Can assessee be penalized for calculating duty on quarterly basis instead of per day basis upon clearing of capital goods, due to misinterpretation of notification?

PJ/Case Law/2014-15/2171

Case:- PRIJAI HEAT EXCHANGERS PVT. LTD. Vs COMMR. OF C. EX., MUMBAI-III

Citation:- 2014 (300) E.L.T. 557 (Tri. - Mumbai)

Brief facts:- The appellants challenged the imposition of penalty only. The brief facts of the case were that the appellants were engaged in the manufacture of excisable goods and availed credit in respect of capital goods. The same were cleared after use on 5-9-2009 and 15-2-2010 on payment of duty as per Notification No. 39/2007-C.E. (N.T.), dated 13-11-2007 by calculating the duty on quarter and part thereof from the date of receipt of the capital goods in the factory. The officers of the Revenue pointed out that the appellants had short paid the duty on the capital goods. On pointing out the same, the appellants immediately paid the duty along with interest on 9-3-2010. Thereafter the appellants received show cause notice dated 3-2-2012 for appropriation of the duty amount already paid and for imposition of penalty under Section 11AC of the Central Excise Act. The adjudicating authority confirmed the demand along with interest and imposed penalty under Section 11AC of the Central Excise Act. The appellants filed appeal and the same was dismissed by the Commissioner (Appeals).

Appellant’s contentions:- The contention of the appellants was that the issue was in respect of interpretation of the provisions of Notification 39/2007-C.E. (N.T.). The appellants calculated and paid the duty by taking into consideration the quarter in which the capital goods were received and cleared from the factory whereas the Revenue was calculating duty on the basis of the days from the day the capital goods were received in the factory. In these circumstances, there was no intention on the part of the appellants to evade payment of duty.

Respondent’s contention:- The Revenue relied upon the findings of the lower authority and submitted that as the appellants had short paid the duty at the time of clearance of the capital goods, therefore differential duty had been paid subsequently in view of the objection raised by the Revenue, therefore it was a clear case where the appellants evaded payment of duty hence the penalty was rightly imposed.

Reasons of judgment:- Hon’ble judge found that the provisions of Notification No. 39/2007-C.E. (N.T.) provided that if the capital goods on which credit had been taken were removed after being used, the manufacturer shall pay an amount equal to Cenvat credit taken on the capital goods reduced by 2.5% on each quarter of the year or part thereof from the date of taking of the Cenvat credit. The appellants while clearing the capital goods calculated duty on quarterly basis whereas the revenue wanted to calculate on actual number of days. In these circumstances, he found merit in the contention of the appellants that it was not a case of intention to evade payment of duty, therefore the penalty imposed under Section 11AC of the Central Excise Act was set aside and the appeal was allowed.

Decision:-Appeal was allowed.

Comment:- The analogy drawn from the case is that assessee shall not be penalized for calculating duty on quarterly basis due to misinterpretation of notification instead of per day basis upon clearing of capital goods as the same shall not amount to evasion of tax as there does not lie any intention to evade tax.

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PJ/Case Law/2014-15/2171

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