DEMAND NOTICE/SHOW CAUSE NOTICE, ADJUDICATION, INTEREST, PENALTY, CONFISCATION, DUTY PAYMENT UNDER PROTEST - CBEC Manual (OLD) - Central Excise

CHAPTER 13 DEMAND NOTICE/SHOW CAUSE NOTICE, ADJUDICATION, INTEREST, PENALTY, CONFISCATION, DUTY PAYMENT UNDER PROTEST PART I DEMAND NOTICE/SHOW CAUSE NOTICE 1. Introduction 1.1 In accordance with the principles of natural justice, the Central aw provides that before any action is taken against an assessee/party, he must be given reasonable opportunity of presenting his case. Some such situation necessitating the issue of Show Cause Notice would be those relating to the demand of duty not paid, short paid or erroneously refunded, change in establishing that goods are manufactured and are marketable, CENVAT credit wrongly availed, confiscation of goods seized, imposition of penalty etc. 1.2 Communications, orders, suggestions or advice from the Department cannot be deemed to be in the nature of a Show Cause Notice. Hence, it is mandatory that a show cause notice is issued if the department contemplates any action prejudicial to the assessee. Thus, if on account of an of the provisions of the Central Excise law it is considered appropriate to penalize the defaulter, it is necessary to first issue a show cause notice. The show cause notice would detail the provisions of law allegedly violated and ask the noticee to show cause why action should not be initiated against him under the relevant provisions of the Act/Rules. Thus, a show cause notice gives the noticee the opportunity to present his case. Further, compliance with all the formalities pursuant to the issue of the notice alone would entitle the Department any dues. [Circular F.No. 67/17/88-CX.2 dated 18.8.1988]. 2. Issue of duty demand notice 2.1 Section 11A of the Central Excise Act, 1944 provides that if excise not been levied or paid or has been short levied or short paid or erroneously refunded, a notice has to be served within one year from the date on the person from whom the differential duty is demanded. Provided that where any duty of excise has not been levied or paid or short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made there-under with intent to evade payment of duty, by such person or his agent, the provisions of this sub all have effect, as if, for the words one year, the words "five years" were substituted: 2.2. For Demand/recovery of duty under Compounded levy scheme, general time limit under Section 11A is not applicable. [Circular No.677/68/202-CX.3,dated 3.12.2002] 2.3 The Board has also empowered the Officers of the Directorate al of Central Excise Intelligence to issue Show-cause notices in accordance ±e powers of Central Excise Officers conferred on them under rule 3 of the :z Excise Rules [ No. 373/06/98-CX, dated 20.1.1998]. 2.4 In order to provide a mechanism for early dispute resolution, it has also been provided in the Act that an assessee may request for waiver of notice, if he deposits the amount of differential duty on his own along with interest in respect of only such cases where such non-levy or short levy or non-payment or short payment is by reason other than suppression of facts, fraud, collusion etc. Wherever prima facie, offences of serious nature or high stakes and/or legal questions are involved, Show Cause Notices must not be waived. [Circular No. 290/6/97-CX dated 20.01.1997] 2.5. By opting for waiver of issue of notice, the assessee may avoid long drawn process of adjudication and appellate process including interest on the differential duty demanded. It is therefore, advisable that in cases where the assessee is convinced that the Department is correct in demanding duty, he may opt for this facility. 2.6 Wherever Board's instructions or circulars (whether issued under Section 37B or not) exist on a particular issue, protective demands should be raised on the basis of CERA objection if the objection is contrary to such Board's instructions or till the time written instructions from the Board for not raising protective demands are received. However, in all such cases, the matter should be immediately referred to PAC section of the Board for resolving the issue with the C AG of India. [Circular No. 698/14/2003-CX, dated 03.03.2003] 2.7 In respect of all cases, requiring the issue of Show Cause Notices, the said Show Cause Notices should be approved in writing and signed by the Officer competent to adjudicate the said show cause Notice. [Circular No. 752 /68/2003-CX dated 01.10.2003] 2.8 In the event that the extended period is invoked in the Show Cause Notice issued, it is essential that the assessee is put to notice specifically regarding which of the various commissions or omissions stated in the Proviso to Section 11A has been committed. [1995(76) ELT 497 (SC) and Circular No.312/28/97-CX dated 22.04.1997]. For example, if the extended period is invoked on account of fraud, the notice should specifically allege fraud. 2.9 Invoking of the extended period under the proviso to Section 11A in the Show Cause Notice proposed to be issued should be resorted to only in the event of fraud, collusion, wilful mis-statement, suppression of fact or contravention of any of provisions of the Excise Act/Rules with intent to evade payment of duty and not as a matter of routine. [Circular No.5/92 dated13.10.19921 2.10 When a Show Cause Notice is issued, citing documents seized from the party, it should be ensured that only those documents/pages proposed to be relied on in framing/establishing charges should be referred to in the Notice. [Circular No.2/89 dated 09.01.1989] Once the Show Cause Notice is issued to the party, all the documents/records which have not been relied upon may be returned to the party under proper receipt. The party should be allowed to obtain photocopies of the documents relied upon. [Circular No. 171 /5/96-CX. Dated 2.2.1996] 2.11 When there exists a Court Order for stay of collection of duty only and no stay for issue of Show Cause Notice, Show Cause Notice can be issued for imposition of such duty. No. 50/89 dated 29.08.1989] 2.12 When an Appeal for an earlier period on a similar issue is pending before an appellate Authority, Show Cause cum Demand Notices for subsequent period can be raised but not enforced till final decision of the Appellate known.[ Circular No. 1/90-AU dated 19.03.1990] 2.13 When an issue relating to a Public Sector Undertaking arises and w Cause Notice is proposed, instructions contained in Circular No.20/20/94-CX dated 10.2.1994 may be referred to. 3. Instances requiring issue of show cause Notices: 3.1 Recovery of erroneous refund is required to be made under Section Central Excise Act, 1944 and not through review proceedings under Section 35E. Notwithstanding orders passed under Section 35E, in the absence of notice under Section 11A for recovery within time limit prescribed therein, such recovery is hit by limitation. [1998 (99) E.L.T. 502 (Tribunal)] 3.2 Show Cause Notice has to be issued if the Department intends fund claims found to be incomplete in particulars or not supported by required documents by pointing out the said deficiencies. [Circular No.2 1 /90-CX-8 dated 04.04.1990] In addition, the issue of unjust enrichment too should be notice if required [Circular No.19/93-CX.6 dated 29.12.1993] 3.3 For the purpose of enforcing any recovery under Section 11Dnotice has to be issued under Section 1 1A. Section 1 ID of the Central Excise Act, to be read in isolation, but instead, is to be read with Section 11A ibid.[1994(72)E.L.T.848(Mad.)] 3.4Burden is on the Department to prove that the process of c has resulted in a commercially distinct commodity. The assessee is to be put to notice by the Department about the Technical Literature that the Department intends to rely on to prove the same. [1995(77) E.L.T. 248 (S.C.)]. Similarly, burden rests on the Department that the goods are marketable and hence liable to duty. [1998(43) E.L.T. 214 (S.C.)] 3.5 It is mandatory to issue Show Cause Notice before CENVAT credit wrongly availed can be disallowed. 3.6 In respect of 100% EOU's, in the event the Board of Approval or the Development Commissioner concerned determines that the Unit has failed to Export the fixed percentage of articles for the specified period, in such cases it can be held that the conditions of the notification have been violated and it will be open to the Department to issue a show Cause Notice to the Unit demanding the t the imported goods. [Circular No.21 /95-Cus dated 10.03.1995] 3.7 In respect of simplified export procedure for exempted units, where for home consumption and the clearances for export where proof of Export have not been furnished within 6 months, when taken together, is exceed the exemption limit, show cause Notice may be issued for safe guarding revenue.[ Circular No.212/46/96-CX dated 20.05.1996] 3.8 If during the scrutiny of the RT-12 return or the audit or inspection, rd that duty of excise leviable on any goods has escaped self-assessment and been not paid/short paid or has not been correctly or properly self-assessed i 'aid by the assessee on that basis, necessary action shall be taken by the proper Officer for preparation and issue of Demand-cum-Show Cause Notice in accordance with Section 11A of the Act, [ No.249/83/96-CX dated 11.10.1996] PART-II ADJUDICATION 1. Introduction 1.1 Central Excise law is a self-contained law. Besides containing the provisions for levy of duty, adjudication of matters relating to the provision of the Law is also provided for in the legal provisions e.g. for demand of duty, credit availed, determination of classification, valuation, confiscation and imposing penalty. The adjudication is done by the departmental officers, and in this capacity they act as quasi-judicial officers. It is an important function of the officers and casts heavy responsibility on the officers invested with the powers of adjudication to use it with utmost care and caution, free from any prejudice or bias. It is important to know and understand the facts of the case, process them properly and to apply correctly the sections and rules of Central Excise law or Notifications that may be relevant to the facts of each case. 1.2 Principles of Adjudication : Adjudication proceedings shall be conducted by observing principles of natural justice. The principles of natural justice must be followed by the excise authorities at all levels in all proceedings under the Central Excise Act or Rules and the order passed in violation of the principles of natural justice will be a nullity and is liable to be set aside by Appellate Authority. Natural justice is an uncodified law purely based on principles of substantial justice and judicial spirit. It has no fixed definition or specific connotation and will depend on the circumstances of each individual case. It has certain cardinal principles, which must be followed in every proceeding. Judicial and quasi-judicial authorities should exercise their powers fairly, reasonably and impartially in a just manner and they should not decide a matter on the basis of an enquiry unknown to the party, but should decide on the basis of material and evidence on record. Their decisions should not be biased arbitrary or based on mere conjectures and surmises. The noticee has a right to inspect or to get copies of all the documents/records relied upon in the show cause notice (1993 (65) E.L.T. 357 (S.C.), 1989 (39) E.L.T. 329 (S.C.) and 1997 (95) E.L.T. 251(Tri). The noticee(s) shall be given a Personal Hearing before the case is adjudicated. Section 35Q of the Central Excise Act, 1944 provides for appearance by authorized representative before a central excise officer or Appellate Tribunal in connection with any proceedings. Cross examination of witnesses, whose statements are relied upon in the proceedings, shall be allowed if there is any request in this regard from the defendant [ (143) E.L.T. 21 (S.C.), 2002 (146) E.L.T. 248 (S.C.), 2000 (122) E.L.T. 641 (S.C.)]. The Allahabad High Court in [ (68) E.L.T. 548 (All)] has held that the right to cross-examination is not an absolute right and the question whether the petitioner was entitled to cross- examination is a question which may largely depend on the facts of the case. Hence, the adjudicating authority shall take a decision on requests for cross- examination is a question which may largely depend on the facts of the case. Hence, the adjudicating authority shall take a decision on requests for cross- examination considering the facts and circumstances of each case. In adjudication proceedings, reliance cannot be placed on Section 9C of the Central Excise Act, 1944, and powers under this Section is available only to a court of law in prosecution proceedings. However, mens rea is not a pre-requisite to impose penalty under Central Excise law. 2. Adjudication and determination of duty Adjudication of the case where anything is liable to confiscation or any person is liable to penalty has to be done by Officers specified in section 33 of the Central Excise Act, 1944. Central Excise Officers have the power to determine ii .Av of excise has not be levied or short paid or not paid, erroneously .refunded section 11A of the said Act. For this purpose, the Board has prescribed monetary limit to different categories of officers for the purpose of deciding the competence of adjudication of cases without differentiating whether or not cases involve fraud, collusion, any wilful mis-statement, suppression of facts or contravention of Central Excise Act! Rules with an intent to evade duty and/or where extended period has been invoked. 2.1.1 The monetary limit of the amount of duty involved from the present level for different categories of officers for adjudication cases has also been enhanced as below: 2.1.2Its ahs been decided to- (i) Have uniform monetary limits for adjudication of Central Excise cases under Section 11A and/or Section 33 of the Central Excise Act, 1 1944, whether or not the cases involve fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of the Act or of the rules made there-under with intent to evade payment of duty and whether or not extended period has been involved. (i) Prescribe monetary limits for adjudication of show cause notices relating to classification and valuation of excisable goods to different categories of officers. Prior to this circular, Deputy/Assistant Commissioners were competent to adjudicate show-cause notices relating to determination of classification and valuation without any monetary limit of the amount of duty involved. iii) Prescribe monetary limits for adjudication of show cause notices relating to CENVAT Credit cases for different categories of officers. Prior to this Circular Deputy/Assistant Commissioners are competent to adjudicate show cause notices relating to CENVAT credit without any monetary limit of the amount of credit involved. 2.1.3 For this purpose, the Board has decided that the powers of Adjudication and determination of duty shall be exercised, based on monetary limit (involved in a case) as under: A. All cases involving fraud, collusion, any wilful mis-statement, suppression of facts or contravention of Central Excise Act! Rules with an intent to evade duty and/ or where extended period has been invoked in show cause notices (including classification and valuation of excisable goods and CENVAT credit cases) will be adjudicated as follows: Central Excise Officers Powers of Adjudication (Amount of Duty involved) Deputy/Assistant Commissioners Up to Rs.5 lakhs Joint Commissioners Above Rs.5 lakhs and up to Rs.20 lakhs Additional Commissioners Above Rs. 20 lakhs and up to Rs. 50 lakhs Commissioners Without limit B. Cases which do not fall under the Category (A) above including all cases relating to determination of classification and valuation of excisable goods and CENVAT credit will be adjudicated as follows: Central Excise Officers Powers of Adjudication (Amount of duty involved) Deputy/Assistant Commissioners Up to Rs.5 lakhs Joint Commissioners Above Rs.5 lakhs and up to Rs.20 lakhs Additional Commissioners Above Rs.20 lakhs and up to Rs.50 lakhs Commissioners Without limit C. Cases related to issues mentioned under first proviso to Section35B (1) of Central Excise Act, 1944 would be adjudicated by the Additional/Joint Commissioners without any monetary limit. 2.1.4. In view of the above modifications, all cases including cases relating to determination of classification and valuation and cases pertaining to CENVAT credit whether or not involving fraud, collusion, wilful mis-statement, suppression of fact or contravention of Central Excise Act/ Rules with intent to evade duty and/ or where extended period has been invoked will be treated uniformly and the prescribed monetary limit is applicable to all cases for the purpose of adjudication. 2.1.5. In case different show cause notices have been issued on the same issue answerable to different adjudicating authorities, attention is invited to CBEC's Circular No.362/78/97-CX dated 9.12.97 whereby it has been clarified that all the show cause notices involving the same issue will be adjudicated by the adjudicating authority competent to decide the cases involving the highest amount of duty. 2.1.6. The value of goods/conveyance liable to confiscation will not alter the above powers of adjudication, which shall solely depend upon the amount of duty/ CENVAT credit involved in the offending goods. 2.1.7. Regarding issue of show cause notices, it is clarified that in respect of all cases, whether or not fraud, collusion, willful mis-statement, suppression of fact or contravention of Central Excise Act! Rules with intent to evade duty and! or where extended period has been invoked i.e. cases falling under any category (A), (B) or (C) of para 2.1.3 above, the show cause notice shall be approved in writing and signed by the officer competent to adjudicate the said show cause notice. This instruction will come into effect prospectively i.e. from the date of issue of the Circular. 2.1.8. It is clarified that notwithstanding this revision, in all cases where the personal hearing has been completed, orders will be passed by the Adjudicating Authority before whom the hearing has been held. Such orders should normally be issued within a month of the date of completion of the personal hearing. 2.1.9. In all cases where personal hearing is yet to be commenced, the adjudications should be done by the appropriate level of officers as per the revised instructions. 3. The Board, under section 2(b) of the Central Excise Act, 1944 read with rule 3 also invests certain officers with powers of Commissioners or other officers through out the territory of India, for the purpose of investigation and adjudication. 4. Time limit for issue of adjudication orders: The demand on account of short levy, non-levy or erroneous refund, by reason of fraud collusion, willful mis-statement or suppression of facts shall be adjudicated within a period of one year from the date of issue of show cause notice, where it is possible (Clause (a) of Sub-section 2A of Section 11A of Central Excise Act, 1944). In any other case, as far as possible, the case shall be adjudication within a period of six months (Clause (b) of Sub-section 2A of section 11A ibid). All cases where personal hearings have been concluded, it is necessary to communicate the decision immediately or wi6thin a reasonable time of 5 days. If the above limit cannot be adhered to under any circumstances, the order should be issued within 15 days or at the most one month from the date of personal hearing (Board's Circular No.732/48/2003-CX dated 5.8.2003). 4.1 The adjudication order must be a speaking order giving clear adjudicating authority and he shall discuss each point raised by w shall give cogent reasoning in case of rebuttal of such points. The duty demanded and confirmed shall be quantified correctly and the order portion must contain the correct provisions of law under which duty is confirmed and penalty is imposed. Adjudication orders shall be issued under the signature of the adjudicating authority. If confiscation is adjudged during adjudication proceedings, an option shall be given to the owner of the goods to redeem the goods on payment of a fine in lieu of confiscation. 4.2 Adjudicating authority is not empowered to issue any subsequent making material changes in the order already passed and issued (Board's Circular No.502/68/99-CX dated 16.12.1999). 5. De Novo adjudication: For adjudication of cases remanded by the Appellate Authorities for de novo adjudication, it is clarified that the cases should be adjudicated in de-novo rigs by the same authority which had earlier adjudicated the case. In other words, the revision of adjudication powers shall have no bearing on cases led for de-novo adjudication. PART III INTEREST, PENALTY, CONFISCATION, DUTY PAYMENT UNDER PROTEST Introduction (i) Provision exists in the Central Excise statute for charging interest on duty not paid in time. Thus, it is in the interest of an assessee to discharge duty liability at the earliest and not to prolong the dispute only for the sake of delaying payments. (ii) Penalty and confiscation of offender's goods are the outcome of the adjudication proceedings. There is provision for mandatory and general penalty. Penal provisions are also there in the Central Excise Rules for certain offences. These are deterrents aimed at cautioning the dishonest tax payers. (iii) The goods in respect of which any contraventions of Central Excise Rules have been committed are liable to confiscation. 1. Interest 1.1 Interest is chargeable in the following instances: (i) On the delayed payment of duty under the provisions of Section 11AA, 1IAB and Rule 8. (ii) On CENVAT Credit taken or utilized wrongly under the provisions of Section 11 A and 11 AB. (iii) On the excess amount collected in excess of the amount of duty assessed and determined and paid on any excisable goods, from the buyer of the goods under Section 11 DD. Interest is also payable by the Department in delayed refund cases under the provisions of Section 11 BB. 1.2 As per Section 11 AA inserted with effect from 26.5.1995 by the Finance Act, 1995, interest is chargeable on delayed payment of duty after three months from the date of determination of duty liability by the Central Excise officer under sub-section (2) of Section 11 A. 1.3 Section 11 AB was inserted by the Finance Act, 1996 with effect from 28.9.1996 as per which interest will be charged from the first date of the month following the month in those cases where the duty was not paid on account of fraud suppression etc. [Section 11 AB(1) 1.3.1 As a result of the insertion of Section 11 AB by the Finance Act, 1996 for the period from 28.9.1996 to 11.5.2001 {substitution of Section 11 AB(1) and 11 AB(2) vide Finance Bill 2001 } interest is chargeable as follows: (a) In the normal case, interest will be charged for the period of delay after three months from the date of such determination of the duty liability till the date of payment of duty. (b) In cases where the duty is not paid on account of fraud, suppression etc., the interest will be charged from the first date of the month following the month in which the duty was not paid. 1.3.2 Retrospective application of Section 11 AB of the Central Excise Act, 1944. — Regarding application of Section 11 AB, Board issued clarification vide F.No.354/118/96-TRU dated 6.1.97 to the effect that it would apply even to past cases where duty under Section 11 A(2) is determined on or after 28.9.96. The decision of CEGAT was confirmed by the Hon'ble High Court and Supreme Court subsequently. In the light of the aforesaid decisions, Section 11 AB can be invoked only in respect of clearances effected on or after 28.9.1996 irrespective of the date of passing of the adjudication of a case. 1.4 Section 11AB (1) and Section 11 AB(2) have been substituted w.e.f.11.5.2001 by the Finance Act, 2001 making it now clear that Section 11 AB as amended, will apply only to cases where duty has become payable or ought to have been paid on or after 11.5.2001. Accordingly, provisions of Section 1 1AA will not apply to cases where duty becomes payable on or after 11.5.2001. Proviso to Section 11 AB (1) inserted with effect from 11.5.2001 makes it clear that duty becomes payable on the basis of instructions or directions of the Board also and not necessarily because of adjudication of a case. 1.5 Presently, as per Rule 8(3), when assessee fails to pay duty by the due date, he shall pay the outstanding amount with interest @ 2 % per month for ling with the first day after due date till the actual payment. 1.6 CENVAT Credit taken or utilized wrongly shall also be recovered with interest as per the provisions of Section 11A and Section 11 AB. (Rule 14 of CENVAT Credit Rules). 1.7 Under Section 11 DD, Interest is to be charged for the excess of amount collected in excess of the amount of duty assessed and determined and paid on excisable goods, from the buyer of the goods, from the first day of the month succeeding the month in which the amount ought to have been paid. 1.8 There may not be need for any explicit mention of the interest liability in the show-cause notice since the legal provisions are explicit. However, ay be done as a matter of abundant precaution. Likewise, the officer may incorporate the fact about the interest liability in the order confirming the demand. 1.9 No interest is chargeable or payable in respect of fines and penalties. 1.10Amount deposited under Section 35 F as a condition precedent to hearing an appeal does not bear the character of Duty but has character only of security deposits. Such Deposit not governed by provisions of Section 11 BB - Interest on delayed Refunds. 1.11 Interest chargeable under the Sections is simple interest and the fixed by the Government from time to time between the lower limit 10% and upper limit of 36% per annum. 1.12 Under Section 11BB interest is payable by the Department in delayed refund cases. Interest is payable for the period of delay after 3 months from the date of receipt of application of refund. 1.13 Interest payable by the Department as delayed refunds as per Section 11BB will be not below 5% and not exceeding 30% per annum, fixed by the government from time to time. 2. Penalties and Confiscation 2.1 Penalty is imposable under Section 11 AC of Central Excise Act, rule 25, rule 26 and rule 27 of Central Excise Rules, 2002 and rule 15 of CENVAT Credit rules, 2004. Confiscation is provided under rule 25 and rule 27 of Central Excise Rules and rule 15 of CENVAT Credit Rules, 2004. Though, there is no pro in the Central Excise Act, 1944 for confiscation, Section 12 of Central Excise Act, 1944 read with Notification No.68/63 dated 4.5.1963 as provides for adopting certain provisions relating to confiscation under the Customs Act, 1962 in respect of Central Excise. Rule 25 of the Central Excise Rules provides for confiscation of goods under specified circumstances. (i) Section 1 1AC prescribes a mandatory penalty equal to the duty not levied or paid or has been short levied, short paid or erroneously refunded by reason of fraud, collusion or any willful mis-statement, suppression of facts or contravention or any of the provisions of the act or the rules made there-under with intent to evade payment of duty. However, in the event the duty and interest thereon is paid within 30 days from the date of the communication of the order, the penalty shall be 25% of the duty subject to it being paid within the said period of 30 days. (ii) Rule 25 of the Central Excise Rules, 2002 provides for penalty on any producer, manufacturer, registered person of a warehouse or registered dealer not exceeding the duty on the excisable goods respect of which any of the specified contravention have be€ committed, or rupees ten thousand, whichever is greater. The penalty is subject to the provisions of Section 11 AC of the Central Excise Act, 1944. The offending goods are also liable to confiscation. The specified contraventions are: (a) Removal of any excisable goods in contravention of any of if provisions of the said rules or the notifications issued under if said rules; or (b) Non-accountal of any excisable goods produced manufactured or stored; or (c) Manufacture, production or storage of any excisable goods without having applied for the registration certificate require under Section 6 of the Central Excise Act; or (d) Contravention of any of the provisions of the said rules or if notifications issued under the said rules with intent to evade payment of duty. (iii) Under rule 26 of the Central Excise Rules it is provided that an person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling (purchasing, or in any other manner deals with, any excisable good which he knows or has reason to believe are liable to confiscation under the Act or the said Rules, shall be liable to a penalty n exceeding the duty on such goods or rupees ten thousand whichever-is greater. (iv) Rule 27 of the Central Excise Rules provides for imposition of general penalty which may extend to five thousand rupees and wit confiscation of the goods in respect of which the offence committed. This is attracted when no other specific penalty provided for. (v) Rule 15 of CENVAT Credit Rules, 2004 provides for penalty on an person takes CENVAT credit in respect of inputs or capital good wrongly or without taking reasonable steps to ensure the appropriate duty on the said inputs or capital goods has been pal as indicated in the document accompanying the inputs or capital goods specified in Rule 9 of CENVAT Credit Rules, 2004 or contravenes any of the provisions of these rules in respect of an inputs or capital goods in respect of which any contravention hi been committed or ten thousand rupees, whichever is greater. In a case, where the CENVAT credit has been taken or utilized wrongly on account of fraud, willful mis-statement, collusion or suppression of facts, contravention of any of the provisions of the Act or the rules made there-under with intention to evade payment of duty, then, the manufacturer shall also b liable to pay penalty in terms of the provisions of Section 11AC of the Act. 2.2 If penalty is imposed under Section 11AC, penalty under rule 2 will not be imposed. This, however, does not preclude the Department from confiscating the goods, imposing any fine in lieu of confiscation and prosecuting a person. 2.3 Rule 26 of the Central Excise Rules also provides that before any order of penalty or confiscation is passed the adjudicating authority shall follow principles of natural justice. In other words, a notice explaining the reasons why penalty should not be imposed or goods confiscated has to be given to the son. Thereafter, reasonable opportunity shall be given to such person to explain or defend his case. The adjudicating Officer shall pass a reasoned order, incorporating the defence arguments given by such person or his authorised representative. 2.4 As per Rule 28 of the Central Excise Rules, when any goods are confiscated under these rules, such thing shall thereupon vest in the Central Government. Accordingly, the Central Excise Officer adjudging confiscation shall take and hold possession of the things confiscated, and every Officer of police, on the requisition of such Central Excise Officer, shall assist him in taking holding such possession. 2.5 Rule 30 of the Central Excise provides that if the owner of the goods, the confiscation of which has been adjudged, exercises his option to pay in lieu of confiscation, he may be required to pay such storage charges as may be determined by the adjudicating officer. 2.6 Provisions for disposal of goods confiscated are contained in rule 29 of the Central Excise Rules. Goods of which confiscation has been adjudged and in respect of which the option of paying a fine in lieu of confiscation has not been exercised, shall be sold, destroyed or otherwise disposed of in such manner as the Commissioner may direct. 2.7 If the offence relating to any seized goods is proved, the Adjudicating Authority should necessarily for ordering confiscation. (Board's circular No.5/89, dated 19.1.1989 (From F.No.208/2/89-Cx.6). 2.8 Rule 173Q of erstwhile Central Excise Rules, 1944 stipulated confiscation of land, buildings, Plant and Machinery etc. in cases where duty evasion exceeded one lakh rupees. There are no such provisions in the Central Excise Rules, 2002. 3 DUTY PAID UNDER PROTEST 3.1 At present, there is no explicit provision either in the Central Excise Act or Rules for payment of duty under protest. However Section 11B proviso provides that the limitation of one year period prescribed for making application for refund of duty from the relevant date shall not apply where any duty has been paid under protest. 3.2 Earlier, Rule 233 B of the Central Excise Rules, 1944 was in existence h prescribed the procedure to be followed in cases where duty is paid under protest. No corresponding provision exists in the present rules. The procedure to be followed has been incorporated only in the Supplementary instructions issued CBEC under the provision of Rule 31 of Central Excise Rules, 2002, which is as below: (i) The assessee shall inform the Superintendent or Inspector of Central Excise in writing giving reasons for paying duty under protest and a dated acknowledgement will be given to him. (ii) He will mark invoices or monthly/ quarterly return indicating the goods on which duty is paid 'under protest'. If it is a lump-sum duty payment in respect of past demand, he may record the fact of duty payment under protest in the Personal Ledger Account [debits] CENVAT Account [debits] and the Daily Stock Account. (iii) If a case is appealed against by the assessee or where the appeal period for further appeal is available, he may continue to pay duty under protest. However, if decision is not in his favour and he exhausts the appellate remedy or does not appeal within stipulated period, the assessee shall not have any right to pay duty under protest.