2015 (11) TMI 1340 - AT - Central Excise

Imposition of penalty u/s 11AC - differential duty was paid suo motu as pointed out by the Audit Team without disputing liability - Clearance of goods to sister concern much prior to issue of show-cause notice - Clearance of goods in unpacked condition - malafide intention - Section 11A(2B) - Held that - Goods were cleared by the appellant which was input for the consignee sister concern therefore the valuation was governed by Rule 8 of Central Excise Valuation Rules, 2000 which provides the valuation i.e. 110% of cost of manufacturing. The goods were cleared in July, 2007 and the appellant has calculated the cost of manufacturing on the basis of data for the financial year, 2006-2007 which is the correct procedure. However the appellant was supposed pay the differential duty if it arise due to enhancement of the cost on actual basis which cannot be worked out before completion of the financial year 2007-2008. In such procedure the appellant can pay the differential duty only some- where-in September - October, 2009 when the Balance Sheet is audited and annual report is submitted to the Income Tax department. In the present case the audit was conducted in the months of September - October, 2009 and on pointing out the discrepancy of valuation, the appellant suo moto paid the duty along with interest. Case of the appellant is squarely covered by Section 11A(2B), according to which the appellant should not have been issued any show-cause notice, as a result no penalty could have been imposed. I also agree with the learned Counsel of the appellant that show-cause notice has not alleged that the omission and commission of the appellant falls under the 4 corner of the ingredients of provision to Section 11A such as suppression of fact, mis-declaration, fraud, collusion, etc. with intent to evade payment of duty. - Decided in favour of assessee.

Summary

Issues:
- Appeal against Order-in-Appeal imposing penalty
- Appellant cleared goods in unpacked condition to sister unit
- Short payment of excise duty identified during audit
- Show-cause notice issued for demanding differential duty and penalty
- Dispute regarding penalty imposition under Section 11AC
- Arguments on malafide intention and revenue neutrality
- Legal precedents cited for penalty imposition
- Department's argument on non-disclosure of valuation method
- Applicability of Section 11A(2B) on duty payment
- Analysis of legal judgments on similar cases
- Decision to set aside penalty imposition and allow the appeal

Detailed Analysis:
1. The appeal challenged the Order-in-Appeal imposing a penalty equal to the duty amount, following a short payment of excise duty by the appellant when clearing goods in unpacked condition to a sister unit. The discrepancy was identified during an audit, leading to a show-cause notice for demanding the differential duty and penalty under Section 11AC.

2. The appellant argued against penalty imposition, citing lack of malafide intention and revenue neutrality due to transactions within the same company. Legal precedents were referenced to support the contention that penalty under Section 11AC should not apply in cases of revenue neutrality.

3. Conversely, the Revenue contended that the appellant failed to disclose the valuation method, leading to suppression of facts and justifying penalty imposition under Section 11AC. The department highlighted the appellant's duty payment only after the audit team's intervention as a basis for invoking penal provisions.

4. The analysis delved into the applicability of Section 11A(2B) on duty payment, emphasizing that no show-cause notice should have been issued if duty was paid upon discovery of the discrepancy. Legal judgments, including the Supreme Court's ruling, were examined to support the argument that penalty under Section 11AC is not applicable in cases of duty payment due to price revisions.

5. Ultimately, the judgment set aside the penalty imposition, allowing the appeal based on the application of Section 11A(2B) and the absence of grounds for penalty under Section 11AC. The decision aligned with legal interpretations and precedents, concluding that the penalty imposed was not legally justified.