2000 (1) TMI 700 - AT - Central Excise

Tribunal overturns penalty, grants Modvat credit to appellants in Central Excise case

The Tribunal held that the demand for the extended period of limitation under Section 11A of the Central Excise & Salt Act was unsustainable as there ... Demand - Limitation - Modvat - Intention to evade duty Issues Involved:1. Invocation of extended period of limitation under Section 11A of the Central Excise & Salt Act, 1944.2. Imposition of penalty for alleged contravention of Central Excise Rules.3. Eligibility for Modvat credit on the duty paid for imported raw materials.Detailed Analysis:1. Invocation of Extended Period of Limitation:The primary issue revolves around whether the extended period of limitation under Section 11A of the Central Excise & Salt Act, 1944, could be invoked for demanding duty for the period prior to the six months preceding the show-cause notice. The appellant argued that there was no suppression of facts, as they had consistently filed classification lists and sought clarifications from the department. They believed that the exemption notifications applied only to indigenous raw materials and not to imported ones. The department, however, contended that there was a deliberate misdeclaration and suppression of facts with intent to evade duty.The Tribunal, by majority view, held that the extended period of limitation was unsustainable. The Tribunal noted that the classification lists were approved by the department, and there was no suppression or misdeclaration of facts by the appellants. The department's failure to scrutinize the details at the initial stage was also highlighted. The Tribunal concluded that the appellants did not have any intention to evade duty, as they would have been eligible for Modvat credit, which was more than the duty liability.2. Imposition of Penalty:The second issue was whether the penalty imposed by the Additional Collector was justified. The appellant argued that there was no mala fide intention or suppression of facts on their part. They had corresponded with the department and sought clarifications regarding the classification and exemption benefits. The department, however, maintained that the appellants had deliberately misdeclared the classification of raw materials to avail of the exemption benefits.The Tribunal, in its majority decision, set aside the penalty. It was observed that the appellants had no intention to evade duty and had disclosed all necessary details to the department. The department's failure to scrutinize the classification lists and correspondence was a significant factor in the Tribunal's decision to set aside the penalty.3. Eligibility for Modvat Credit:The third issue pertained to the eligibility for Modvat credit on the duty paid for imported raw materials. The appellants argued that they were entitled to Modvat credit, as they had paid additional duty on the imported materials, which was higher than the duty on the finished products. The department's contention was that the eligibility for Modvat credit should be considered separately and subject to verification by the proper officer.The Tribunal, by majority view, held that the denial of Modvat credit by the lower authority was unsustainable. The Tribunal noted that the appellants had already deposited duty for the six months preceding the show-cause notice and were granted Modvat credit for the same. There was no reason to remand the matter for further consideration, as proposed by the Vice President.Separate Judgments:The Tribunal's decision involved separate judgments by the members. The majority view, led by the Member (Judicial), held that the demand for the extended period of limitation and the penalty were unsustainable. The Vice President, however, held a contrary view, stating that the extended period of limitation was available to the department and that the matter should be remanded for consideration of Modvat credit. The matter was referred to a third member, who concurred with the majority view, leading to the final majority order.Majority Order:In light of the majority view, the Tribunal held that the demand for the extended period of limitation was unsustainable, and the penalty was also unsustainable. The appeal was allowed, and the impugned order was modified accordingly.