Excise duty paid on imported Modems supplied to BSNL by availing CENVAT Credit of Additional duty of Customs and SAD paid on import - No case for imposing equal penalty under Section 11AC: CESTAT by Majority
By TIOL News Service
AHMEDABAD, MAY 17, 2012: THE appellants imported different varieties of ASDL Modems in response to the tenders floated by BSNL for Dataone scheme. The Modems were imported from Huawei Technologies Ltd. After importation, the appellants paid central excise duty on the Modems supplied to BSNL by utilizing the CENVAT Credit of additional duty of customs and SAD paid at the time of import by treating the post import activities as amounting to manufacture. It is the case of the department that no manufacturing activity was undertaken by the appellants on the imported Modems and the payment duty was not correct. On being pointed out by the revenue, the appellants reversed the remaining CENVAT Credit lying in balance after payment of duty on the Modems supplied to BSNL. In addition to demand of interest on the CENVAT Credit, equal penalty was also imposed under Section 11 AC read with Rule 15(2) of the CENVAT Credit Rules, 2004. Personal penalties were also imposed on the directors. The appellants challenged the same in appeal filed before the CESTAT.
After hearing both sides, Member (T) held that the appellants are liable for penalty under Section 11 AC by holding that the situation is not revenue neutral as contested by the appellants. Further the Member (T) held that the arrangement of payment of duty was a deliberate attempt to avail CENVAT Credit on the SAD paid under Section 3(5) of the Customs Tariff Act, 1975 as the goods are exempted from payment of sales tax.
However, Member (J) held that there is no case for imposing penalty under Section 11AC as no malafide can be attributed to the appellants the appellants so as to arrive at the findings that the modus operandi of manufacture of modems was adopted by the appellants with an ulterior motive to save the excess credit so that the same can be utilized for payment of duty in respect of other manufactured goods.
Due to difference of opinion, the matter was referred to the Third Member. The Third member held:
There can be an element of doubt as to whether the action of the appellant as to opening and testing the parts of modem, inspection of the same and testing the same with laptop to see whether they are functioning or not and could be an arguable point as to whether it would amount to manufacture, but this itself cannot be attributed any intention to the appellant's bonafide belief that they are in the line of manufacturing modem and it is borne out from the record that the appellant had paid Central Excise duty on the said modems as manufactured product. To my mind, the belief entertained by the appellant regarding activity undertaken by them would amount to manufacture, cannot be faulted and hence I hold that there was no suppression of facts or mis-declaration regarding activity undertaken by them, when they were discharging Central Excise duty liability after availing CENVAT Credit. Since I have held that there was a bonafide belief on the part of appellant that they were manufacturing this product which requires clearance on payment of Central Excise duty, the Show Cause Notice dt.9.1.08 demanding the duty liability by extending the period of limitation is to be held as time barred. Since the demand itself has to be held as time barred, the question of imposition of any penalty under Section 11AC of Central Excise Act, 1944 does not arise.
Accordingly, all the appeals were allowed by the CESTAT by majority order.
(See 2012-TIOL-554-CESTAT-AHM)
