2016 (3) TMI 130 - AT - Central Excise

Compounded Levy Scheme for textile in terms of Rule 96 ZNA of the Central Excise Rules - application for the scheme was rejected - penalty imposed on the appellant - Held that - In the present case, the penalty equal to the duty is not legally sustainable. When the application of the appellant for the scheme was rejected, it is clear that the appellants were not governed by the provisions of the Scheme. Invoking one of the provisions of the Scheme for imposing penalty is thus legally not sustainable. Further, during the pendency of their application, they were discharging duty only provisionally in terms of the Scheme as permitted by the Rules itself. In fact, the appellants paid much higher duty than the actual liability as arrived at after rejection of their application. Considering the above position, we find the impugned order is not sustainable and set aside the same. - Decided in favour of assessee

Summary

Issues:
- Imposition of penalty under Rule 25 read with para-9(5)(ii) of Notification no.32/2001-CE for delayed payment of duty under Compounded Levy Scheme.
- Legality and sustainability of penalty imposed on the appellant.

Analysis:
1. The case involved an appeal against the Commissioner's order imposing a penalty on the appellant for delayed payment of duty under the Compounded Levy Scheme. The appellant, an independent textile processor, applied for the scheme but was later rejected by the Commissioner. During the pendency of the application, the appellant paid duty provisionally and later adjusted it against normal duty liability, claiming a refund for the excess amount paid.

2. The appellant argued that the penalty imposed was unjustified as they were not operating under the Compounded Levy Scheme after rejection of their application. The appellant contended that they paid duty provisionally as permitted by the rules until the rejection decision. The appellant cited tribunal decisions supporting their position.

3. The Revenue Authority maintained that the penalty was warranted for the delayed payment of duty under the Compounded Levy Scheme. The Authority relied on the provisions of sub-rule (5) of Rule 96 ZNC to support their stance.

4. The Tribunal analyzed the case and found that the penalty equal to the duty was not legally sustainable. The Tribunal noted that once the appellant's application for the scheme was rejected, they were no longer governed by the scheme. The Tribunal highlighted that the appellant paid duty provisionally during the application process and paid more than the actual liability upon rejection.

5. Referring to legal precedents, the Tribunal cited cases where penalties were not imposed when applicants paid excess duty under similar schemes and were later found ineligible. The Tribunal concluded that imposing a penalty equivalent to the duty in such cases was arbitrary and excessive, as ruled by the Hon'ble Supreme Court in similar matters.

6. Ultimately, the Tribunal held that the penalty imposed on the appellant was not legally sustainable. The Tribunal set aside the impugned order, considering that the appellant was not under the Compounded Levy Scheme post-rejection, and had paid duty provisionally as allowed by the rules. The appeal was allowed in favor of the appellant.