2016 (12) TMI 1374 - HC - Central Excise

Waiver of penalty u/s 11AC of the Central Excise Act - no deliberate intention - failure to discharge duty, on account of confusion - Held that - for the penalty to be imposed, the alleged suppression of fact must necessarily be coupled with intent to evade payment of duty - MS plates and MS angles have been used as accessories of other equipments to make such equipments to be used more effectively. When once the audit has raised an objection on the ground that MS plates and MS angles fall under chapter 72 of the Tariff Act, but not under chapters 82, 84,85 or 90, the respondent has reversed the credit availed. The respondent has reversed it, no doubt, on its own, because of unavailability of adequate quantity of Bauxite. Be that as it may. It has also paid the interest for the delayed part of reversing the credit - there is no willful intent to evade duty and hence the question of invoking the penalty under section 11AC would not arise - appeal dismissed - decided against Revenue.

Summary

Issues:
- Dispute over the justification for the imposition of penalty under section 11AC of the Central Excise Act.
- Determining whether the initial availing of CENVAT credit by the respondent was bona fide.
- Interpretation of the definition of "Capital Goods" under the CENVAT credit Rules 2004.
- Assessing whether the actions of the respondent constituted suppression of facts with intent to evade payment of duty.
- Application of legal principles regarding suppression of facts with intent to evade duty for the imposition of penalty under section 11AC.

Analysis:
1. The appeal under section 35G of the Central Excise Act was filed by the Revenue challenging a tribunal's order related to the imposition of a penalty. The respondent did not dispute the duty and interest payment but contested the penalty of ?29,58,725 under section 11AC of the Act. The tribunal found no evidence of deliberate prejudice to the revenue by the appellant, leading to a waiver of the penalty.

2. The case revolved around the respondent availing CENVAT credit on certain items, which were later found to be non-qualifying under the Capital Goods definition. The respondent reversed the credit and paid interest promptly upon audit objection, raising questions about the initial bona fides of availing the credit.

3. The interpretation of the Capital Goods definition under CENVAT credit Rules 2004 was crucial. The definition included specific goods falling under certain chapters, with a debate arising over whether the items in question qualified as accessories under the definition.

4. The court analyzed whether the respondent's use of certain materials as accessories constituted suppression of facts with intent to evade duty, a key element for imposing penalties under section 11AC. Legal precedents were cited to clarify the requirement of willful intent for such penalties.

5. Ultimately, the court concluded that there was no willful intent to evade duty based on the respondent's actions of promptly reversing the credit and paying interest. The tribunal's decision to waive the penalty was upheld as reasonable, leading to the dismissal of the appeal.

6. The judgment highlighted the importance of establishing willful intent to evade duty for the imposition of penalties under section 11AC, emphasizing the need for deliberate suppression of facts. The decision underscored the significance of adherence to legal principles in penalty assessments under excise laws.