2010 (4) TMI 278 - HC - Central Excise

Penalty reduction of penalty section 11AC tribunal reduced the penalty reduced from Rs.1,88,997/-, as imposed by the Adjudicating Authority upon the assessee to Rs.50,000/- under section 11AC of the Central Excise Act, 1944 Held that - , the assessee has wrongly availed of the modvat credit. He had never received the actual delivery of the goods alongwith invoices and it was a paper transaction. In these circumstances, the present case is squarely covered by Rajasthan Spinning and Weaving Mills s case. Accordingly, the Tribunal could not have reduced the penalty from Rs.1,88,997/- to Rs.50,000/-. Decided in favor of revenue

Summary

Issues:
1. Reduction of penalty imposed under section 11AC of the Central Excise Act, 1944.
2. Discretion of Tribunal in imposing penalties for wrongful availment of modvat credit.

Analysis:
1. The case involved a dispute regarding the reduction of a penalty imposed under section 11AC of the Central Excise Act, 1944. The respondent, engaged in manufacturing iron and steel products, availed modvat credit based on invoices from a registered dealer. However, it was found that the goods did not reach the factory premises along with the invoices. The Adjudicating Authority imposed a penalty of Rs.1,88,997 for wrongful availment of modvat credit, which was later reduced to Rs.50,000 by the Tribunal. The appellant argued that the penalty should not have been reduced as per the decision in Union of India v. Rajasthan Spinning and Weaving Mills.

2. The second issue revolved around the discretion of the Tribunal in imposing penalties for the wrongful availment of modvat credit. The Tribunal reduced the penalty based on its discretion, while the appellant contended that the penalty should not have been reduced and the full amount should have been imposed. The High Court held that in cases where modvat credit is wrongly availed without actual receipt of goods, the penalty should not be reduced. The Court emphasized that penalties under Section 11AC are mandatory in nature for cases involving fraud or willful misstatement.

In conclusion, the High Court allowed the appeal, holding that the respondent was liable to pay the full penalty amount imposed under section 11AC of the Act. The Court set aside the Tribunal's order and restored that of the Commissioner, emphasizing the mandatory nature of penalties in cases of fraudulent transactions involving modvat credit.