2017 (11) TMI 868 - AT - Central Excise

Penalty - job-work - N/N. 05/2006-CE dt. 01.03.2006 - Held that - there is no evidence of the appellants mala-fide disclosed in the show cause notice and the appellants activities of conversion of Rail into Swtiches and crossing, out of the material supplied by the Railways, is capable of an interpretation that such activities does not amount to manufacture - the fact of the purchase order itself specified that no excise duty is required to be paid which further strengthened the assessees believe that their activity does not amount to manufacture. In the absence of any evidence to the contrary reflecting upon the assessee s mala-fides, imposition of penalty upon them is not justified - appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge to imposition of penalty in the appeal.

Analysis:
The appellant, engaged in manufacturing Elastic Rail Clips and Switches for Railways on a job work basis, faced show cause notices proposing duty recovery and penalties. The notices were based on the contention that the conversion of Rails into Switches constituted manufacturing of a separate identifiable item. The original adjudicating authority confirmed a demand of ?12,01,402 along with interest and an equal penalty. The appellant appealed, citing Notification No. 05/2006-CE, availability of Cenvat Credit, and the cum-duty price consideration. The Commissioner (Appeals) accepted most of the appellant's contentions, reducing the demand to ?10,32,772 and the penalty to ?9,00,448. However, the penalty was upheld based on Rule 25 of the Central Excise Rules.

The Tribunal noted that the appeal solely contested the imposition of penalty. The appellant believed no excise duty was payable on the job work based on a purchase order condition from the Railways. The appellant regularly filed ER-1 returns during the period, indicating no suppression of facts. There was no evidence of malafide intentions by the appellant in the show cause notice. The conversion activities by the appellant, based on material supplied by Railways, did not amount to manufacture, as per the purchase order terms. The penalty was imposed solely due to delayed discharge of duty liability, not mala-fide intentions. The Tribunal concluded that without evidence of mala-fides, the penalty imposition was unjustified.

Accordingly, the Tribunal set aside the penalty while upholding the demand and interest, as the appellants did not contest those aspects. The appeal was disposed of in favor of the appellant.