2001 (11) TMI 335 - AT - Central Excise

Court overturns penalties in UPS manufacturer case due to lack of evidence for intentional duty evasion

The judgment set aside the confiscation of goods, disallowance of Modvat credit, and imposition of penalties under various sections due to lack of ... Penalty and Confiscation - Accountal of goods Issues:Non-accountal of finished goods in RG 1 register, confiscation of goods, imposition of penalty under Rule 173Q of Central Excise Rules, disallowance of Modvat credit, recovery of interest under Section 11AB of the Central Excise Act.Analysis:The case involved the appellants, manufacturers of Uninterrupted Power Supply System (UPSs), who were found with one piece of UPSs in excess during a Central Excise visit. The officers seized the UPS under a Panchnama and alleged non-accountal of finished goods against the appellants. The Deputy Commissioner ordered confiscation of the UPS with an option for redemption on payment of a fine and Central Excise duty. The adjudicating authority also disallowed Modvat credit and imposed penalties under various sections. The Commissioner (Appeals) upheld the confiscation and penalties but reduced the amounts. The appeal was made against this order.The appellant argued that the seized UPS was unfinished and not accounted for due to testing requirements. They claimed there was no deliberate omission to account for finished products in the register to evade duty. The appellant emphasized the necessity of mens rea for invoking Rule 173Q and cited relevant case law. The Revenue contended that the appellant's explanations were inconsistent, indicating non-accountal with intent to evade duty. They relied on precedents to support their stance.The judgment analyzed the conflicting explanations provided by the appellant and the necessity of mens rea for confiscation and penalties under Rule 173Q. It was noted that the department's finding of mens rea was not based on the show cause notice, rendering it unsustainable. The judgment referenced a previous case to emphasize the requirement of mens rea for such penalties. The judgment distinguished the cited case law by the Revenue, highlighting the absence of clear intent to evade duty in the present case.Ultimately, the judgment set aside the confiscation and penalties, ruling them illegal due to the lack of evidence supporting mens rea and the inconsistent explanations provided by the appellant. The appeal was allowed, providing consequential reliefs to the appellants.