2004 (6) TMI 44 - HC - Central Excise

Penalty - Cenvat/Modvat - Justification of maintaining penalties despite duty liability not arising - HELD THAT - We are of the opinion that once it is found that no duty is imposable then the question of imposing penalty does not arise vide CIT v. Bahri Brothers 1984 (4) TMI 2 - PATNA HIGH COURT , CIT v. Bhagwan Ltd. 1986 (11) TMI 31 - CALCUTTA HIGH COURT , H. Guru Investment v. CEGAT, 1997 (7) TMI 173 - ALLAHABAD HIGH COURT , Collector of Central Excise v. H.M.M. Ltd., 1995 (1) TMI 70 - SUPREME COURT . The Tribunal has clearly found in his order dated 6-10-98 that the department has not been able to prove that the bottles sold during the relevant years were out of stock of glass bottles on which Modvat credit was taken. If Modvat credit is not taken on these bottles then of course it is open to the assessee to sell the bottles in the market and there can be no restriction on the same. No permission is required from the Commissioner to clear the goods on which Modvat is not taken. The Tribunal's order was deemed contradictory as it upheld penalties without establishing duty liability. The judgment favored the assessee, concluding that no penalty could be imposed since the demand for duty was dropped. The Tribunal's findings were supported by legal precedents emphasizing the absence of duty liability as a basis for penalty imposition.

Summary

Issues involved:
The judgment involves the following issues:
(I) Justification of maintaining penalties despite duty liability not arising
(II) Imposition of penalties based on allegations of selling glass bottles with Modvat Credits
(III) Imposition of penalty when duty evasion charge is not proved
(IV) Imposition of penalty for lack of permission/intimation despite no requirement
(V) Imposition of penalty based on non-observance of a new rule not enforced

Issue (I):
The Tribunal maintained penalties despite acknowledging no duty liability, leading to questions on the correctness and sustainability of the demand of duty. The Commissioner imposed duty and penalties, which were later reduced by the Tribunal.

Issue (II):
Penalties were proposed based on the allegation of selling glass bottles with Modvat Credits, which was set aside by the Tribunal. However, penalties were still imposed, albeit reduced, due to lack of permission/intimation for pre-modvat period duty paid inputs.

Issue (III):
The Tribunal imposed penalties even though the charge of duty evasion was not proven and duty liability did not arise, raising concerns about the justification for penalty imposition.

Issue (IV):
Despite the charge under Rule 57F not being proved, penalties were imposed for lack of permission/intimation, even when no rule mandated such action. This included penalties for non-compliance with a new Rule 173-H, which was not invoked in the proceedings.

Issue (V):
The Tribunal's order was deemed contradictory as it upheld penalties without establishing duty liability. The judgment favored the assessee, concluding that no penalty could be imposed since the demand for duty was dropped. The Tribunal's findings were supported by legal precedents emphasizing the absence of duty liability as a basis for penalty imposition.