2008 (2) TMI 73 - AT - Central Excise

Control panels were cleared to 100% EOU after some modification, inspection and testing on the strength of CT-3 Certificate credit availed by assessee was reversed when found irregular assessee was under the impression that inspection, testing etc., would amount to manufacture - respondent has taken remedial steps when the irregularity was pointed out - issue is one of interpretation of statutes and therefore penalty is not warranted - revenue s appeal is rejected

Summary

Issues:
Appeal against penalty under Rule 25 of CE Rules set aside by the Commissioner (Appeals).

Analysis:
In this case, the revenue appealed against the Commissioner (Appeals) order that set aside the penalty imposed under Rule 25 of CE Rules. The revenue contended that penalty should have been imposed given the circumstances of the case. The respondent obtained control panels, made modifications, and cleared them to a 100% EOU with a CT-3 Certificate. Subsequently, they took Cenvat credit after receiving the goods. However, during an audit, it was discovered that the credit taken was irregular as the respondent had not undertaken any manufacturing activity but had purchased finished products. Upon discovering the irregularity, the respondent reversed the credit and paid the interest due to the department. The lower authority confirmed the payment and imposed a penalty, which was set aside by the Commissioner (Appeals) citing the issue as a matter of interpretation of statutes.

Upon careful consideration, the Member (T) agreed with the revenue that the credit taken by the respondent was indeed irregular. However, it was noted that the respondent believed that inspection and testing constituted manufacturing, even though this interpretation was deemed absurd. The Member (T) highlighted the varying interpretations of terms in central excise and customs laws compared to layman interpretations. The Member (T) acknowledged that certain actions like packing and labeling could be considered manufacturing in the legal context. Given the remedial steps taken by the respondent upon discovering the irregularity, the Member (T) found the Commissioner (Appeals) reasoning in setting aside the penalty to be legally sound and declined to interfere with the impugned order. Consequently, the revenue's appeal was rejected.

In conclusion, the judgment upheld the decision of the Commissioner (Appeals) to set aside the penalty under Rule 25 of CE Rules, emphasizing the legal interpretation of statutes and the remedial actions taken by the respondent upon discovering the irregularity. The judgment highlighted the complexities of legal interpretations in the context of central excise and customs laws, ultimately leading to the rejection of the revenue's appeal.