2008 (9) TMI 365 - AT - Central Excise

Sugar mill demand - Appellants are a public-sector undertaking of the Govt. of U.P. having a number of sugar mills. The sugar by both the units of the Appellant s sugar mill, was sold to the Govt. as levy sugar on loan basis out of free sale sugar quota and at that time, Central Excise Duty was paid under Heading 1701.31 by treating the same as levy sugar. - Since on conversion of sugar purchased from the sugar mills as levy sugar on loan basis into purchase of sugar out of free sale quota and payment of the differential amount to the sugar mills, the sugar cleared by the sugar factories of the Appellant Company became free sale sugar, classifiable under heading 1701.39, duty was payable on the same at the rate applicable to the free sale sugar. Demand of differential duty not sustainable - allegation of mis-statement, or suppression of fact with intent to evade the payment of duty does not make any sense, more so when the duty paid was to be reimbursed to them by the Govt penalty and interest not justified

Summary

Issues:
Recovery of duty, interest, and penalty on differential duty paid by a public-sector undertaking for sugar sold to the Government as levy sugar and subsequent conversion into sale out of free sale sugar quota.

Analysis:
1. Duty Demand and Interest on Duty:
The Appellant, a public-sector undertaking, sold sugar as levy sugar on loan basis as per Govt. orders. The sugar was later converted into sale out of free sale sugar quota, leading to the payment of a differential amount. The Appellant contended that no duty should be recoverable as per a Tribunal judgment in a similar case. The Department argued that the Appellant suppressed facts regarding the conversion, justifying duty demand and interest under Section 11AB. The Tribunal noted that duty was correctly paid on the converted sugar, rejecting the Appellant's argument that the duty liability remained unaffected by subsequent price changes.

2. Suppression of Facts and Penalty:
The Department alleged that the Appellant suppressed information about the conversion, justifying penalty under Section 11AC. The Tribunal considered the nature of the Appellant as a state government-owned entity and found it inconceivable that they would evade duty payment intentionally. Given that the duty was to be reimbursed by the Government, the Tribunal concluded that the Appellant's sugar mills were not guilty of suppression of facts. Consequently, the provisions of Section 11AB and Section 11AC were deemed inapplicable.

3. Decision:
The Tribunal upheld the duty demand but set aside the imposition of interest under Section 11AB and penalty under Section 11AC. The Commissioner (Appeals) order was modified accordingly, recognizing the Appellant's lack of intent to evade duty payment and the unique circumstances of the case as a state government undertaking.