2017 (2) TMI 717 - HC - Central Excise

Clandestine removal - levy of redemption fine in lieu of confiscation - M.S. Ingots - removal of goods without issuance of invoice - imposition of penalty u/r 25 of CEA - Held that - the appellant cannot wriggle out from under in the guise of trying to assert that there was no intention to evade duty. Though confiscation of the material was not made at the premises of M/s.Sri Krishna Alloys, but made at the premises of the appellant, the appellant being a person holding safe custody of the materials, without there being any valid invoice for receipt of the same as raw material, if wishes to retain the confiscated materials, could redeem the same on payment of fine, as has been ordered. The the appellant having received the materials and stored the same within its factory premises without valid invoice, can be said to be holding the materials in safe custody and, therefore, as held by the Tribunal, would not fall within the four corners of Rule 25 of the CEA read with Section 11AC of the CER - the finding arrived by the Tribunal that penalty is not imposable in view of the fact that the appellant would not fall within any of the four categories enumerated u/r 25 of the CER cannot be said to be erroneous. The factum of non-raising of invoice had come to light only due to the surprise inspection conducted by the Department - There was no revenue loss to the exchequer. However, mere payment of duty before issuance of show cause notice would not preclude the Department, from levying redemption fine, once the factum of evasion of duty is made out, be it mala fide or not. Levy of redemption fine on the goods manufactured by M/s.Sri Krishna Alloys for being used as raw materials at the hands of the appellant, could not be termed as erroneous or an unjustified act. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Validity of the fine in lieu of confiscation.
2. Applicability of Rule 25 of the Central Excise Rules to the appellant.
3. Justification for the imposition of redemption fine.

Detailed Analysis:

1. Validity of the Fine in Lieu of Confiscation:

The appeal challenges the order passed by the Customs, Excise & Service Tax Appellate Tribunal, which imposed a fine of ?2,00,263 in lieu of confiscation of goods. The appellant argued that the violation observed was merely a procedural irregularity and not an act to defraud the exchequer. The appellant contended that since they were entitled to Cenvat credit on the inputs received, there was no intention to evade payment of duty. The Tribunal had set aside the penalty imposed under Rule 25 of the Central Excise Rules, as the appellant did not fall under any of the four categories covered by the said Rule. However, the Tribunal upheld the redemption fine based on the acceptance of the offense of clearance of goods without an invoice by M/s. Sri Krishna Alloys.

2. Applicability of Rule 25 of the Central Excise Rules to the Appellant:

Rule 25 deals with confiscation and penalty for contravention of certain provisions. The Tribunal found that the appellant did not fall under any of the four categories listed under Rule 25, which include the producer, manufacturer, registered person of a warehouse, or a registered dealer. The appellant received goods without an invoice, which is a statutory requirement, but the Tribunal ruled that this act did not fall within the contraventions listed in Rule 25. The Department contended that the appellant, being a producer of M.S. Rods and Bars, had received M.S. Ingots without a valid invoice, thus contravening Rule 25. However, the Tribunal's decision to set aside the penalty was based on the finding that the appellant did not fall under the specified categories.

3. Justification for the Imposition of Redemption Fine:

Despite setting aside the penalty, the Tribunal upheld the confiscation of goods and the imposition of a redemption fine. The appellant argued that since the penalty was set aside, the redemption fine should also be set aside. The Department maintained that the act of receiving goods without an invoice indicated an intention to evade payment of duty. The High Court noted that the appellant's act of holding the materials without a valid invoice could be deemed as safe custody on behalf of the seller, M/s. Sri Krishna Alloys, and thus, the confiscation and redemption fine were justified. The Court emphasized that compliance with statutory provisions is mandatory, and any deviation could not absolve the liability to pay duty.

The High Court concluded that the Tribunal's decision to confirm the redemption fine was not erroneous. The Court held that the appellant's receipt of goods without an invoice warranted the imposition of a redemption fine, and the fine amount was reasonable given the value of the goods.

Conclusion:

The High Court dismissed the appeal, upholding the Tribunal's order of imposing a redemption fine while setting aside the penalty under Rule 25. The Court affirmed that the appellant's actions, though not falling under the specific categories of Rule 25, justified the confiscation and redemption fine due to the procedural lapse and potential revenue implications.