2009 (1) TMI 290 - HC - Central Excise

Whether CEGAT has erred by relying upon the statement of the partner of the factory that the factor d was changed w.e.f. first week of Nov., 1997 whereas there is a substantial proof that the factor d was changed w.e.f. 1-10-97 as there was a sudden increase in the production w.e.f. 10/97 which was attributable due to change in factor d and reducing the penalty from ₹ 24 lacs to ₹ 10 lacs? Held that - In the year 1997-98 the production in the month of May, 1997 was far less than in the month of June when it reached 800.678 Mts. In the month of August it has come down to 356.750 Mts. which in September increased to 935.075. It went up again in October, 1997 to 1059.470 Mts but considerably reduced in the next month of November to 416.990 Mts. Taking into consideration the aforesaid fluctuation in production it is not possible to conclude that changed factor d had played any pivotal role in bringing up production and therefore no inference on that basis could have been raised against the assessee by raising additional demand from 1-10-1997. Therefore, the findings recorded by the Tribunal are unexceptional and do not call for interference of this Court.

Issues:
1. Interpretation of change in 'd' factor in rolling mills
2. Duty liability based on change in 'd' factor
3. Penalty imposition under Rule 209 of the Central Excise Act, 1944

Issue 1: Interpretation of change in 'd' factor in rolling mills

The case involved a dispute regarding the change in the 'd' factor of rolling mills operated by the assessee. The revenue claimed that the factor was changed without proper intimation to the authorities, leading to a demand for differential duty and penalty imposition. The partner of the assessee admitted to changing the 'd' factor of a rolling mill, which was contested by the assessee. The Central Excise Division conducted a surprise visit and found discrepancies in the 'd' factor declaration. The Tribunal concluded that the change in the 'd' factor occurred in November 1997, not October 1997 as claimed by the revenue. The Tribunal directed the re-computation of duty liability and reduced the penalty imposed.

Issue 2: Duty liability based on change in 'd' factor

The Assessing Authority determined the duty liability of the assessee based on the change in the 'd' factor of the rolling mill. The authority found that the assessee had not intimated the change in the 'd' factor to the jurisdictional Commissioner as required by the Determination Rules, 1997. The authority levied a duty of Rs. 5,97,623.67 p.m. w.e.f. 1-10-1997 and demanded a differential duty of Rs. 24,53,742/- along with interest and penalty under Rule 209 of the 1944 Rules. On appeal, the Tribunal re-examined the evidence and reduced the penalty imposed, emphasizing the lack of evidence supporting the revenue's claims regarding the change in the 'd' factor.

Issue 3: Penalty imposition under Rule 209 of the Central Excise Act, 1944

The revenue contended that the findings of the adjudicating authority should not have been overturned based on the partner's confessional statement regarding the change in the 'd' factor. The revenue argued that the sudden increase in production from September 1997 supported their claim. However, the assessee's counsel disputed the correlation between the 'd' factor change and production increase, pointing out fluctuations in production levels. The High Court examined the production data and concluded that the fluctuation in production did not conclusively prove a link to the changed 'd' factor. The Court declined the revenue's request to refer a question of law, emphasizing that the assessee was entitled to avail Modvat credit, and dismissed the petition.

This detailed analysis of the legal judgment highlights the key issues, arguments presented by both parties, and the court's decision regarding the interpretation of the change in the 'd' factor in rolling mills, duty liability implications, and penalty imposition under the Central Excise Act, 1944.

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