1999 (12) TMI 414 - AT - Central Excise

Crushing limestone not 'manufacture' under Central Excises Act. Penalties overturned for genuine belief.

The Tribunal held that the activity of crushing limestone did not amount to 'manufacture' under Section 2(f) of the Central Excises & Salt Act. The ... Limestone, crushing of - Manufacture - Penalty Issues:1. Whether the activity of crushing limestone amounts to 'manufacture' under Section 2(f) of the Central Excises & Salt Act.2. Whether the extended period of limitation under the proviso to Section 11A of the Act can be invoked for the demand of Central excise duty.3. Whether the penalty imposed on the party for non-observance of Central excise formalities is justified.4. Whether the penalty imposed on the party for violating Central Excise Rules is sustainable.Analysis:1. The case involved a dispute regarding whether the activity of crushing limestone by the appellants constituted 'manufacture' under Section 2(f) of the Central Excises & Salt Act. The Tribunal had previously held that such activity did amount to manufacture. However, the appellants maintained a bona fide belief to the contrary until the Tribunal's decision. The Tribunal's earlier finding was considered relevant for the current appeal, covering the periods before the initial decision. The Tribunal concluded that there was no justification for imposing a penalty on the appellants based on their genuine belief, setting aside the penalty imposed by the lower authorities.2. The issue of invoking the extended period of limitation under the proviso to Section 11A of the Act for demanding Central excise duty was raised. The Tribunal did not uphold the department's plea to apply the extended period based on suppression of facts to evade duty. The Tribunal found that the party had a justified belief that the activity might not attract Central excise duty. This finding influenced the decision in the current appeal, leading to the setting aside of the penalty imposed by the Assistant Commissioner and upheld by the Commissioner (Appeals).3. The penalty imposed on the party for non-observance of Central excise formalities was contested. The Assistant Commissioner confirmed the duty demand and penalty, which was upheld by the Commissioner (Appeals). However, the Tribunal found that the penalty was not justified as the appellants had a genuine belief that the activity did not attract Central excise duty. The absence of mens rea and valid reasons for the penalty led to the Tribunal setting aside the impugned order and allowing the appeal.4. The sustainability of the penalty imposed on the party for violating Central Excise Rules was questioned. The learned Advocate argued that the penalty under Rule 173Q of the Central Excise Rules was not justified without allegations or findings of mens rea against the appellants. The Tribunal agreed with this argument, emphasizing the absence of valid reasons for upholding the penalty. Consequently, the impugned order imposing the penalty was set aside, and the appeal was allowed.