2018 (10) TMI 689 - AT - Central Excise

Penalty u/s 11AC of CEA - Goods cleared for captive consumption - duty paid only on the cost of production while as per the provisions of Rule 8 of the Central Excise Valuation Rules, 2000, they were required to pay duty on one hundred and ten per cent of the cost of production - differential duty demand alongwith Interest paid - Held that - The appellant was admittedly adopting the assessable value as cost of production of the goods, whereas the same were required to be adopted as 110% of the cost. Inasmuch as the goods were being sent to their own sister unit, who were availing Cenvat credit of duty paid by the appellant, this could be a bona fide mistake on their part and cannot be held to be a case of mala fide intention with intent to evade payment of duty - penalty set aside while upholding duty demand - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Imposition of penalty under Section 11AC of the Central Excise Act for short payment of duty due to alleged willful suppression of facts.

Analysis:
The case involved the appellant, a manufacturer of tyres, tubes, and rubber compounds, who had a second unit for tube manufacturing. During a specific period, they cleared rubber compound to their second unit for captive use, paying duty only on the cost of production instead of 110% of the cost as required by Rule 8 of the Central Excise Valuation Rules, 2000. Upon detection of this irregularity, the appellant paid the differential duty even before the issuance of a show cause notice. Subsequently, a notice was issued for confirmation of the demand, interest, and penalty. The Assistant Commissioner, in the order-in-original, confirmed the demand, interest, and imposed a penalty equal to the amount of differential duty, citing willful suppression of facts by the appellant. This decision was upheld by the Commissioner (Appeals), leading to the current appeal.

The appellant, through their advocate, argued that they were not contesting the demand of duty or interest but solely challenging the imposition of the penalty under Section 11AC. They contended that since the goods were being cleared to their sister unit who availed Cenvat credit, the transaction was revenue neutral, indicating no mala fide intent on their part. The appellant relied on a Tribunal decision to support their argument.

Upon review of the submissions and orders, the Tribunal agreed with the appellant's advocate. It was acknowledged that the appellant had mistakenly adopted the assessable value as the cost of production instead of 110% of the cost. Considering that the goods were transferred to their sister unit benefiting from Cenvat credit, the Tribunal found no evidence of mala fide intention to evade duty. Notably, the appellant had a substantial annual duty payment, making it unlikely that a small amount was intended to be evaded. Consequently, while confirming the demand of duty and interest, the Tribunal set aside the penalty imposed, allowing the appeal in that regard.

This judgment highlights the importance of assessing the intent behind apparent irregularities in duty payments, especially in cases where the overall transaction remains revenue neutral and lacks any deliberate evasion motive.