Tribunal upholds duty liability, interest, sets aside penalty under Section 11AC - Central Excise Act

The tribunal upheld the duty liability and interest but set aside the penalty imposed on the appellant under Section 11AC of the Central Excise Act, 1944. This decision was based on the appellant's bonafide belief that the brand label affixing was covered under a specific Notification, and any duty evasion was unintentional due to confusion around the interpretation of the Notification.

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Issues:
1. Central Excise duty liability on affixing/stitching labels of a registered brand on garments purchased from non-duty paying units.
2. Imposition of penalty under Section 11AC of the Central Excise Act, 1944 based on alleged suppression of facts regarding the affixing of the brand label.

Analysis:

Issue 1: Central Excise duty liability
The appellant, engaged in manufacturing readymade garments, was found affixing labels of a registered brand on children's garments purchased from non-duty paying SSI units without paying Central Excise duty. The lower authorities issued a show-cause notice demanding duty, interest, and penalty. The appellant contended they were affixing price tags, seller names, or usage instructions, not the registered brand label. The appellant had already paid the duty liability and interest before the show-cause notice. The tribunal noted discrepancies in whether the brand label was affixed on all garments sold. Despite the confusion, the tribunal upheld the duty liability and interest as there was no serious contest.

Issue 2: Imposition of penalty under Section 11AC
The penalty was imposed on the appellant for allegedly suppressing the fact of affixing the brand label without informing the department. The appellant argued they believed the brand was their own, covered under a specific Notification. The tribunal examined the Notification and found ambiguity regarding the duty applicability when affixing labels. Considering the appellant's belief that the brand was their own due to the director's association and trademark application, the tribunal accepted the appellant's bonafide belief defense. The tribunal concluded that any duty evasion was unintentional due to confusion around the interpretation of the Notification. Consequently, the penalty was set aside, and the appeal was allowed on this ground while rejecting the contest on duty liability and interest.

In summary, the tribunal upheld the duty liability and interest but set aside the penalty imposed on the appellant under Section 11AC of the Central Excise Act, 1944, due to the appellant's bonafide belief regarding the brand label affixing.

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