2010 (2) TMI 472 - HC - Central Excise

Exemption - the assessee was engaged in the manufacture of doubling of yarn and the same was exempted from duty prior to 1-4-2003. The factory premise of the assessee was inspected and it was found manufacturing the goods without obtaining the Central Excise Registration and cleared the same without payment of duty. Therefore, a show cause notice was issued to the assessee, as to why the amount of duty be not recovered alongwith interest and penalty be not imposed for various contravention of the Central Excise Act, 1944 and Central Excise Rules, 2002. Held that - duty liability accepted when withdrawal of exemption pointed out. Tribunal order upholding confiscation on the ground of non-registration and enhancement of penalty, sustainable. Not a case of clandestine removal of goods and cenvat credit rightly allowed.

Summary

Issues:
- Duty liability on manufacturing goods without Central Excise Registration
- Confiscation of goods, penalties, and interest imposed
- Appeal against the order of the Commissioner (Appeals)
- Enhancement of penalty by the Customs, Excise and Service Tax Appellate Tribunal
- Substantial questions of law raised in the appeal

Analysis:

Issue 1: Duty liability on manufacturing goods without Central Excise Registration
The respondent assessee, engaged in the manufacture of doubling of yarn, was found manufacturing goods without obtaining Central Excise Registration and clearing them without paying duty. The show cause notice was issued for contraventions of the Central Excise Act and Rules. The assessee claimed exemption from duty before 1-4-2003 but was unaware of the law change post that date. The Adjudicating Authority ordered confiscation of goods, penalties, and interest. The Commissioner (Appeals) modified the order, considering the facts and allowing Cenvat credit while reducing penalties. The Tribunal upheld the confiscation but enhanced the penalty, leading to an appeal by the revenue.

Issue 2: Confiscation of goods, penalties, and interest imposed
The Adjudicating Authority confirmed the demand of duty, imposed penalties, and interest on the assessee. The Commissioner (Appeals) modified the order, confirming duty demand but reducing penalties and allowing Cenvat credit subject to verification. The Tribunal further enhanced the penalty, leading to the present appeal. The revenue argued that the assessee wrongly claimed Cenvat credit, violated laws, and was not registered, justifying the penalties and interest. The assessee contended that they were exempted from duty before 1-4-2003 and had a plausible explanation for their actions. The High Court upheld the decision of the lower authorities, considering the facts and circumstances, and dismissed the appeal.

Issue 3: Appeal against the order of the Commissioner (Appeals)
The assessee appealed against the order of the Adjudicating Authority, leading to modifications by the Commissioner (Appeals) in favor of the assessee. However, the revenue was dissatisfied and further appealed. The Tribunal made changes to the order, enhancing the penalty, which was challenged in the High Court. The High Court examined the grounds for interference but found no legal infirmity in the impugned order, ultimately deciding in favor of the assessee based on the exemption of goods before 1-4-2003.

Issue 4: Enhancement of penalty by the Customs, Excise and Service Tax Appellate Tribunal
The Tribunal enhanced the penalty imposed on the assessee, leading to the revenue filing the present appeal in the High Court. The revenue argued for acceptance of the appeal, citing violations by the assessee. The assessee defended the impugned order, stating their exemption from duty before 1-4-2003 and providing a reasonable explanation for their actions. The High Court upheld the decision of the Tribunal, considering the facts and explanations provided by the assessee.

Issue 5: Substantial questions of law raised in the appeal
The High Court admitted the appeal to consider substantial questions of law raised by the revenue. These questions pertained to the legality of the Tribunal's judgment, the imposition of penalties, the admissibility of Cenvat credit, and the exemption of goods cleared without payment of duty. The High Court examined these questions in detail, considering the facts and explanations presented, ultimately deciding in favor of the assessee based on the exemption of goods before 1-4-2003 and the reasonable explanation provided.