2014 (10) TMI 234 - AT - Central Excise

Imposition of penalty - appellant did not follow the procedures prescribed for procurement of motor spirit for blending with ethyl alcohol - Held that - Rule 25 provides for imposition of penalty in certain situations specified therein and subject to the provisions Section 11AC of the Central Excise Act, 1944. In the present case, by dropping the demand for Central Excise duty, it is accepted that the assessee has discharged duty liability correctly. If that is so, question of violating any provisions of law would not arise at all - Tribunal s Larger Bench in the case of Godrej Soaps v. Commissioner of Central Excise, Mumbai 2004 (10) TMI 112 - CESTAT, MUMBAI has held that when the demand gets dropped on any account, penal provisions cannot survive against the assessee, and for the same reason, confiscation of the goods, which is penal nature, cannot be upheld. Similar views have been taken in various judicial pronouncements relied upon by the counsel for the appellant. Therefore, we are of the view that penalty under Rule 25 of the Central Excise Rules, 2002 cannot be imposed on the appellant for the alleged violation of Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 - Decided in favour of assessee.

Summary

Issues:
Imposition of penalties under Rule 25 of the Central Excise Rules, 2002 for not following prescribed procedures in procurement of motor spirit and the subsequent appeal challenging the penalties.

Analysis:
The appeal was directed against an Order-in-Original passed by the Commissioner of Central Excise, Pune-III, imposing penalties on the appellant for not following prescribed procedures in the procurement of motor spirit for blending with ethyl alcohol. The penalties imposed were Rs. 30,000, Rs. 7,50,000, and Rs. 10,00,000. The adjudicating authority dropped the demand for duty on the procurement of motor spirit due to lack of evidence proving diversion. However, penalties were imposed under Rule 25 for not following prescribed procedures.

The appellant contended that Rule 25 allows for penalties under specific situations, and in this case, the appellant did not violate any provisions of the Central Excise Rules, 2002. The appellant argued that since the goods were received under specific rules formulated under the Central Excise Act, the penalties under Rule 25 were not sustainable. The appellant cited various judicial decisions to support the argument that penalty under Rule 25 cannot be imposed when the demand for duty is dropped.

The Revenue, represented by the Additional Commissioner, reiterated the findings of the adjudicating authority, stating that the appellant failed to clear the goods on assessment of appropriate duty, thus attracting the provisions of Rule 25. However, the Tribunal noted that dropping the demand for Central Excise duty indicated that the duty liability was discharged correctly, eliminating the basis for any violation of law.

The Tribunal referred to a previous decision by its Larger Bench in the case of Godrej Soaps v. Commissioner of Central Excise, Mumbai, which held that when the demand is dropped, penal provisions cannot be upheld against the assessee. The Tribunal concurred with this view and held that penalties under Rule 25 cannot be imposed on the appellant for alleged violations of the Central Excise Rules, 2002. Consequently, the impugned order was set aside, and the appeal was allowed.