1994 (2) TMI 187 - AT - Central Excise

Summary

Issues:
1. Leviability of penalty or its quantum in relation to transfer of MODVAT credit between manufacturing units.

Analysis:
The appeal before the Appellate Tribunal CEGAT, MADRAS involved the issue of the leviability of penalty or its quantum concerning the transfer of MODVAT credit between two manufacturing units of the appellant. The appellant had two manufacturing units, one in Tamil Nadu and the other in West Bengal, engaged in identical manufacturing activities. The proceedings were initiated against the appellant for transferring MODVAT credit from one unit to the other in contravention of the MODVAT Scheme and Rules. The appellant argued that while there might have been a procedural irregularity in the transfer, no loss was incurred by the department, and the transfer had the consent of departmental officers. The department, on the other hand, contended that the transfer was not permissible under the law. The Tribunal acknowledged the procedural irregularity but considered the leniency due to the department's awareness and non-opposition to the transfer. Consequently, the penalty was reduced to Rs. 1,00,000, and the appeal was dismissed.

In a separate order by another Member of the Tribunal, it was noted that the appellant had created documentation to suggest a transfer of inputs to a sister concern, although the transfer did not occur in reality. The appellant had utilized MODVAT credit for manufacturing activities intended for the sister concern, claiming that the process was revenue-neutral and did not cause any loss to the government. However, the Tribunal found the appellant's actions questionable as there was no legal provision for such transfers. The appellant's attempt to justify the transfer by informing the Central Excise authorities was deemed insufficient to legitimize the action. The Tribunal held the appellant's conduct as reprehensible but decided to reduce the penalty to Rs. 1,00,000 in the interest of justice.

These judgments highlight the Tribunal's consideration of procedural irregularities in the transfer of MODVAT credit between manufacturing units. While acknowledging the lack of legal provision for such transfers, the Tribunal balanced the penalty imposition with leniency due to the department's awareness and absence of loss to the government. The reduction of the penalty to Rs. 1,00,000 in both orders reflects the Tribunal's approach to address the irregularities while considering the overall circumstances of the case.