2018 (10) TMI 465 - AT - Central Excise

Penalty u/s 11AC of the Central Excise Act - scrap sold of defective capital goods on which CENVAT credit availed - demand alongwith interest was already paid - Held that - Admittedly the appellant was not manufacturing the said worn out parts and has simplicitor sold the same as scrap. The said sale of scrap was reflected in their records and was under the commercial invoice. It is well settled law that when the transactions are part of the records maintained by the assessee, no mala fide can be attributed to them to attract the penal provisions. Otherwise also, the interest to the tune of more than ₹ 1 lakh stand deposited by them, which is penal in nature and it cannot be held that non-payment of duty was on account of any mala fide, when the appellant had to pay huge interest amounts. Penalty not warranted - appeal allowed - decided in favor of appellant.

Summary

Issues: Penalty imposed under Section 11AC of the Central Excise Act

Analysis:
The judgment revolves around the challenge to a penalty of ?88,616 imposed on the appellant under Section 11AC of the Central Excise Act. The appellant had availed Cenvat credit for capital goods, which later broke down in a fire and were sent for repair. During the repair process, scrap emerged in the factory from worn-out defective parts, which the appellant sold under commercial invoices and duly recorded. A Show Cause Notice was issued, leading to the appellant admitting liability and depositing duty amounting to ?1,77,232 along with interest of ?1,01,952, which was confirmed and not contested. The key point of contention was whether the penalty was justified given the circumstances.

The tribunal found that the appellant was not manufacturing the worn-out parts but simply selling them as scrap, with the transactions being properly recorded. It was established that no mala fide intent could be attributed to the appellant as the sale was in good faith and reflected in their records. Additionally, the substantial interest amount exceeding ?1 lakh already paid by the appellant was considered penal in nature. The absence of any evidence suggesting mala fide actions led the tribunal to conclude that the appellant genuinely believed they were not required to pay duty on the scrap resulting from the damaged machine. Consequently, the tribunal set aside the penalty imposition, acknowledging the appellant's bona fide belief and the payment of confirmed demand and interest.

In conclusion, the judgment focused on the absence of mala fide intentions on the appellant's part, the proper recording of transactions, and the substantial penal interest already paid. These factors led to the tribunal's decision to overturn the penalty imposition while upholding the confirmed demand and interest payment.