2018 (8) TMI 1574 - AT - Central Excise

Penalty u/s 11AC - supply of excess quantity - Clearance of Bitumen (Asphalt) to contractors who are engaged in executing the road projects - N/N. 108/95 dated 28.8.1995 - case of appellant is that the supply of excess quantity was due to inadvertence - Extended period of limitation was invoked for raising demand - whether there is suppression of facts with intent to evade payment of duty? - Held that - The equal penalty envisaged in Section 11AC does not automatically get attracted in every case of non-payment or short-payment of duty. To state otherwise, on merely opting to pay the demand confirmation, for the extended period alleged in show cause notice, the penalty under section 11AC would not apply. To attract the heavy penalty envisaged under Section 11AC, the ingredients under the said Section has to be established. Penalty under this Section is for some contumacious conduct or for a deliberate act with intent to evade payment of duty. As the appellant contests the penalty imposed under Section 11AC, it becomes necessary to analyse whether the department has been able to establish the ingredients of Section 11AC - In the present case, the allegation is that the appellant has cleared excess quantity of Bitumen than that has been mentioned in the certificates issued as per Notification 108/1995. They have raised proper invoices showing that Bitumen is cleared as per Notification 108/1995 without collecting duty. The ER1 returns also reflected the excess quantity supplied. The appellants have not concealed the supply of the goods or is there any allegation that they have diverted the goods to any other customers. They have cleared the goods only to the contractors of the road project - There is no deliberate deception by any means of willful suppression, fraud or misrepresentation established on the part of the appellant. It has to be taken note that the appellant is a public sector undertaking - Appreciating the facts as well as evidence, it can be concluded that the department has not established suppression of facts with intent to evade payment of duty as provided under section 11AC of the Act. The penalty imposed under section 11AC is unjustified - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Demand of duty for excess quantity of Bitumen cleared.
2. Imposition of interest on the duty demanded.
3. Imposition of penalty under Section 11AC of the Central Excise Act.

Issue-wise Detailed Analysis:

1. Demand of Duty for Excess Quantity of Bitumen Cleared:
The appellant was engaged in the manufacture of petroleum products, including Bitumen, and cleared Bitumen under Central Excise Notification No.108/95, which permits clearance to contractors executing World Bank-funded road projects. The appellant was certified to supply 18,358 MTs of Bitumen but cleared an excess quantity of 877.65 MTs without payment of duty. The original authority confirmed the demand of ?11,59,054/- for the excess quantity. The appellant did not contest the demand for duty and acknowledged the liability, paying the duty along with interest.

2. Imposition of Interest on the Duty Demanded:
The original authority imposed interest on the duty demanded for the excess quantity of Bitumen cleared. The appellant did not contest the imposition of interest and paid it along with the duty. The Commissioner (Appeals) in the first round of litigation set aside the interest but later confirmed it upon remand by the Tribunal. The appellant did not challenge the imposition of interest in the present appeal.

3. Imposition of Penalty under Section 11AC of the Central Excise Act:
The primary contention of the appellant was against the imposition of an equal penalty under Section 11AC. The appellant argued that the excess clearance was due to inadvertence and not with the intent to evade duty. They highlighted the transition from Oracle to ERP systems, which led to an oversight in monitoring the certified balance quantity. The excess supply, constituting only 5% of the total, was reflected in ER1 returns, and there was no intention to deceive. The appellant, being a public sector undertaking, argued that the failure to remit duty was due to lack of proper monitoring.

The department contended that the excess clearance without payment of duty constituted suppression of facts with intent to evade duty. The Commissioner (Appeals) in the second round of litigation held that the appellant suppressed facts, justifying the imposition of penalty under Section 11AC.

The Tribunal analyzed the provisions of Sections 11A and 11AC of the Central Excise Act, noting that the imposition of penalty under Section 11AC requires establishing fraud, willful suppression, or misrepresentation. The Tribunal referred to the Supreme Court judgment in Rajasthan Spinning & Weaving Mills, which clarified that Section 11AC does not automatically apply to every case of non-payment or short payment of duty; the conditions expressly stated in the section must be met.

The Tribunal found that the department failed to establish deliberate suppression of facts by the appellant. The excess clearance was reflected in invoices and ER1 returns, and there was no evidence of diversion to other customers. The appellant's contention that the excess clearance was inadvertent and due to the nature of the material being stored in tanks was found to be credible. The Tribunal concluded that the penalty under Section 11AC was unjustified as the department could not prove willful suppression or intent to evade duty.

Conclusion:
The Tribunal modified the impugned order by setting aside the penalty imposed under Section 11AC while upholding the confirmation of the demand and interest. The appeal was partly allowed with consequential relief.