2017 (11) TMI 228 - AT - Central Excise

Penalty u/r 25 of CER and u/s 11AC of CEA - revenue neutrality on short payment - Held that - the valuation of the products cleared to their sister concern at Goa was incorrect and there was under valuation. The under valuation is one of the contraventions of the provisions of Central Excise Act, 1944 and the Rules made thereunder. Hence, the penalty imposed by the first appellate authority seems to be appropriate - clearance to sister concern needs to be considered from the applicability of mens-rea and revenue neutrality while seeking the imposition penalty under section 11AC of Central Excise Act, 1944. In this case appellant may have succeeded on merits if revenue neutrality was agitated - appeal of Revenue as well as Assessee dismissed.

Summary

Issues:
1. Imposition of penalty under rule 25 of Central Excise Act 2002.
2. Setting aside penalty imposed under section 11AC of the Central Excise Act, 1944.

Analysis:
1. The appellant contested the penalty imposed under rule 25 of the Central Excise Act 2002. The first appellate authority set aside the penalty due to revenue neutrality on short payment. The consultant for the appellant argued that the same reasoning should apply to the penalty imposed under rule 25 of the Central Excise Rules, 2002. The consultant highlighted the findings of the first appellate authority in support of setting aside the penalties.

2. On the other hand, the revenue challenged the impugned order as the first appellate authority had set aside the penalty imposed under section 11AC of the Central Excise Act, 1944. The revenue argued that despite undervaluation and incorrect discharge of Central Excise duty, the first appellate authority erred in setting aside the penalty under section 11AC. The revenue contended that the appellant had contravened with an intent to evade duty and penalty should be imposed accordingly.

3. The Judicial Member examined the appellant's case first. It was revealed that the appellant was accused of undervaluation in goods cleared to their sister unit for further use in the manufacture of home appliances. The appellant had not valued the electric motors cleared as per the provisions of the Central Excise Act, 1944. The extended period for demanding differential duty was upheld due to under valuation. The Judicial Member agreed with the first appellate authority's findings that the contraventions of the Act and Rules had occurred. The penalty imposed by the first appellate authority was deemed appropriate given the under valuation and contraventions.

4. Regarding the revenue's appeal, it was argued that the under valuation was inadvertent and revenue neutrality existed as the goods were cleared to the appellant's sister concern. The appellant was eligible for Cenvat credit, and the issue of suppression and misstatement did not apply in this case. The Judicial Member referenced Supreme Court decisions emphasizing the need to consider mens-rea and revenue neutrality when imposing penalties under section 11AC. The revenue's appeal was found to lack merit and was rejected.

5. Consequently, both the appellant's and the revenue's appeals were dismissed. The operative part of the order was pronounced in open court on 21/09/2017.