2007 (8) TMI 182 - HC - Central Excise

Penalty Wrong availment of credit - On absence of any allegation of willful misstatement with an intention to evade duty or fraud, penalty equal to duty recoverable can not be imposed

Summary

Issues:

1. Challenge to Tribunal's order on penalty imposition.
2. Contravention of Rules 57C and 173G of the Central Excise Rules.
3. Maintenance of separate account for inputs used in finished goods.
4. Recovery of inadmissible credit under Rule 57-I.
5. Imposition of penalty under Rule 57-I(4).
6. Applicability of penalty for fraud, wilful misstatement, collusion, or suppression of facts.
7. Allegations in the show-cause notice.
8. Comparison with relevant case law.
9. Dismissal of the appeal.

Issue 1: Challenge to Tribunal's order on penalty imposition

The appeal filed by the Revenue under Section 35G of the Central Excise Act, 1944 challenges the Customs, Excise and Service Tax Appellate Tribunal's order dated 3-1-2006, which held that no penalty could be imposed on the assessee respondent. The Tribunal affirmed the deletion of penalty by the Commissioner (Appeals) based on a specific judgment regarding the imposition of penalties in cases of fraud or misrepresentation.

Issue 2: Contravention of Rules 57C and 173G of the Central Excise Rules

The case involved M/s. Steel Strips Ltd. allegedly contravening Rules 57C and 173G of the Central Excise Rules by not reversing Modvat credit on inputs used in the manufacture of finished goods on job work basis. The Anti Evasion staff found discrepancies in the utilization of Modvat Credit on inputs, leading to the initiation of recovery proceedings against the assessee respondent.

Issue 3: Maintenance of separate account for inputs used in finished goods

The assessee respondent failed to maintain a separate account of inputs used in finished goods manufactured on job work basis, rendering the credit inadmissible under Rule 57-I of the Rules. This lack of proper record-keeping contributed to the demand for recovery of the credit availed in contravention of the rules.

Issue 4: Recovery of inadmissible credit under Rule 57-I

The Adjudicating Authority concluded that the assessee respondent was liable to pay the demanded duty under Section 11A of the Act read with Rule 57-I(ii) of the Rules, along with interest. The recovery proceedings were initiated based on the non-reversal of Modvat credit on inputs used in the manufacture of finished goods on job work basis.

Issue 5: Imposition of penalty under Rule 57-I(4)

Penalty equivalent to the duty amount was imposed on the assessee respondent by the Adjudicating Authority under Rule 57-I(4) of the Rules. However, the Commissioner (Appeals) later deleted the penalty based on the absence of allegations of fraud or misrepresentation in the show-cause notice.

Issue 6: Applicability of penalty for fraud, wilful misstatement, collusion, or suppression of facts

Rule 57-I(4) mandates the imposition of a penalty equal to the disallowed credit in cases of fraud, wilful misstatement, collusion, or suppression of facts with the intent to evade duty payment. The absence of such allegations in the show-cause notice led to the deletion of the penalty by the Commissioner (Appeals).

Issue 7: Allegations in the show-cause notice

The show-cause notice issued to the assessee respondent did not contain any allegations of fraudulent activities, wilful misstatement, collusion, or suppression of facts with the intention to evade duty payment. This lack of specific allegations played a crucial role in the decision to delete the penalty imposed on the assessee respondent.

Issue 8: Comparison with relevant case law

The judgment cited the case of M/s. G.S. Radiators v. CCE, Chandigarh, where the Tribunal held that penalties are not imposable in the absence of allegations regarding fraud or misrepresentation in availing Modvat credit. The comparison with this case law supported the deletion of the penalty in the present case due to the lack of specific allegations in the show-cause notice.

Issue 9: Dismissal of the appeal

The High Court dismissed the appeal filed by the Revenue after considering the provisions of Rule 57-I(4) and the absence of allegations of fraud or misrepresentation against the assessee respondent. The decision aligned with previous case law where penalties were not imposed without specific findings of fraudulent activities, wilful misstatements, collusion, or suppression of facts with the intent to evade duty payment.