1984 (2) TMI 328 - AT - Central Excise

Tribunal upholds duty demand, limits confiscation, and penalty, grants appeal for duty recalculation

The Tribunal upheld the demand for duty but set aside the penalty and limited the confiscation to the engines only in a case involving the validity of a ... - Issues Involved:1. Validity of the show cause notice and its amendment.2. Interpretation of Notification No. 101/71.3. Limitation period for demanding duty.4. Legality of confiscation and penalty.5. Applicability of Rule 196 and Chapter X provisions.Issue-wise Detailed Analysis:1. Validity of the Show Cause Notice and Its Amendment:The appellants contended that the amended show cause notice served on 27-5-80 was barred by limitation, vague, and did not disclose any specific charge. They argued that the amendment introduced new allegations beyond jurisdiction. The Collector held that the objection regarding the amendment was invalid under Section 36, as the basic allegation of parts procured for use as O.E. parts in motor vehicles being diverted for different use remained unchanged. The inclusion of Notification 101/71 did not levy a new charge, thus not violating natural justice.2. Interpretation of Notification No. 101/71:The appellants argued that Notification 101/71 did not restrict the use of parts to motor vehicles alone but allowed for their use by manufacturers of motor vehicles, including internal combustion engines. The Collector disagreed, stating that the restriction to manufacturers of motor vehicles was intentional and there was no evidence of approval for diversion by the Collector. The Tribunal noted that the notification's wording was ambiguous and the appellants' interpretation, accepted by the department over the years, should be considered. However, the Tribunal ultimately found that the appellants were not entitled to the exemption as the parts were not used exclusively in motor vehicles.3. Limitation Period for Demanding Duty:The appellants argued that the demand for duty was barred by limitation under Rule 10, which was omitted on 17-11-1980. The Collector held that the proviso to Rule 10 allowed for recovery within five years for contravention with intent to evade duty. The Tribunal agreed that Rule 196 allowed for a demand without a time limit, thus the demand for duty was valid.4. Legality of Confiscation and Penalty:The appellants challenged the confiscation of goods and penalty imposed. The Collector confiscated 9 I.C. engines and 2,12,922 parts, imposed a penalty of Rs. 10,000, and appropriated Rs. 50,000 towards fine. The Tribunal upheld the confiscation of engines as they contained misused parts and were cleared for sale, thus tainted. However, the Tribunal set aside the penalty, noting that departmental officers had acquiesced in the misinterpretation of the concession.5. Applicability of Rule 196 and Chapter X Provisions:The appellants argued that Chapter X is self-contained and Rules 173Q and 210 could not be invoked for penalties. The Collector held that the breach of rules justified the demand for duty and confiscation under Rule 196. The Tribunal found that Rule 196(1) allowed for demand of duty on unaccounted goods and confiscation for breaches of rules beyond Chapter X. However, the Tribunal decided that confiscation of parts was unnecessary if duty was recovered at the appropriate rate.Conclusion:The Tribunal modified the Collector's order, upholding the demand for duty but setting aside the penalty and limiting the confiscation to the engines only. The appeal was granted to the extent of recalculating the duty on a reduced quantity of parts and at the prices prevailing at the time of removal.