2010 (10) TMI 558 - AT - Central Excise

CESTAT overturns duty, upholds penalty on syringe manufacturer for improper invoices

The Appellate Tribunal CESTAT, Ahmedabad, set aside the duty confirmation but upheld the penalty imposed on an appellant engaged in manufacturing syringes ... Imposition of penalty under Rule 15 - Inputs have been used in the manufacture of dutiable as well as exempted products - manufacture of syringes and parts thereof - Parts have been cleared on payment of duty - r Commissioner (Appeals) took note of the fact that the appellants have already cleared parts on payment of duty and the duty so paid by them is in excess of the quantum of 10% of the value of the goods - Accordingly he set aside the duty confirmation - Penalty however imposed under Rule 6(b)(ii)of Cenavt Credit Rules, 2004 - The adjudication order also invoked Rule 15 and imposed penalty under the said rule - It is noted that Rule 15 and Rule 6(b)(ii) operating different areanas whereas Rule 15 operates in an areana where the cenvat credit stands wrongly taken by the assessee or wrongly utilized by him, Rule 6(b)(ii) is invocable where an assessee has issued excise invoices on the basis of which the user of the said invoice has taken ineligible benefit - Decided in favour of assessee. Issues:1. Demand of duty on parts used in manufacturing syringes2. Imposition of penalty under Rule 6 and Rule 153. Applicability of Rule 6(b)(ii)4. Pre-deposit of penaltyIssue 1: Demand of duty on parts used in manufacturing syringesThe appellant, engaged in manufacturing syringes and parts, availed Modvat credit for duty paid on inputs used in both products. The Original Adjudicating Authority sought duty confirmation for parts at 10% of their value due to using modivatable inputs for dutiable and exempted products. Despite the appellant clearing parts by paying duty, the Authority confirmed the demand under Rule 6 of Modvat Rules and imposed a penalty. The Commissioner (Appeals) acknowledged the duty payment by the appellant, exceeding the 10% value, and set aside the duty confirmation but upheld the penalty citing Rule 6(b)(ii) for issuing Central Excise Invoices for exempted parts to enable buyers to avail modvat credit.Issue 2: Imposition of penalty under Rule 6 and Rule 15The appellant argued against the penalty imposed under Rule 6(b)(ii), contending its introduction from 1-3-07 rendered it inapplicable to the period under consideration (2004 to March 2008). The appellant's advocate emphasized that the penalty was imposed under Rule 15 of Cenvat Credit Rules, operating differently from Rule 6(b)(ii). The appellant requested waiving the pre-deposit of penalty. The appellate authority found the duty paid by the appellant on exempted products exceeded the required reversal under Rule 6, leading to dropping the duty confirmation but imposing the penalty under Rule 15.Issue 3: Applicability of Rule 6(b)(ii)The Commissioner (Appeals) introduced Rule 6(b)(ii) in the penalty decision, which was not part of the initial show cause notice or the Assistant Commissioner's order. The appellant argued against this new application, stating the rule's introduction in the appeal stage was unjustified. The appellate authority recognized the distinct operations of Rule 15 and Rule 6(b)(ii), highlighting that Rule 15 pertains to wrongly taken or utilized cenvat credit, while Rule 6(b)(ii) addresses issuing excise invoices for ineligible benefits. The imposition of penalty under Rule 15 by the Commissioner (Appeals) was deemed unjustified and subsequently set aside.Issue 4: Pre-deposit of penaltyThe appellant requested dispensing with the pre-deposit condition for the penalty, emphasizing the differing applications of Rule 6(b)(ii) and Rule 15. The appellate authority, noting the show cause notice and adjudication order invoking Rule 15, found the penalty imposition under Rule 15 unjustified and set it aside. The appeal was allowed, granting consequential relief to the appellant.This detailed analysis of the judgment from the Appellate Tribunal CESTAT, Ahmedabad, highlights the issues surrounding the demand of duty on parts, imposition of penalties under Rule 6 and Rule 15, the applicability of Rule 6(b)(ii), and the pre-deposit of penalties.