2005 (12) TMI 122 - AT - Central Excise

Summary

Issues:
1. Duty demand on manufacturing and clearing cotton yarn.
2. Imposition of penalty under Section 11AC of the Central Excise Act.

Analysis:
1. The appellants were involved in the manufacture of Cotton Yarn, and officers found discrepancies in their production process. It was discovered that the reeling machine was not in use during a specific period, leading to suspicion that the appellants were manufacturing and clearing cotton yarn on cones instead of hank yarn, which is dutiable. A show cause notice was issued demanding Rs. 1,60,814/- as unpaid duty along with a penalty under Section 11AC.

2. The appellants had paid Rs. 50,000/- towards duty on cone yarn before the notice was issued. Despite contesting the demand at lower stages, the original authority confirmed the duty demand and imposed a penalty of Rs. 1,60,814/-. The first appellate authority upheld this decision, leading to the present appeal focused on challenging the penalty imposed.

3. Upon review, it was observed that there was no sustainable challenge against the duty demand. The main contention revolved around the penalty under Section 11AC. The appellants argued that the authorities should have considered the amount paid before the notice was issued to determine the penalty reasonably, citing relevant Apex Court rulings. The lower authorities and the Senior Departmental Representative (SDR) maintained their stance.

4. The Member (J) acknowledged the validity of considering the amount paid prior to the show cause notice in determining the penalty under Section 11AC. It was noted that the authorities had not reasonably exercised their discretion in this regard. Consequently, the penalty was reduced to Rs. 1,10,814/-, taking into account the payment made by the party before the notice was issued. The appeal was allowed only to the extent of reducing the penalty, providing consequential relief to the appellants.