Tribunal rules in favor of Appellants on duty liability and penalties under Section 11AC

The Tribunal found in favor of the Appellants in a case concerning duty liability on free supplied goods and the imposition of penalties under Section 11AC. The Tribunal concluded that the penalty imposed was unjustified as the issue was under dispute and the Appellants had a genuine belief, supported by legal decisions, that duty was not payable on the goods supplied for free. Therefore, the Tribunal set aside the penalty imposition while upholding the duty liability, disposing of both appeals accordingly.

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Issues Involved: Duty liability on free supplied goods, imposition of penalty under Section 11AC.

Analysis:

Issue 1: Duty liability on free supplied goods
The case involved the manufacture of P&P medicines chargeable to Central Excise duty based on MRP. The Appellants supplied goods free to distributors without paying duty, claiming it as a 'quantity discount'. They relied on a decision of CESTAT Bangalore. The Revenue issued show cause notices demanding duty on these clearances. The Adjudicating authority confirmed the duty, interest, and imposed penalties. The Commissioner (Appeals) upheld these orders. The Appellants contended that they had intimated the Department about not paying duty based on a legal decision. The issue was settled by a Larger Bench decision in 2007. The Appellants argued that they had a bona fide belief that duty was not payable on free supplied goods.

Issue 2: Imposition of penalty under Section 11AC
The Appellants did not contest the duty liability but challenged the imposition of an equivalent penalty under Section 11AC. The Appellants argued that as the issue was under dispute and they had a bona fide belief based on legal precedents, the penalty should not be levied. The Revenue contended that the Appellants deliberately evaded duty payment on free supplied goods with printed MRPs, justifying the penalty.

Upon hearing both sides and reviewing the records, the Tribunal found merit in the Appellants' argument. They acknowledged that at the relevant time, there was a genuine reason for the Appellants to believe that duty was not payable on free supplied goods, as supported by legal decisions. Since the issue was under dispute and later clarified by a Larger Bench decision, the Tribunal concluded that the imposition of an equivalent penalty under Section 11AC was unjustified. Therefore, they set aside the penalty imposition while upholding the impugned orders with this modification, disposing of both appeals accordingly.

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