2008 (8) TMI 119 - AT - Central Excise

Packing/repacking from bulk pack ( brake fluid and servokool ) to retail packs - Chapter 3 was introduced in the Finance Act, 1997 to treat above activity as manufacture - During 1-1-98 to 2-7-98, goods manufactured in terms of the above provision were cleared without payment of duty held that non-payment of duty is due to ignorance of new liability, so SCN dated 11.1.99 invoking larger period is not justified penalty not sustainable matter remanded for requantification of demand

Summary

Issues:
1. Duty evasion on clearances of goods manufactured under the Finance Act, 1997.
2. Imposition of penalty and interest under Sections 11AC and 11AB of the Central Excise Act, 1944.
3. Ignorance of law as a defense against duty evasion.
4. Application of penalty in cases of technical breaches.

Analysis:

1. The case involved duty evasion on clearances of goods manufactured under the Finance Act, 1997. The appellants repacked goods received from Indian Oil Corporation (IOC) without paying the duty. A Show Cause Notice was issued, and the Commissioner found the appellants guilty of evading duty. The original demand was modified following a remand, and penalties were imposed under Section 11AC, along with interest under Section 11AB.

2. The imposition of penalty and interest under Sections 11AC and 11AB was challenged in the appeal. The appellants argued that they were unaware of the new liability introduced by the Finance Act, 1997. They claimed they could have availed Modvat credit and paid duty on value addition, expecting reimbursement from IOC. The Commissioner, however, found suppression of facts and intentional evasion, justifying the penalty and interest.

3. The Tribunal analyzed the submissions and found that the appellants' failure to pay duty was due to ignorance of their new liability. It was observed that there was no mens rea on their part, and the demand could not have been raised for a larger period. Consequently, the penalty under Section 11AC and interest under Section 11AB were deemed unjustified, given the lack of intentional evasion.

4. Additionally, the Tribunal cited the Hindustan Steel Ltd. case, emphasizing that penalties should be imposed judiciously, especially in cases of technical breaches or genuine belief in compliance. As a result, the impugned order was set aside, and the appeal was allowed by remanding the case to re-quantify the duty within the normal period. The penalties and interest were vacated, and the appeal was disposed of accordingly.