the Apex Court s judgment, wherein the Apex Court held that the view taken by the Tribunal in the earlier order that extended period of limitation was not applicable, was justified. Since, the language of proviso to Section 11A (1) of Central Excise Act, 1944 which provides for the extended limitation period of 5 years for recovery of short paid, non-paid or erroneously refunded duty and the language of Section 11AC of Central Excise Act, 1944 which provides for imposition of penalty equal to the duty demand confirmed in certain situations, is identical and the situations and circumstances in which the extended period can be invoked under proviso to Section 11A (1) and the situations and circumstances in which the penalty under Section 11AC can be imposed are identical, when a finding has been given by the Apex Court that extended limitation period is not invokable, the penalty under Section 11AC also would not be attracted. Penalty could be imposed only under Rule 25 (1) of the Central Excise Rules, where it is discretionary and it need not be equal to the quantum of duty demand - Decided against Revenue.

Summary

Issues:
1. Excisability of intermixture of vitamins for captive use in manufacturing instant baby food.
2. Reduction of penalty by Commissioner (Appeals) and appeal filed by Revenue.

Analysis:

Issue 1: Excisability of intermixture of vitamins
The case involved a dispute over whether the intermixture of various vitamins prepared by the respondent for captive use in manufacturing instant baby food was excisable goods. The department contended that the intermixtures were excisable under sub-heading 2936.00 of the Tariff, despite the final products being exempt from duty. The Jurisdictional Additional Commissioner confirmed a duty demand against the respondent, along with interest and a penalty under Section 11AC of the Central Excise Act. The Commissioner (Appeals) upheld the duty demand but reduced the penalty. The Revenue appealed against the reduction of penalty.

The Tribunal noted that the matter had previously reached the Supreme Court, which remanded it for a specific finding on the issue of marketability. In a previous decision, the Tribunal had held the intermixture of vitamins as marketable and excisable. However, considering the Apex Court's judgment on the limitation period, the Tribunal limited the demand to the normal limitation period. The Tribunal emphasized that since the language of the proviso to Section 11A (1) and Section 11AC of the Central Excise Act was identical, and the circumstances for invoking the extended limitation period and imposing penalty were the same, if the extended limitation period was not applicable, the penalty under Section 11AC would also not apply. The Tribunal concluded that the penalty could only be imposed under Rule 25 (1) of the Central Excise Rules, where it is discretionary and not necessarily equal to the duty demand.

Issue 2: Reduction of penalty by Commissioner (Appeals)
The Revenue challenged the reduction of penalty by the Commissioner (Appeals) from the amount equal to the duty demand to a lower sum. The Revenue argued that once the duty demand and penalty were upheld, there was no discretion to reduce the penalty amount. Citing a judgment of the Supreme Court in a related case, the Revenue contended that the penalty should not have been reduced. However, the respondent's counsel argued that as the extended limitation period was not applicable, the penalty under Section 11AC should not be imposed, and any penalty should be discretionary under Rule 25 of the Central Excise Rules.

After considering the arguments from both sides and examining the records, the Tribunal held that since the extended limitation period was not applicable, the penalty under Section 11AC could not be imposed. The Tribunal emphasized that the penalty could only be imposed under Rule 25 (1) of the Central Excise Rules, where the quantum of penalty is discretionary and need not be equal to the duty demand. Therefore, the Tribunal dismissed the Revenue's appeal against the reduction of penalty by the Commissioner (Appeals).

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved, the arguments presented by both parties, and the Tribunal's reasoning in reaching its decision.