2007 (11) TMI 133 - AT - Central Excise

Tribunal overturns tax penalties due to inadvertent errors; no intention to evade duty.

The Tribunal set aside penalties imposed by the Commissioner (Appeals) in a tax dispute case. The appellant had mistakenly taken credit based on invoices ... Transitional credit on stock of fabrics, which were procured under DEEC scheme – reversed immediately when detected in audit - When the law permitted the transitional credit on the goods lying in stock with the manufacturer of processed fabrics, they had taken the credit on non-duty paid material received under DEEC - cannot be considered deliberate mistake – interest was held not imposable as there is no intention to evade duty – if interest is not imposable then penalty is also not imposable Issues:1. Incorrect credit taken based on invoices from an unregistered dealer.2. Transitional credit on stock procured without payment of duty under DEEC scheme.3. Imposition of penalties by the Commissioner (Appeals).Analysis:1. The appellant took a credit of Rs.1,04,920 based on invoices from an unregistered dealer, M/s A.K.M. Trading Corpn. The mistake was identified during a central excise audit, and the appellant promptly reversed the credit. The Commissioner (Appeals) imposed a penalty of Rs.10,000 for this irregular credit. The appellant argued that they were unaware of M/s A.K.M. Trading Co.'s unregistered status and did not intend to avail any credit wrongly. The Tribunal noted that there was no intention to evade duty and that the appellant had more than Rs.2 crores in credit between Jan. '03 and March '04. Consequently, the penalties for this issue were set aside.2. The appellant also claimed a transitional credit of Rs.17,60,219 on stock procured without duty payment under the DEEC scheme. The Commissioner (Appeals) imposed a penalty of Rs.1 lakh for this irregular credit. The Tribunal acknowledged that the appellant's actions were a mistake, but not a deliberate one. The Commissioner found that no financial benefit was gained by the appellant as their credit always exceeded Rs.2 crores during the relevant period. Since no interest was deemed recoverable, the Tribunal concluded that the imposition of penalties for this issue was unjustified.3. The Tribunal considered the submissions from both sides and found that the appellant had acknowledged the incorrect credits and had promptly rectified the situation. The original authority had determined that no interest or penalty was applicable, while the Commissioner (Appeals) decided to impose penalties. However, the Tribunal held that since interest was not recoverable and there was no deliberate attempt to evade duty, the imposition of penalties was unwarranted. Therefore, the penalties imposed by the Commissioner (Appeals) were set aside, and the appeals were allowed with consequential relief.