By TIOL News Service

NEW DELHI, JULY 02, 2009: THE case began on an interesting note and ends in a similar manner.

The assessee is a manufacturer of Medical disposables and some of these items are fully exempt from duty.  For manufacture, PVC resin is converted into PVC compound and thereafter extruded as Tubing in running length which in turn is used in the manufacture of medical disposables.  Cenvat is availed on inputs.

In May, 2003, the Central Excise officers visited the assessees factory and opined that since the Rubber Tubing captively consumed was being used in the manufacture of exempted goods, the benefit of notification 67/95-CE is not available and hence duty is required to be paid on such clearances.

At the same time, the officers felt that probably this objection may not sustain and hence toyed with the idea of invoking the ever faithful rule 6 of the Cenvat Credit Rules, 2002 and recover the amount of 8% of the price of the exempted final products as common inputs viz. PVC resin was being used without maintaining separate accounts.

The dilemma continued and this saw the authorities issuing a demand notice for the period 1.3.2000 to 28.2.2002 seeking recovery on both counts simultaneously i.e duty on Rubber Tube used in manufacture of exempted final products and the 8% amount.  Just for the record, the duty demanded by invoking the extended period was Rs.10.64 lakhs and the 8% amount demanded was Rs.90,370/-.  Not to mention, penal and interest provisions were also invoked.

The Additional Commissioner dropped the duty demand in respect of clearances of PVC tubing for captive consumption but confirmed the demand of Rs 90,370/- along with interest in respect of clearances of exempted finished goods under Rule 6(3)(b) of Cenvat Credit Rules,2002 and besides this imposed penalty of equal amount i.e. Rs.90,370/- on the Appellant under Section 11AC of Central Excise Act.

The Commissioner(A) rejected the assessees appeal against the order of the adjudicating authority and the matter traveled to the Tribunal.

The Bench reduced the penalty to Rs.25,000/- on the ground that the amount payable under Rule 6(3)(b) of Cenvat Credit Rules,2002 in respect of clearances of exempted of finished goods had been paid along with interest even prior to the issue of SCN and, therefore, the proviso to Section 11AC of Central Excise Act became applicable.

Not happy with this development, the Revenue filed a reference appeal before the Punjab & Haryana High Court and the High Court allowed the department's appeal and remanded the matter to the Tribunal for reconsidering the question of reduction of the penalty in the light of High Court's judgment in the case of CCE, Faridabad vs Illpea Paramount Pvt Ltd Pvt. Ltd., (2006-TIOL-417-HC-P&H-CX) where it is held that if a case for imposing penalty is made out, the amount of penalty prescribed under the statutory provision was the minimum.

So, the matter is before the Tribunal once again.

The appellant denied having taken any Cenvat credit on the inputs used in the manufacture of the exempted final products but nonetheless paid the amount of Rs.90,730/- along with interest.  It was also contended no penalty is imposable on the Appellant under Section 11AC as the provisions of Section 11AC are not applicable in respect of non-payment of the amount due as per the provisions of Rule 6(3)(b) in view of the Tribunal's judgment in the case of CCE vs Sangrur Agro Ltd. (2006-TIOL-2002-CESTAT-DEL).

The representative for the Revenue argued that there was no truth in the submission made that Cenvat credit was not taken.  It was also submitted that that since the Appellant had suppressed the information in this regard from the department, the Commissioner(Appeals) had rightly upheld the penalty imposed on them under Section 11AC and it was on account of the aforesaid fact that the High Court had observed that the impugned order was passed by the Tribunal ignoring legal provisions and since substantial question of law as to applicability of provisions of Section 11AC of the Act arises, the Tribunal was directed to take a fresh decision.

The CESTAT Bench observed that since the assessee had not submitted any documents to validate their claim that they had not taken any CENVAT credit on inputs used in the manufacture of the exempted goods, the said claim cannot be entertained.  As for the dispute of whether equivalent penalty under section 11AC can be imposed in the present case, the Bench noted that the Tribunal decision cited by the assessee of CCE vs Sangrur Agro Ltd. (2006-TIOL-2002-CESTAT-DEL) holding that the provisions of Section 11AC are not applicable in respect of short payment or nonpayment of the amount due under Rule 6(3)(b) of the Cenvat Credit Rules is required to be followed inasmuch as –

So saying, the impugned order imposing penalty u/s 11AC of the CEA, 1944 was set aside.

Unintended Loss:  In the end, even the penalty of Rs.25,000/- imposed by the CESTAT vanished. By the way, a new rule 15A has been inserted in the CCR, 2004 by notification 10/2008-CE(N.T) dated 01.03.2008 and which inter alia provides for a penalty imposition of a maximum of Rs.5000/-.  As they say, a bird in hand is worth two in the bush…the story continues!

(See 2009-TIOL-1002-CESTAT-DEL in 'Excise')