Penalty under Section 11AC

PJ//Case Laws/2011-12/1407

Case: MARKFED HDPE SACKS PLANT. Versus COMMISSIONER OF C. EX., LUDHIANA

Citation: 2011 (271) E.L.T. 396 (Tri. - Del.)

Issue:- Penalty under Section 11AC – imposition of – justified when suppression clearly established.

Brief Facts:- Appellants herein were engaged in the manufacture of HDPE woven sack/bags, HDPE cover sheets, HDPE tape and HDPE fabrics classifiable under Tariff Heading No. 3923 and 3920 of the First Schedule to the Central Excise Tariff Act, 1985. It was noticed during audit that the appellant had received back 2616 rejected LDPE cap covers from their branch offices. Those goods were manufactured by the appellants. The process of manufacture was joining the ends of bought out LDPE films received from M/s Essen Multipack Ltd by heat and press treatment and fixing of eyelets. At the time of receipt of the film, Cenvat credit on those LDPE film was availed by the appellants. Accordingly, duty was paid on clearance of these goods after manufacture. Some of those goods were received back without any cenvatable document issued by the branch offices under cover of challans issued by those branches. Appellants on receipt of the said goods removed the top cover/portion of the LDPE cap covers and replaced LDPE film therein with newly bought out LDPE film procured from the manufacturer of LDPE film. The said film for the purpose of re‑placement was purchased by the appellants on payment of duty and cenvat credit in respect thereof was also availed. After repairing the LDPE cap cover, the goods were sent back to the respective branches. However, the LDPE cap covers received thereof was also availed. After repairing the LDPE covers received subsequent to that period, cenvat credit was availed on the strength of self invoices and the same were cleared after payment of duty at the same value on which they were initially cleared.

Department issued show cause notice and confirmed the demand of duty with interest and imposed penalty of Rs. 8.5 lakhs. The matter came before the Tribunal. The Tribunal reduced the penalty imposed to One Lakh.

The appeal was filed before the High Court. The High Court remanded the matter to decide the issue relating to 100% penalty under Section 11AC of the Central Excise Act, 1944. The High Court had observed that there was no finding of suppression on the part of appellant. Once there is a finding that the matter falls under Section 11AC, penalty had to be minimum. In the absence of finding to that effect, penalty was not justified. Accordingly, the order of the Tribunal on the issue of penalty was set aside.

Thus, the issue is again before the Tribunal on the issue of penalty.

Appellant’s Contention:- Appellant argued that the imposition of penalty was in relation to the issue pertaining to the admissibility of the cenvat credit in respect of inputs utilised in repairs of the rejected goods which were cleared at the same price. Referring to Rule 16 of Central Excise Rules, 2002, Appellants submitted that the authorities below erred in applying the provisions of sub-rule (2) of Rule 16 when, in fact, the authority ought to have applied the provisions of sub-rule (1).

The Tribunal in the appellant's own case under order dated 28-3-2008 has clearly held that in the absence of material showing any positive intention on the part of the appellants which is a Government undertaking, to evade duty or unless there is a case of fraud, collusion etc., imposition of penalty is not justified and considering the same, there cannot be any justification for imposition of any penalty.

Respondent’s Contention:- Revenue submitted that no fault can be found with the finding arrived at by the authority below in relation to the obligation of the appellants while availing Cenvat credit.

Revenue placing reliance in the matter of Union of India v. Dharamendra Textile Processors [2008 (231) E.L.T. 3 (S.C.) and Union of India v. Rajasthan Spinning & Weaving Mills [2009 (238) E.L.T. 3 (S.C.)] submitted that the proceedings in the case in hand were initiated by invoking the extended period of limitation under Section 11AC and the finding in that regard had attained finality and the factum of suppression of facts also stand established and therefore, the provisions of Section 11AC in relation to the penalty are clearly attracted.

Reasoning of Judgment:- The earlier order of the Tribunal was perused wherein it was recorded that on merits of the case, it was admitted fact that the appellants were undertaking repair of the goods which were cleared on payment of duty and they were using some inputs on which credit has been taken for repair only. It is a well settled law that repair is not a manufacturing activity and the credit can only be availed in respect of the inputs which are used in the manufacture of excisable goods. No infirmity was found in the original order where the input credit was denied on the ground that record the inputs are used only for repair purposes.

The Tribunal observed that as this order was not challenged, the said order had attained finality.

With regard to the issue of suppression and bar of limitation, the Tribunal perused the finding of the Adjudicating Authority and held that finding relating to suppression resulting in invocation of extended period of limitation was not challenged and had attained finality.

With regard to applicability of Rule 16 (1), it was held that the contention in this regard is not sustainable as the contention in this regard was not raised before the Adjudicating Authority and before the Tribunal. It was held that Rule 16 (1) provided that where any goods on which duty has been paid at the time of removal thereof are brought to any factory for being remade, refined, reconditioned etc, the assessee shall state the particulars of such receipts in his records and shall be entitled to take cenvat credit of the duty paid as if such goods are received as inputs under Cenvat Credit Rules, 2002 and utilize the same according to Cenvat Credit Rules. And the Cenvat Credit Rules nowhere permit utlisation of credit when the final product is exempt from payment of duty or the process undertaken does not amount to manufacture. Besides, Rule 16 (1) which is confined to the activity “remaking, refining, reconditioning”. And the expression “for any other reason” has to be read without forgetting principle of ejusdem generis.

It was noted that sub-rule (2) contains all the situations not covered by sub-rule (1) of Rule 16. It was noted that Rule 16 (2) provided that even though manufacturer on return of the goods seeks to avail of cenvat credit, he will have to pay the amount equal to such credit in case a process under which the returned product undergoes does not amounts to manufacture.

On the facts of present case, it was noted that admittedly, returned goods did not undergo any process of manufacture. Rule 16 (2) was attracted. It was further held that bona fide belief could be of a living person and not of a non-living person. It was noted that the identity of the living person having bona fide belief was not disclosed by the appellant. Accordingly, it was held that suppression was clearly established and the bona fide belief was not present. Therefore, the equal penalty under Section 11AC was applicable.

Decision:- Appeal dismissed.

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PJ//Case Laws/2011-12/1407

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