2008 (1) TMI 177 - AT - Central Excise

Appellant sent corded yarn to job worker for mercerizing - No central excise duty was paid by the appellant or the job worker on the mercerized yarn as per Rule 12B introduced vide Not.24/03, there is a provision for payment of duty by the trader appellant was not aware of the introduction of Rule 12B which fixes the liability for payment of duty either on the trader or on the job worker duty is payable by appellant (trader) but penalty not imposable as rule was newly introduced

Summary

Issues:
1. Liability for payment of central excise duty on mercerized yarn sent for job work.
2. Applicability of Rule 12B in determining duty liability.
3. Imposition of penalty under Section 11AC for non-payment of duty.
4. Benefit of cenvat credit and modvat in duty payment.

Analysis:

Issue 1: Liability for payment of central excise duty on mercerized yarn sent for job work
The appellant purchased corded yarn and sent it for mercerizing on job work basis without paying central excise duty. The lower authority demanded payment along with penalty. The Commissioner (Appeals) upheld the order but allowed cenvat credit. The appellant contended that the duty liability should be on the job worker, not the supplier of raw material. However, the Tribunal found that Rule 12B mandates duty payment by the trader supplying raw materials for further manufacture. As the duty was not discharged by the appellant or the job worker, the confirmation of duty was deemed legal.

Issue 2: Applicability of Rule 12B in determining duty liability
The introduction of Rule 12B via Notification No.24/2003 CE (NT) dated 25.3.2003 establishes the obligation for duty payment by the trader supplying raw materials for processing. The Tribunal concluded that the appellant failed to fulfill this duty liability, leading to the confirmation of duty payment. The contention that the job worker's duty payment status was not investigated by the department was dismissed, as neither the job worker nor the appellant had paid the duty.

Issue 3: Imposition of penalty under Section 11AC for non-payment of duty
The appellant argued against the penalty under Section 11AC, citing lack of awareness regarding the new rule and no intent to deceive. The Tribunal acknowledged the appellant's unfamiliarity with the procedure due to the rule's recent introduction in 2003. Consequently, the penalty was set aside, considering the absence of fraudulent intent and the benefit of modvat granted by the Commissioner (A) to prevent injustice.

Issue 4: Benefit of cenvat credit and modvat in duty payment
While confirming the duty payment, the Tribunal recognized the benefit of modvat provided by the Commissioner (A) to the appellant. As the penalty under Section 11AC was deemed unjustified due to lack of awareness and absence of fraudulent behavior, the Tribunal set aside the penalty but upheld the duty payment along with interest. This decision aimed to ensure fairness in the enforcement of duty payment regulations without imposing undue penalties on the appellant.