2017 (5) TMI 1249 - HC - Central Excise

Court affirms excise duty, penalty for Mercury sale without payment. Appellant's arguments rejected.

The court upheld the imposition of excise duty, interest, and penalty on a company for selling Mercury without payment of duty and invoice. The ... Reversal of cenvat credit - Sale of Mercury - closure of the Mercury Cell Processing plant - Held that: - over and above the initial quantity of Mercury, the appellant had purchased Mercury at different points of time, availing CENVAT Credit and on closure of the Plant in the year 2004, there was a stock of 42262.5 kg of Mercury, which was sold by them on 22.09.2004 without payment of duty and without raising any invoice. The issue is squarely covered by the verdict passed by the Apex Court in Lord Chloro Alkali Ltd. vs. Commissioner of Central Excise [2015 (8) TMI 1052 - SUPREME COURT], where it was held that mercury was cleared by the appellant herein as mercury only. Thus, on this basis, it is clear that the provisions of Rule 3(4) of the CCR, 2001, become applicable and duty would be paid, and the fixation of liability towards Duty, Interest and Penalty does not warrant interference. Penalty - Held that: - The appellant, being a Government Company, ought to have been more prudent and transparent in all its deeds, acting as a model to others. No materials are brought before this Court to interfere with the quantum of penalty as well - penalty upheld. Appeal dismissed - decided against appellant. Issues Involved:1. Imposition of Excise Duty, Interest, and Penalty under Sections 11A, 11AB, and 11AC of the Central Excise Act, 1944.2. Applicability of CENVAT Credit Rules, 2001, particularly Rule 3(4).3. Classification and tax liability of Mercury under CETH 2805.4. Alleged suppression of material facts by the appellant.5. Quantum of penalty imposed under Section 11AC of the Central Excise Act, 1944.Issue-wise Detailed Analysis:1. Imposition of Excise Duty, Interest, and Penalty:The appellant company sold 42,262.5 kg of Mercury upon closing its Mercury Cell Processing Plant in 2004. The authorities imposed excise duty, interest, and penalty under Sections 11A, 11AB, and 11AC of the Central Excise Act, 1944. The appellant argued that the Mercury used as a Cathode in the electrolysis process for manufacturing Caustic Soda did not attract tax liability since it was reclaimed Mercury without availing CENVAT credit. However, the authorities found that the sale of Mercury without payment of duty and invoice amounted to suppression of material facts, justifying the imposition of duty, interest, and penalty.2. Applicability of CENVAT Credit Rules, 2001:The appellant contended that the reliance on Rule 3(4) of the CENVAT Credit Rules, 2001 was incorrect. However, the authorities noted that the appellant had admitted to availing CENVAT credit on the Mercury purchased. Rule 3(4) stipulates that when inputs on which CENVAT credit has been taken are removed from the factory, the manufacturer must pay an amount equal to the duty of excise. The authorities concluded that the appellant was liable to reverse the credit or pay the duty on the transaction value of the Mercury sold.3. Classification and Tax Liability of Mercury:The dispute centered on whether the use and subsequent sale of Mercury would attract duty under CETH 2805. The authorities determined that Mercury, used in the electrolysis process and later sold, retained its classification under CETH 2805 and was chargeable to duty at 16%. The appellant's argument that the Mercury's chemical properties did not change during the process, thus exempting it from duty, was rejected. The authorities emphasized that the Mercury remained classifiable as Mercury and was subject to duty upon clearance.4. Alleged Suppression of Material Facts:The authorities accused the appellant of suppressing material facts by selling the Mercury without paying duty or raising an invoice. The appellant's defense that the Mercury used as a Cathode did not constitute manufacture or attract duty was dismissed. The authorities highlighted the appellant's admission of availing CENVAT credit on the input Mercury, reinforcing the charge of suppression and justifying the duty demand.5. Quantum of Penalty Imposed:The penalty imposed was equal to the duty amount, as mandated by Section 11AC of the Central Excise Act, 1944. The appellant argued that the penalty was disproportionate, but the authorities found no mitigating circumstances to justify a reduction. The court upheld the penalty, emphasizing the appellant's failure to act transparently and prudently as a government company. The authorities' decision to impose the penalty was deemed appropriate given the facts and circumstances.Conclusion:The court dismissed the appeal, affirming the authorities' imposition of duty, interest, and penalty. The appellant's arguments regarding the non-applicability of excise duty, incorrect reliance on CENVAT Credit Rules, and the disproportionate penalty were rejected. The authorities' findings, supported by the appellant's admissions and relevant legal provisions, were upheld, reinforcing the duty and penalty imposed on the sale of Mercury.