Commissioner of Central Excise vs Bright Brothers Ltd.

Having heard both sides. We are of the view that the appeal raises substantial questions of law. It is admitted on the following three substantial questions of law.

"(1) Whether expression "shall also be liable to pay a penalty equal to the duty so determined" in Section 11AC of the Central Excise Act, 1944 is in the nature of mandatory penalty and if so whether the appellate authority, i.e., of the CESTAT can hold that no penalty is called for on the respondent in facts of the case?

(2) Whether based on the facts and in the circumstances of the case when it has been upheld that amortization and addition of value of moulds is no longer res Integra and only re-quantification of duty is involved, no penalty is called for is correct in view of 3rd proviso to Section 11AC of Central Excise Act, 1944 wherein it is provided that when duty determined is reduced or increased by the Appellate Tribunal, the duty determined is reduced or increased by the Appellate Tribunal, the duty as reduced or increased as the case may be, shall be taken into account?

(3) Whether penalty under Rule 209A of the (then) Central Excise Rules, 1944 can be held as not called for on the Director as no liability to confiscation has been found when he had given a misleading statement that the amount of mould recovered from M/s. Telco had been amortized on per piece supply basis, which formed the basis of the defence of the assessee?"

Thus, the issue is only on sustainability of penalty which was imposed by the Order-in-Original, but that came to be set aside by the Tribunal.

Mr. A.S. Rao appearing on behalf of the Revenue in support of this appeal would submit that the Tribunal has failed to take note of the clear language of Section 11AC of the Central Excise Act, 1944, as applicable, at the relevant time. The language admits of no construction other than a mandate to impose penalty. Thus, this provision being mandatory, the Tribunal should have sustained the imposition of penalty which also should have been sustained because there was nothing unclear or unsettled about the legal position. The assessee knew that it had to take into account the amount received from M/s. Tata Engineering and Locomotive Company Ltd. (hereinafter referred to as "TELCO", for short), that was termed as an added consideration for the effort or job undertaken by the assessee on the moulds supplied by M/s. TELCO. In the circumstances, while sustaining the Order-in-Original, the Tribunal should not have deleted the penalty. That part of the Tribunal''s order is contrary to law.

On the other hand, Ms. Anjali Hirawat appearing on behalf of the assessee would submit that the Tribunal''s view is neither perverse nor vitiated by any error of law apparent on the face of the record. The Tribunal has rightly observed that the issue was of re-quantification and did not justify imposition of penalty. The penalty has been rightly deleted.

In any event, there was no finding in the Order-in-Original demonstrating willful misstatement or suppression of facts or contravention of any of the provisions of the Central Excise Act or the Rules made thereunder with intent to evade payment of duty. Therefore, the penalty could not have been imposed. The Order-in-Original still proceeds to impose penalty, and when the issue was debatable. If the issue raised was debatable, then, the Tribunal was justified in deleting the penalty. In support of her arguments, she relies upon the judgment of the Hon''ble the Supreme Court of India in the case of Continental Foundation Joint Venture Sholding, Nathpa H.P. Vs. Commissioner of Central Excise, Chandigarh-I, (2007) 121 ECC 140 : (2007) 147 ECR 140 : (2007) 216 ELT 177 : (2007) 11 JT 286 : (2007) 10 SCALE 459 : (2007) 10 SCC 337 : (2007) 9 SCR 554 : (2007) 2 UJ 1075 . She also relies upon an order passed by the Tribunal in the case of Star Glass Works v. Commissioner of Central Excise, Mumbai - 2003 (162) E.L.T. 367 (Tri.-Mumbai) . She submits that this order of the Tribunal has been affirmed by the Hon''ble the Supreme Court of India. She, therefore, submits that the appeal be dismissed.

The provisions enabling imposition of penalty are to be found in Section 11AC of the Central Excise Act, 1944. At the relevant time that section provided for penalty for short levy or non-levy of duty in certain cases or in cases where the duty has been short paid or erroneously refunded and all this because of fraud, collusion or any willful misstatement or suppression of facts or contravention of any of the provisions of the Central Excise Act or the Rules made thereunder with intent to evade payment of duty. In such cases, the person who is liable to pay duty as determined under Section 11A(2) of the Central Excise Act, 1944, shall also be liable to pay a penalty equal to the dues so determined.

We are not concerned with the proviso to this section.

The Order-in-Original indicates as to how the assessee was proceeded against. The assessee recovered tooling, development and modification charges for moulds to be used for manufacture of plastic moulded parts from M/s. Telco for their vehicle Tata Safari. These charges were recovered by issuance of Debit Notes during the period of September, 1997 to March, 1999, as per Annexure B to the show cause notice dated 8th October, 2000. These Debit Notes were withdrawn on 26th October, 1999 on the basis of intelligence that the assessee was not discharging the correct duty liability. The investigations were carried out which revealed that the assessee was manufacturing moulded parts such as Dash Board, Rear Bumper, Console Front and Rear, Nocelle, Glow Box, Airvent Nozzle, etc., for Tata Safari vehicles to M/s. TELCO. As per the agreement of M/s. TELCO, the assessee was to develop the moulds for manufacture of the aforementioned parts. It was arranged between the parties that 60% of the cost of moulds would be borne by M/s. TELCO and 40% would be borne by the assessee. Out of this 40% of the cost of moulds, 25% was absorbed by the assessee and 15% was amortised for 50,000 sets. It was also agreed between the parties that for development of moulds for Assembly Rear Bumper, 50% of the costs of moulds was to be borne by M/s. Telco and 50% was to be absorbed by the assessee. The portion of development charges for moulds was borne by the assessee. This portion was withdrawn by the assessee by way of issuance of Debit Note. The allegations in the show cause notice are that the amounts recovered as indicated in Annexure B to the show cause notice constitute an additional consideration. It is, thus, required to be added in the sale price to arrive at the assessable value as per Rule 5 of the Central Excise Valuation Rules, 1975. It was alleged in the show cause notice that the moulds developed by M/s. TELCO, are the sole property of the assessee. It is reflected as assets in their books of account. Hence, there is no question of taking the amortised costs of moulds with the assessable value of the moulded parts of plastic cleared by them to M/s. TELCO. The reply of the assessee inter alia was that in similar cases the demand for lump sum recovered as mould development charges from various customers was confirmed by the Commissioner of Central Excise and this order was set aside by the Customs, Excise and Gold Control Appellate Tribunal. The Tribunal observed that the entire tooling and development charges appear to have been taken as an additional value for the purpose of demand by the Commissioner, without considering the Board''s Circular issued on the subject. Hence, it did not allow the entire costs of moulds to be loaded on the assessable value. The Order-in-Original therefore, refers to this Board Circular and the arguments of the assessee based on the Tribunal''s order.

Paragraph 47 of the Order-in-Original indicates as to how there were two orders of the Tribunal and which apparently took conflicting views. Eventually, the matter was resolved by a Larger Bench of the Tribunal in the case of Mutual Industries Ltd. v. Commissioner of Central Excise - 2000 (117) E.L.T. 578 (Tri.) . The Tribunal held that so long as the mould is being used in the manufacture of the finished product it contributes certain value to be added to the value of finished products. This additional value must necessarily go in assessing the duty payable on the finished product under Excise Law. The assessee contended that until this position was settled, they acted in terms of CESTAT''s earlier order. In paragraph 48, the Order-in-Original only reciles as to how the assessee could not substantiate the claim that the mould development charges were amortised. Therefore, it relied upon the inquiries and investigations and the statements of the executives and officials of the assessees and M/s. TELCO recorded during the course of the same. However, we do not find anything in the Order-in-Original barring a statement that the assessee have not amortised the costs of moulds recorded from M/s. TELCO, and this itself tantamounts to misrepresentation as misstatement of facts. Beyond such a finding, we do not have anything on record which would enable us to conclude that the authorities were satisfied that this was a willful misstatement of facts or suppression. That alone would have justified imposition of penalty. The penalty provisions may be termed as mandatory, but the imposition itself has to precede the satisfaction in terms of Section 11AC. That was not recorded in the Order-in-Original.

In the circumstances, whether the Tribunal''s earlier order would be of any assistance to the assessee appellant. The adjudicating authority having not recorded any such satisfaction there was no justification for upholding the imposition of penalty. The Tribunal may have recorded a single line conclusion and with regard to re-quantification of duty dispute, but we have independently perused the record, applied our mind and found that the ingredients of Section 11AC are not attracted to the given facts and circumstances. Therefore, even if the duty demand is confirmed, the Tribunal''s direction deleting penalty is not required to be interfered with by us in our further appellate jurisdiction. Ms. Anjali Hirawat''s reliance on the judgment of the Hon''ble Supreme Court in the case of M/s. Continental Foundation Joint Venture (supra), is well placed. Once there was a scope for entertaining a doubt, and there is no willful misstatement or suppression of facts, then, penalty is not called for. The imposition is only in the event the ingredients necessary to be satisfied are attracted and so satisfied. In such circumstances, substantial questions of law framed by this Court in the order of admission are answered in favour of the assessee and against the Revenue. The appeal is accordingly dismissed. No costs.