2004 (1) TMI 476 - AT - Central Excise

Tribunal overturns penalty, finds genuine belief in Modvat credit entitlement. No intention to evade duty.

The Tribunal allowed the appeal, setting aside the penalty and fine imposed on the appellants. The Tribunal found that the appellants had a genuine belief ... Confiscation and penalty - Mens rea Issues:Challenge to imposition of penalty confirmed in Order-in-Appeal, availing Modvat credit on Diesel Generating set despite physical unavailability, reversal of credit before show cause notice, imposition of penalty under Rule 173, common premises with another company for DG set installation, belief in entitlement to Modvat credit, utilization of electricity generated by DG set, intention to evade duty, setting aside penalty and fine on DG set.Analysis:1. Challenge to Imposition of Penalty:The appellants contested the penalty imposed, arguing that it should not apply as the admitted duty was paid well before the show cause notice was issued. They relied on various judgments to support their contention. The issue revolved around the imposition of penalty despite the duty being paid in advance, as per the judgments cited.2. Availing Modvat Credit on Diesel Generating Set:The core issue was the availing of Modvat credit on a Diesel Generating set that was not physically present on the premises. The appellants reversed the credit before the show cause notice was issued, as they realized the set had not been received by them but was installed in an adjacent premises. The question of penalty for taking Modvat credit without receiving the set was raised, emphasizing the reversal of credit and the minor nature of the contravention.3. Imposition of Penalty under Rule 173:The Commissioner found that the appellants had contravened the law, justifying the imposition of penalty. The circumstances leading to the penalty imposition were detailed in the Commissioner's order, referencing specific paragraphs and pleading for confirmation of the penalty under Rule 173.4. Installation of DG Set in Common Premises:The appellants argued that the Diesel Generating set was installed in common premises shared with another company, with the approval of the Electricity Board for joint use. They believed they were entitled to the Modvat credit due to this arrangement, citing a Tribunal judgment supporting the availability of Modvat credit when capital goods are installed in nearby unlicensed premises.5. Utilization of Electricity Generated by DG Set:It was noted that although the appellants had not utilized the Modvat credit, partial electricity generated by the DG set was used. The argument was made that the appellants had a genuine belief in their entitlement to the credit and had reversed it upon realizing the partial usage by the adjacent company.6. Intention to Evade Duty and Bona Fide Belief:The Tribunal observed that the appellants had a bona fide belief that the DG set could be utilized jointly, as permitted by the Electricity Board. The absence of evidence establishing an intention to evade duty, coupled with the reversal of credit before the show cause notice, led to the conclusion that no penalty should be imposed based on the cited judgments.7. Setting Aside of Penalty and Fine on DG Set:Ultimately, the Tribunal set aside the penalty against the appellants, deeming their actions not warranting penalty imposition due to the reversal of credit and lack of fraudulent intent. Additionally, the order to confiscate the DG set and impose a fine was deemed unlawful, as the set had already incurred duty and was not subject to non-duty paid clearance.In conclusion, the appeal was allowed based on the above considerations, leading to the setting aside of the penalty and fine imposed on the appellants.