2013 (12) TMI 1291 - AT - Central Excise

Imposition of Penalty u/s 11AC r.w. Rule 13 of the Central Excise Rules, 2002 Held that - As per the section 3 of the Central Excise Act, 1944, as the goods were lying in the factory of the assessee thus, they were not required to pay duty - the respondents are not contesting duty liability and interest paid by them - as the duty is not payable, question of mandatory penalty does not arise Decided against Revenue.

Summary

Issues:
1. Imposition of mandatory penalty under section 11AC of the Act read with Rule 13 of the Central Excise Rules, 2002 on the respondents for reversing credit on goods returned as defective.
2. Interpretation of Central Excise Act regarding duty payment when goods are lying in the factory.

Analysis:

Issue 1: Imposition of mandatory penalty on respondents
The case involved the imposition of a mandatory penalty under section 11AC of the Act on the respondents for reversing credit on goods returned as defective. The respondents, manufacturers of pesticides and insecticides, had taken credit on goods returned to them by customers as per Rule 16(1) of the Central Excise Rules, 2001. Subsequently, they wrote off the stock in their Books of Accounts when they were unable to reprocess it. The department contended that the respondents should reverse the credit taken on these goods when written off. The Commissioner (Appeals) set aside the penalty, leading to the Revenue's appeal. The Revenue argued that the penalty was mandatory under section 11AC as the respondents reversed the credit after being pointed out by the department. However, the respondents contended that duty is payable at the time of goods clearance, and since the goods were in their factory, they were not required to pay duty. The Tribunal upheld the impugned order, stating that as duty was not payable, the question of a mandatory penalty did not arise, and the cited case was not applicable to the facts of this case.

Issue 2: Interpretation of duty payment under Central Excise Act
The Tribunal analyzed the provisions of the Central Excise Act, 1944, regarding duty payment when goods are lying in the factory. It was noted that duty is payable at the time of goods clearance. In this case, since the goods were in the respondents' factory and they had already paid duty along with interest without contesting it, the Tribunal concluded that duty liability was not in question. Therefore, the Tribunal did not pass any order on the duty liability. The Tribunal emphasized that as duty was not payable due to the goods being in the factory, the imposition of a mandatory penalty was not warranted. This interpretation led to the dismissal of the Revenue's appeal, upholding the decision of the Commissioner (Appeals) to set aside the penalty imposed on the respondents.

This detailed analysis of the judgment provides insights into the legal reasoning and interpretation of the provisions of the Central Excise Act related to duty payment and the imposition of penalties in cases involving credit reversal on returned goods.