2022 (12) TMI 770 - AT - Central Excise

Levy of penalty u/s 25(1) of the Central Excise Rules, 2002 - evasion of duty - contravention of Rule 16B of the Central Excise Rules, 2002 - HELD THAT - There is no evidence on record to show that Wheels Axles (Semi-finished products) sent to the hired premises was with mala fide intention or the appellant was in preparation to remove the goods subsequently. If the same were to be removed subsequently, the appellant could have removed the same from its own premises and there was no reason for them to first shift the goods to the hired premises and then remove them without payment of duty. In the overall facts and circumstances of the case, the explanation given by the appellant that since there were constraints in completing shift work of machining at their own premises and the additional premise was hired, has to be accepted. As such, the benefit of doubt is required to be extended to the appellants. For the purpose of invoking Section 11AC of the Act, the condition precedent is that the duty has not been levied, or paid or short-levied or short-paid or the refund is erroneously granted by reasons of fraud, collusion or any willful misstatement or suppression of facts. If these ingredients are not present, penalty under Section 11AC cannot be levied. Since Rule 25 can be invoked subject to the provisions of Section 11AC of the Act, as a natural corollary, the ingredients mentioned in Section 11AC are also required to be considered while determining the question of levying of penalty under Rule 25 of the Central Excise Rules. The imposition of penalty on both the appellants is un-called for - since Appellant No.1, had transferred the semi-finished goods for machining to the Appellant No.2, without permission from the Department, it is a procedural and technical lapse on the part of the appellants and the same requires imposition of token penalty in terms of Rule 27, which provides a maximum penalty of Rs.5,000/-. Accordingly, penalty on both the appellants is reduced to Rs.5,000/- each. Appeal allowed in part.

Summary

Issues:
Imposition of penalty under Rule 25(1) of the Central Excise Rules, 2002 for contravention of Rule 16B in transferring semi-finished goods for machining to another job worker without prior permission.

Analysis:

Issue 1: Violation of Rule 16B and Imposition of Penalty
The case involved M/s Durgapur Steel Plant (DSP) transferring semi-finished goods for machining to M/s Mohata Coal Company Pvt. Ltd. and subsequently to M/s Vardhaman Products without prior intimation to the Department. The Department alleged a violation of Rule 16B of the Central Excise Rules, 2002. The Adjudicating Authority imposed a penalty of Rs.1,00,000/- each on the appellants under Rule 25(1) for contravention of Rule 26B. The Commissioner (Appeals) upheld the penalty. The Appellants contended that the penalty was unwarranted as they maintained proper documentation and there was no evasion of duty. They argued that Rule 26B applied to the Principal manufacturer, not the job worker, and the failure to inform the Department was a procedural lapse.

Issue 2: Applicability of Rule 25(1) and Section 11AC
The Advocate for the Appellants argued that Rule 25(1) should not apply as there was no intention to evade duty and no evidence of malafide intent in transferring the goods. They highlighted that Rule 25 is subject to Section 11AC, which mandates penalties only in cases of fraud, collusion, willful misstatement, or suppression of facts to evade duty. Since these conditions were not met, the penalty under Rule 25(1) was deemed unjustified.

Issue 3: Tribunal's Decision and Penalty Reduction
After considering the arguments, the Tribunal found no evidence of mala fide intent in the appellants' actions. They noted that Rule 25 is subject to Section 11AC, which requires specific conditions for penalty imposition. As the conditions were not met, the Tribunal deemed the penalty imposition unwarranted. However, they recognized a procedural lapse in transferring goods without Department permission and imposed a token penalty of Rs.5,000/- each under Rule 27. Consequently, the penalty on both appellants was reduced to Rs.5,000/- each, and the appeals were partly allowed.

This detailed analysis highlights the procedural and legal aspects of the case, focusing on the violation of rules, applicability of penalties, and the Tribunal's decision to reduce the penalties based on the specific circumstances of the case.