2018 (4) TMI 950 - AT - Central Excise

Penalty u/r 173Q of Central Excise Rules, 1944 - failure to record production and availment of ineligible credit - Held that - the provision u/r 173Q makes it amply clear that these are liable to be invoked in specified circumstances, of which the failure to record production of excisable goods and availment of ineligible credit are relevant to the present proceedings. At the same time, it also must be noted that the Tribunal had remanded the matter to the original authority to re-determine liability after ascertainment of sufficiency of credit. It was thereupon that the duty liability was erased on the manufactured goods and the appellant directed to reverse the credit available. In the context of there being no detriment to Revenue, that remoteness of the alleged infraction and the consigning of duties of central excise to history, the balance should be allowed to tilt towards the proposition that subsequent reversal of credit immunises assessee from detriment. Confiscation and penalty set aside - appeal allowed.

Summary

Issues:
1. Liability to recovery of MODVAT credit and confiscation of goods.
2. Illegal availment of MODVAT credit on duty-exempted inputs.
3. Imposition of penalty and redemption fine.
4. Interpretation of rule 173Q regarding confiscation and penalty.
5. Relevance of intention and mens rea in invoking confiscation provisions.

Analysis:
1. The appellant, a manufacturing company, was held liable for the recovery of MODVAT credit on inputs used for manufacturing duty-exempted goods. The central excise authorities alleged that the appellant failed to reverse the credit availed on such inputs, making them liable to duty without exemption. Additionally, goods were seized during the investigation, leading to a show cause notice proposing duty recovery, confiscation of goods, and penalties.

2. The appellant argued that they had sufficient credit to clear goods without using ineligible credit, as confirmed by the Tribunal in a previous instance. They cited legal precedents to support their claim that penalties should not be imposed for technical breaches without intent to evade duty. However, the Revenue representative relied on Supreme Court and High Court decisions emphasizing that intention is not a prerequisite for invoking confiscation provisions.

3. The debate centered on the interpretation of rule 173Q, with the appellant contending that mens rea is essential for invoking penalties, while the Revenue argued that strict liability applies without the need to establish intent. The Tribunal noted the previous remand instructing the appellant to reverse the credit, ultimately setting aside the confiscation and penalties imposed in the impugned order.

4. The Tribunal considered the appellant's ability to comply ex post facto and the absence of detriment to Revenue in deciding to overturn the penalties. While acknowledging conflicting legal interpretations, the Tribunal leaned towards immunizing the appellant from penalties due to subsequent credit reversal, leading to the appeal being allowed in that regard.

5. The judgment highlighted the importance of compliance with excise rules, the relevance of intent in invoking penalties, and the need for a balance between strict liability and the practical implications of penalties on businesses. The decision ultimately favored the appellant, emphasizing the significance of credit reversal and the absence of intent to evade duty in determining penalties under rule 173Q.