2019 (8) TMI 424 - AT - Central Excise

Area based exemption - enhancement of production capacity - excess electricity generated by them was being diverted to M/s S.G. Steel for their use in the manufacture of ingots - imposition of penalty - HELD THAT - The only reason for imposition of penalty upon the appellant is that they were not in a position to supply adequate power to M/s S.G. Steel, who installed an additional furnace to show enhancement in their production capacity by 50% so as to earn the benefit of the Notification. Otherwise, it stands recorded in the order of Original Adjudicating Authority that the steel plant was not being directly operated/controlled by DSM Sugar and was leased out to M/s S.G. Steel, which fact is confirmatory indicator that the interest of M/s DSM Sugar in the steel plant was restricted to earning revenue through sale of excess electricity only. Merely because the appellant has not been able to provide electricity to M/s S.G. Steel so as to manufacture the ingots, will not call for imposition of any penalty upon the appellant. Penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Imposition of penalty on the appellant for inability to supply adequate power to another entity for availing exemption under Notification No.50/03-CE dated 10/06/2003.

Analysis:
The appellant, engaged in sugar and molasses manufacturing, leased part of their factory to another entity, M/s S.G. Steel, for ingot production. The excess electricity generated by the appellant was supplied to M/s S.G. Steel. The latter claimed an area-based exemption, prompting revenue investigations. It was found that M/s S.G. Steel was fully dependent on the appellant's electricity. The revenue alleged that the appellant did not have the capacity to provide sufficient power, leading to proceedings against both entities. The Assistant Commissioner confirmed a duty demand against M/s S.G. Steel and imposed penalties. The same penalties were imposed on the appellant, upheld by the Commissioner (Appeals), leading to the present appeal.

For upholding the penalties, the Commissioner (Appeals) noted that the appellant knew their power generation capability and the power required by M/s S.G. Steel. The Commissioner alleged connivance between the entities to fraudulently claim the exemption. It was observed that the appellant did not enhance electricity production despite installing a new furnace, indicating their inability to provide sufficient power. The lack of evidence showing an increase in electricity generation to meet the additional demand led to the penalties.

The Tribunal, however, found that the penalties imposed on the appellant were unjustified. The appellant's inability to supply adequate power to M/s S.G. Steel, for whom the exemption claim was made, should not result in penalties. The Tribunal highlighted that M/s S.G. Steel, not the appellant, was the ingot manufacturer and the exemption claimant. The appellant's role was limited to selling excess electricity. Therefore, the penalties on the appellant were set aside, and the appeal was allowed with consequential relief.

In conclusion, the Tribunal overturned the penalties imposed on the appellant for their inability to provide sufficient power to M/s S.G. Steel. The judgment emphasized the distinction between the roles of the entities involved and ruled that the appellant's failure to supply electricity should not attract penalties meant for the ingot manufacturer and exemption claimant, M/s S.G. Steel.