1990 (9) TMI 155 - AT - Central Excise

Issues Involved:
1. Legality of duty demand and penalty imposed by the Collector of Central Excise.
2. Financial hardship and liquidity position of the applicants.
3. Allegation of evasion of central excise duty through fraudulent modus operandi.
4. Applicability of MODVAT credit and Notification No. 175/86.
5. Compliance with Rule 57F and extended period under Section 11-A of the Central Excise Act.

Detailed Analysis:

1. Legality of Duty Demand and Penalty Imposed by the Collector of Central Excise:

The appellants challenged the duty demand and penalties imposed by the Collector of Central Excise, Nagpur. The applicants argued that the duty demand from M/s. Central Cables Pvt. Ltd. was not correct in law. They contended that if any duty was payable, it should be paid by the job workers, who were entitled to small scale exemption. The applicants had sent copper/aluminium rods to job workers for conversion into wires, and the job workers were supposed to benefit from the exemption. The applicants did not take MODVAT credit and endorsed the gate passes in the names of the job workers. The respondent, however, argued that the applicants had devised a scheme to evade excise duty, and the Collector's order was correct in law.

2. Financial Hardship and Liquidity Position of the Applicants:

The applicants pleaded financial hardship, presenting their balance sheets and profit and loss statements. They argued that paying the full duty and penalty amounts would cause undue hardship. The financial documents showed a net profit of Rs. 12,64,786.00 for the year ending March 31, 1990, and Rs. 32,29,527.81 for the previous year. The liquidity position was strong, with substantial cash and bank balances and sundry debtors. The Tribunal considered the financial position and observed that the liquidity aspect must be considered under the proviso to Section 35F of the Central Excises and Salt Act, 1944.

3. Allegation of Evasion of Central Excise Duty Through Fraudulent Modus Operandi:

The respondent alleged that the applicants had engaged in a fraudulent scheme to evade excise duty by endorsing gate passes and creating an impression that the job workers were independent manufacturers. The Collector's order highlighted that the job workers were working on behalf of Central Cables Pvt. Ltd., and the procedures of Rule 57F (2) and Notification No. 214/86 were applicable. The Collector concluded that the applicants had intentionally evaded duty, availed undue small scale exemption, and took excess MODVAT credit.

4. Applicability of MODVAT Credit and Notification No. 175/86:

The applicants argued that MODVAT credit was not applicable as they did not take credit for the duty paid on the copper/aluminium rods. They claimed that the job workers were eligible for the benefit of Notification No. 175/86 and had opted for the MODVAT scheme. The respondent, however, maintained that the applicants had taken inadmissible MODVAT credit and evaded duty.

5. Compliance with Rule 57F and Extended Period Under Section 11-A of the Central Excise Act:

The Collector's order indicated that the applicants had not complied with Rule 57F, as they were sending their own goods to job workers without changing ownership. The extended period under Section 11-A was applied due to suppression of facts and fraudulent activities. The Tribunal noted that the prima facie merits of the case were arguable and that the applicants had contravened the provisions of law.

Conclusion:

The Tribunal ordered M/s. Central Cables Pvt. Ltd. to deposit the full duty amount of Rs. 16,44,436.00 within ten weeks, while dispensing with the predeposit of the penalty amount of Rs. 1,50,000.00. The other three applicants, M/s. Vidharbha Cables, M/s. Omega Scientific Co., and M/s. Central Capacitors (P) Ltd., were granted relief from predeposit of the penalty amounts of Rs. 25,000.00 each. The revenue authorities were directed not to pursue recovery proceedings for the penalty amounts during the pendency of the appeals. The stay applications were disposed of accordingly.

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