2015 (11) TMI 667 - AT - Central Excise

Denial of exemption claim - Notification No.4/97-CE dated 01.03.1997 (Sl.No.113) and Notification No.5/99-CE dated 28.02.1999 (Sl.No.129) - Penalty u/s 11AC - Held that - Goods were supplied to Punjab State Handloom Weavers Apex Cooperative Society which as its letter head shows, as Punjab Government Partnership Undertaking. Though the supplies at nil rate of duty to the cooperative society had been made against letters issued by Punjab State Handloom Weavers Apex Cooperative Society simply stating that the society is exempt from Central Excise duty leviable under Chapter 55 by the Govt. of India, and as such, there was no specific certificate certifying that the yarn received would be supplied to handloom units, the fact remains that merely from this it cannot be inferred that the respondent were aware of the illicit diversion of the yarn by the Punjab State Handloom Weavers Apex Co-operative Society to Power Loom Units. In view of this, we agree with the judgment of co-ordinate Bench of the Tribunal (Final Order No.954/2011-EX dated 14.10.2011) holding that no malafide can be attributed to the respondent and hence the levy of interest under section 11AB and imposition of penalty under section 11 AC or Rule 173 Q (1) (d) would not be called for. - No merit in Revenue s appeal - Decided against Revenue.

Summary

Issues:
1. Duty exemption eligibility under specific notifications.
2. Misuse of duty-free yarn by recipient.
3. Imposition of penalty and interest under relevant sections.
4. Appeal against Tribunal's order.
5. Interpretation of conditions for duty exemption.

Analysis:

Issue 1:
The case involved the eligibility of duty exemption under Notification No.4/97-CE and 5/99-CE for the supply of polyester cotton blended yarn to specific entities. The respondent supplied yarn to a cooperative society, claiming duty exemption, but the society diverted the yarn to Power Loom Units instead of handloom units.

Issue 2:
The Revenue initiated proceedings against the respondent for recovery of Central Excise duty due to the illicit diversion of duty-free yarn. The Additional Commissioner confirmed the duty demand, interest under section 11AB, and imposed penalties under sections 11AC and Rule 173Q. The Commissioner (Appeals) allowed the respondent's appeal against penalties, leading to the Revenue's appeal to the Tribunal.

Issue 3:
During the Tribunal proceedings, the Revenue argued that there was deliberate contravention of rules by the respondent, justifying interest under section 11AB and penalties under section 11AC. The respondent contested the imposition of interest and penalties, citing lack of intent to evade duty and reliance on certifications from the cooperative society.

Issue 4:
The Tribunal, in an ex-parte order, set aside the Commissioner (Appeal)'s decision on penalties and interest, reinstating the Additional Commissioner's order. Subsequently, the High Court set aside the Tribunal's order and remanded the case for fresh consideration.

Issue 5:
Upon rehearing, the Tribunal found that the respondent had supplied yarn to the cooperative society, relying on certifications exempting them from duty. Despite lack of specific certification regarding yarn usage on handlooms, the Tribunal held that the respondent could not be held liable for the society's diversion of yarn to Power Loom Units. Citing a previous judgment, the Tribunal dismissed the Revenue's appeal, concluding that no malafide intent was present for imposing interest and penalties.

This detailed analysis outlines the legal complexities surrounding duty exemptions, misuse of goods, penalty imposition, appeal processes, and the interpretation of exemption conditions in the mentioned judgment by the Appellate Tribunal CESTAT NEW DELHI.