2013 (1) TMI 617 - AT - Central Excise

Appellant wins appeal, penalty under Central Excise Act set aside.

The Tribunal ruled in favor of the appellant, setting aside the penalty imposed under Section 11AC of the Central Excise Act, 1985. The appellant, engaged ... Assessable value including drawing and design charges - Service tax payment and its effect on excise assessable value - Bonafide mistake and absence of mens rea for levy of penalty - Penalty under Section 11AC of the Central Excise Act, 1944Assessable value including drawing and design charges - Service tax payment and its effect on excise assessable value - Bonafide mistake and absence of mens rea for levy of penalty - Whether the drawing and designing charges received by the appellant formed part of the assessable value of the manufactured pollution control equipment and whether the omission to include them was a bonafide mistake. - HELD THAT: - The appellant sold drawings and designs and discharged service tax on those supplies, as supported by challans and ST-3 returns placed on record and not disputed by the Revenue. Subsequently, when the same customers ordered manufacture of the equipment using those drawings, the appellant did not include the earlier drawing and designing charges in the assessable value of the manufactured goods. The omission was pointed out by audit and the appellant immediately included the said value and discharged the differential central excise duty prior to issuance of the show cause notice. On these facts the Tribunal accepted the appellant's contention that the omission was a bonafide mistake without intent to evade duty, having regard to earlier discharge of service tax on the drawings and prompt payment of the differential duty upon detection by audit.The drawing and designing charges did form part of the assessable value, but the omission to include them was held to be a bonafide mistake and not an act of suppression or evasion.Penalty under Section 11AC of the Central Excise Act, 1944 - Bonafide mistake and absence of mens rea for levy of penalty - Whether confirmation of penalty under Section 11AC could be sustained against the appellant. - HELD THAT: - The adjudicating authority had imposed penalty under Section 11AC which was upheld by the Commissioner (Appeals). The Tribunal found that on the material facts - prior discharge of service tax on drawings, subsequent manufacture, immediate payment of differential duty when pointed out by audit, and absence of any suppression or dishonest intention - the essential element of mens rea required to sustain a penalty was lacking. In these circumstances confirmation of penalty was held to be without merit.The confirmation of penalty under Section 11AC of the Central Excise Act, 1944 is set aside and the appeal is allowed on this aspect.Final Conclusion: The appeal is allowed insofar as the confirmation of the penalty under Section 11AC of the Central Excise Act, 1944 is set aside; the Tribunal accepted that the omission to include drawing and designing charges in the assessable value was a bonafide mistake and that differential duty had been discharged when pointed out by audit. Issues:1. Failure to include drawing and designing charges in assessable value for excise duty calculation.2. Imposition of penalty under Section 11AC of the Central Excise Act, 1985.Issue 1: Failure to include drawing and designing charges in assessable value for excise duty calculationThe appellant, engaged in manufacturing Air Pollution Control equipment, had collected drawing and designing charges from customers but did not include these charges in the assessable value for excise duty calculation. The adjudicating authority confirmed the amount and imposed a penalty, which was upheld by the Ld. Commr. (Appeals). The appellant argued that they had already paid service tax on these charges when selling the drawings and designs, and it was a bonafide mistake not to include them in the assessable value of the equipment. The Tribunal found merit in the appellant's argument, noting that the differential duty was paid promptly upon audit notification. The Tribunal concluded that there was no intention to evade duties, setting aside the penalty imposed under Section 11AC of the CEA, 1985.Issue 2: Imposition of penalty under Section 11AC of the Central Excise Act, 1985The Ld. Commr. (Appeals) had confirmed the penalty imposed by the adjudicating authority under Section 11AC of the Central Excise Act, 1985. However, the Tribunal, after considering the arguments and evidence presented, found that the failure to include drawing and designing charges in the assessable value was a bonafide mistake by the appellant. The Tribunal noted that the appellant had already paid service tax on these charges and promptly rectified the error upon audit notification. Therefore, the Tribunal set aside the penalty imposed under Section 11AC of the CEA, 1985, and allowed the appeal on this aspect.In conclusion, the Tribunal ruled in favor of the appellant, setting aside the penalty imposed under Section 11AC of the Central Excise Act, 1985, due to the bonafide nature of the mistake in not including drawing and designing charges in the assessable value for excise duty calculation.