C.C.E. vs Pos Hyundai Steel Manufacturing (I) Ltd.

T.S. Sivagnanam, J.—This appeal by the Revenue is directed against the order passed by the Customs, Excise and Service Tax Appellate Tribunal (hereinafter called as the "Tribunal") in Final Order No. 1086/2009, dated 25-8-2009 [2010 (251) E.L.T. 553 (Tribunal)]. The appeal was admitted on the following substantial questions of law :-

"1. Whether on facts and in the circumstances of the case, the second respondent Tribunal, Chennai was correct in passing its Final Order No. 1086/09, dated 25-08-2009 in favour of the respondent in allowing their appeal by partly setting aside the demand of Rs. 88,982/- and the penalty of equal amount thereto imposable under Rule 13 of Cenvat Credit Rules, 2002 read with Section 11AC of Central Excise Act, 1944 and vacating the penalty of Rs. 1,52,307/- under Section 11AC of Central Excise Act, 1944 while upholding the demand thereto?

Whether the 2nd respondent Appellate Tribunal, Chennai in the Final Order No. 1086 of 2009, dated 8-9-2009 was right in holding that the goods cleared without payment of duty cannot be treated as exempted goods for the reason that they were further used in the manufacture of final products cleared on payment of duty and thereby setting aside the demand of Rs. 88,982/- relying on the decision of the 2005 (101) ECC 82?"

The learned counsel appearing for the appellant on instructions made an endorsement stating that since the decision of the 2005 (101) ECC 82 is pending in appeal, Question No. 2 is not pressed. Therefore, the only question that falls for consideration is whether the Tribunal is justified in imposing penalty equivalent to the amount of duty by invoking Rule 13 of Cenvat Credit Rules, 2002 read with Section 11AC of the Central Excise Act, 1944.

The first respondent/assessees are manufacturers of CR Sheets falling under Chapter 7209 of the Central Excise Tariff Act, 1985 and are availing the facility of Cenvat credit on inputs. The assessees are also converting CR coils received from TISCO into sheets/skelp. They are clearing the said product after conversion on payment of duty. The assessee also undertakes job work activity for M/s. Hyundai Motors India Ltd., and claims the benefit of Notification No. 214/86-C.E. as amended.

The assessee received 15690 kgs of CR Coils from the depot of TISCO and availed Cenvat credit on such coils based on the dealer invoice supplied by the said depot. Out of the said lot, only 850 kgs were found to be in usable condition and the balance stock was in a rusted condition were cleared as scrap by paying duty on the value of scrap. Therefore, the assessee had to reverse the credit availed on the stock cleared and not duty on scrap value. The assessee admitted the contention raised by the Department and paid the differential amount of Rs. 1,52,307/- on 5-10-2003.

The Department further stated that the assessee availed Cenvat credit on inputs used in the manufacture of job work goods for HMI that were cleared without payment of duty and that the respondent had not reversed the Cenvat credit so availed since these were used for goods cleared without payment of duty under Notification No. 214/86-C.E. as amended. The Department demanded Rs. 88,982/- on this ground, for which the assessee had paid Rs. 61,375/- on 22-7-2003. Thereafter, the Department issued show cause notice for the above issues by invoking the extended period of limitation and also proposed to demand penalty equal to that of duty/credit by invoking Section 11AC of the Central Excise Act, 1944.

The assessee submitted its explanation and the Adjudicating Authority by order dated 25-11-2005 confirmed the demand and appropriated the amount already paid by the assessee and also imposed penalty equivalent to that of the duty/credit under Section 11AC of the Act on the ground that the assessee has suppressed the fact from the department with an intent to evade payment of duty. Aggrieved by the same, the assessee preferred appeal before the Commissioner (Appeals), who by order dated 28-2-2007 dismissed the appeal. Aggrieved by the same, the assessee preferred further appeal before the Tribunal.

The Tribunal, by its order dated 25-8-2009 set aside the demand of Rs. 88,982/-, confirmed the demand of duty of Rs. 1,52,307/- along with proportionate interest. Aggrieved by the same, the Revenue is on appeal and would contend that the Tribunal was not justified in deleting the penalty.

We have heard learned counsel appearing for the parties and perused the materials placed on record.

The point in issue to be decided in the appeal is whether equal penalty is leviable on the ground that although the amendment to Rule 3(4) of the Cenvat Credit Rules, 2002 was introduced on 1-3-2003, the assessee was not aware of the same, therefore, reversed the credit on the basis of the transaction value of the inputs, paid the differential amount in October, 2003 and whether they could be held to be guilty of suppression of material facts with intention to evade payment of duty.

The Tribunal, after examining the facts pointed out that Rule 3(4) of the Cenvat Credit Rules, 2002 came into effect on 1-3-2003 and the assessee''s plea that they were ignorant about such an amendment for some period of time was found to be acceptable. Further more, the Tribunal noticed that though the amendment came into effect from 1-3-2003 and the Department did not act immediately by issuing a show cause notice within the period of limitation prescribed under the Act. Further on perusal of the allegations made in the show cause notice, it is evidently clear that there is no material placed by the Department to establish that the conduct of the assessee in reversing the credit on the basis of the transaction value of the inputs, though the amendment came into effect from 1-3-2003 was with an intention to evade payment, of duty. Thus in the absence of such a finding that there was intention to evade payment of duty, the Tribunal rightly deleted the penalty under Section 11AC of the Act.

In the light of the above findings, we are of the view that the Tribunal is perfectly justified in deleting the penalty levied under Section 11AC of the Act. Accordingly, the only question of law raised is answered against the Revenue. In the result, the Civil Miscellaneous Appeal is dismissed. No costs.