TaxTMI 
TaxTMI 
2002 (1) TMI 1115
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....cturers of dumpers classifiable under Heading 87.04 and 87.05, its parts, under 87.08 and loaders, excavators, crawlers, etc., under Heading 84.29 and its parts, under Heading 84.31 of the Central Excise Tariff. HML were availing Modvat under Rule 57A of Central Excise Rules on the inputs. During the course of special audit, conducted at HML during the period 8-12-1993 to 31-3-1994, by the officers of Central Excise, the following discrepancies came to notice. 2. HML procured the required raw material and component parts through imports and indigenous sources and also manufactured components. While placing orders for the inputs, depending on their nature and source of supply, the Purchase Order (CPO) was given a distinct code number and received at the warehouse under the goods receipt inspection report (GRIR), in different series. Then they were issued to different shop floors for manufacture against the stores requisition slips (SRS). Some of these inputs were sent to the job workers for further processing under the then Rule 57F(2) challans along with the material despatch challans (MDC), The CPO to the job worker would bear Code No. 1/21 and on receipt from the job work....
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....ve paid duty of Rs. 73,15,582 on job worked goods. Against this liability, HML paid a sum of Rs. 52,76,574. 5. On comparison of RG 23A Pt. II Registers with the Private Records of HML, it appeared that HML had followed two types of clearances of Modvat inputs on which credit had been availed. In respect of the clearances of imported Modvat inputs e.g. O' Ring, Seal, etc. to other factories, HML had cleared these inputs under GP-1 on payment of duty to the extent of original credit taken. In respect of other type of clearances, it appeared that HML had transferred the inputs under ISTVs to PDC just by expunging of the credit taken at the time of receipt of inputs. Subsequently, these items were sold under invoices at enhanced value over and above that of the original GP-1 value, without discharging the duty on the basis of the selling price. Thereby HML appeared to have contravened the provisions of Rule 57F(1)(ii) of Central Excise Rules, 1944. For the period 1989-90 to 1991-92, it appeared that even the credit that was taken at the time of receipt had not been expunged while diverting the inputs to PDC. Even during 1992-93 HML had not expunged Modvat credit in respect of s....
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....hat, in such cases, PDC raised ISTV for transfer of such items from Production Warehouse; that all transfers from production stock to PDC were based on Part No. and description; that certain components were regularly job worked for production purposes; that whenever situation arose, transfer to PDC was resorted to; that all discounts were passed on to buyers entirely; that since the duty was being paid on the job worked items for the first time, the discount given to customers were taken into consideration for arriving at the assessable value; that on normal sale, duty was paid on list price up to 31-3-1994. 7. In his further statement dated 9-5-1994, Hariharan explained that changes in Part Nos. took place to denote the processing done and further process required to finish a part; that when two different Part Nos. were assembled into a new assembly, a separate Part No. was allotted; that all items sold out of PDC had distinctive Part Nos. whether job worked or bought out; that Part Nos. sold for the first time may or may not figure in the latest price list; that such prices were communicated to the customers separately and included in the next printed price list; that tra....
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....edings and therefore, penalty was unjustified. They further submitted that the Commissioner has erred in law in ignoring and not giving effect to the various judgments pronounced by the High Courts and the Hon'ble Supreme Court with regard to this question i.e. no penalty is leviable where the assessees themselves have discharged the duty liability on their own volition prior to initiation of any so called proceedings. 4. The representative appearing on behalf of the appellants contended that they have received the after sale service parts and supplied to their purchasers and they did not take Modvat credit on such receipts, that on few occasions when the Parts Distribution Centre (PDC) did not have stock of certain spares, they indented them from the warehouse; that spares were transferred to PDC in the condition in which they were received after expunging the Modvat credit taken on them. They contended that while selling the parts the appellants kept margins on costs to defray expenses like carrying cost, establishment cost and maintenance of PDC and hence the parts were sold at prices more than the purchase cost. This was only a trading activity and did not involve any m....
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....and the department was kept informed of this lapse vide their letters dated 28-4-1994 and 10-12-1994. They contended that they are a big factory and lot of departments are working and in the process they forgot to reverse the Modvat credit due to inadvertence. These irregularities were detected by the audit during the period 8-12-1993 to 31-3-1994 in respect of the clearances under Rule 57F(2) and as soon as they realised the error, the entire amount of duty of Rs. 54,20,188/- due for the past period was paid before 31-3-1994. In view of the above facts, the representative argued that no mens rea could be alleged against them. They contended that the allegation that sale of these items were without any documentation was incorrect as they were maintaining detailed information recovering each and every item sold. It was their contention that the wholesale price alone should be the basis for payment of duty; that the price on which duty might have been paid in the past could not be the basis and that the normal discount given by the appellants to their wholesale dealer should be allowed while determining duty liability. In the face of these submissions, they made before the Commission....
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....phics penalty was imposed on the appellants therein in spite of the fact that there was bona fide belief that they were not required to pay any duty. On this aspect also there is no dispute as the Govt. of India, as far back as 1978 in the case of Allibhoy Sharufalluy & Co. reported in 1978 (2) E.L.T. (J 145) had taken a decision that printed cartons are dutiable as products of the printing industry. This judgment was reiterated by the High Court of Karnataka in the case of Rollatainers Ltd. v. Another reported in 1984 (18) E.L.T. 217. In the case of Vijay Flexible Containers (Pvt.) Ltd. reported in 1997 (96) E.L.T. 9 (S.C.) the Hon'ble Supreme Court retained its judgment in the case of Rollatainers v. CCE as reported in 1994 (72) E.L.T. 793 by holding that printed cartons are not to be regarded as product of printing industry. This was the position till the issue was declared by the judgment of the Supreme Court in that case. It was also on record that controversy did exist throughout the period the item was also exempted on account of these judgments. The department was fully aware of the judgments in favour of the assessee and manufacturers carrying on such activity of printing,....
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....any duty and the Central Board of Excise and Customs had also ruled that no duty was required to be paid by the assessee. Later on only, the Central Board of Excise and Customs changed their views and held that printed cartons are dutiable. 8. We have carefully considered the submissions made before us by both the sides, gone through the impugned order and perused the evidence available on record. This is a case where the assessee has paid the entire duty of Rs. 54,20,188/- due for the period after the irregularities were detected during the audit from 8-12-1993 to 31-3-1994. The appellants claim that they have paid duty before 31-3-1994 on their own volition whereas the irregularity was detected by the special audit during the period between 8-12-1993 and 31-3-1994, pertaining to the period 1989-90 to 1993-94 up to December, 1993. The main thrust of the arguments of the defence is that inasmuch as they have paid the duty on their own volition as soon as they realised their lapses, no mala fide could be alleged against them and hence penalty under Rule 173Q of the C.E. Rules, 1944 cannot be imposed. We find that the appellants are a big Company where they have a well organi....
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....e statutory duty cast on them. The appellants have pressed into service the majority view expressed in the case of M/s. Graphics v. CCE, Chennai decided on 5-9-2000 in Appeal No. E/2739/98/MAS, in support of their plea for setting aside the penalty imposed on them. The facts in the present case are not pari materia with the facts in the cited case inasmuch as in M/s. Graphic case, as could be seen from the facts mentioned above and as rightly pointed out by the learned DR in his submissions recorded above. Hence, this case law would not support the appellants. The Hon'ble Supreme Court in the case of Zunjarrao Bhikaji Nagarkar v. UOI reported in 1999 (112) E.L.T. 772 (S.C.) decided on 6-8-1999 in para 19 of the order distinguishes in what circumstances penalty is not imposable as was held by them in the case of M/s. Hindustan Steel Ltd. v. State of Orissa. reported in 1978 (2) E.L.T. (J 159) (S.C.) = AIR 1970 SC 253. In that case, the Company had an honest and genuine belief that the Company was not a dealer, whereas in Paragraphs 30, 31, 35 and 36 which are extracted herein below, the Hon'ble Apex Court held that penalty under Rule 173Q is mandatory and is not discretionary, only ....
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.... penalty is discretionary. It is only the amount of penalty which is discretionary. Both things are necessary : (1) goods are liable to confiscation, and (2) person concerned is liable to penalty. We may contrast the provisions of Rule 173Q and Section 11AC with Section 271 of the Income-tax Act, 1961. This Section, prior to amendment in 1988, stood as under : "271. Failure to furnish returns, comply with notices, concealment of income, etc. - (1) If the Income-tax Officer or the Appellate Assistant Commissioner or the Commissioner (Appeals) in the course of any proceedings under this Act is satisfied that any person - (a) has failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has failed to furnish it within the time allowed and in the manner required by sub-section (1), of section 139 or by such notice as the case may be, or (b) has without reasonable cause failed to comply with a notice under sub-section (1) of section 142 or sub-section (2) of Section 143 or fails to com....
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.... shall also be liable to fine". Section 63 IPC provides that where no sum is expressed to which a fine may extend, the amount of fine to which the offender is liable is unlimited, but shall not be excessive. A single Judge of the Patna High Court in Tetar Gope v. Ganauri Gope [AIR 1968 Patna 287] took the view that expression "shall also liable to fine" in Section 325 IPC does not mean that a sentence of fine must be imposed in every case of conviction in that section. He said : "Such an expression has been used in the Penal Code only in connection with those offences where the legislature has provided that a sentence of imprisonment is compulsory. In regard to such offences, the legislature has left a discretion in the Court to impose also a sentence of fine in appropriate cases in addition to the imposition of a sentence of imprisonment which alone is obligatory." 36. We do not think that the view expressed by the Patna High Court is correct as it would appear from the language of the section that sentences of both imprisonment and fine are imperative. It is the extent of fine which has been left to the discretion of the court. In Rajasthan Pharmaceuticals Laboratory, ....
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....my humble opinion, is not the practice of the Tribunal. My persuasion having been failed in this regard, I am compelled to record the order to discern the grounds and to bring out correct facts, so that justice is rendered without fear or favour. 11. This matter had been gone into in great detail at the time of considering the pre-deposit of amounts by the then Bench comprising of then Vice President and Member (Judicial). It is necessary to bring out the contents of the said order so that to bring out an impression that was created even at the time of recording the said order when the appellants were put to terms to pre-deposit only Rs. 10 lakhs in the matter. The findings recorded in Paras 2 to 4 is reproduced herein below :- "2. Shri Ramasubramanian, the learned Consultant for the appellants has pleaded that some omission and mistake had occurred in the factory because of changes of clerical staff and certain goods which should have been cleared on payment or certain goods in respect of which Modvat credit should have been reversed were taken out of the factory without compliance with the law as above. He has pleaded that while the lower authority has held non-pa....
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....er, we must remember that a penalty is imposed on account of the commission of a wrongful act, and plainly it is the law operating on the date on which the wrongful act is committed which determines the penalty. Where penalty is imposed for concealment of particulars of income, it is the law ruling on the date when the act of concealment takes place which is relevant. It is wholly immaterial that the income concealed was to be assessed in relation to an assessment year in the past. He pointed out that the Hon'ble Supreme Court has clearly held that since penalty is imposed on account of the commission of a wrongful act, and it is the law operating on the date on which the wrongful act is committed which determines the penalty. He therefore, pointed out that the Commissioner had the discretion for the purposes of levy of penalty taking into consideration the facts and circumstances of each case relating to non-payment of duty and the conduct and bona fides of the assessee. In this case, he has pleaded that the penalty levied equal to the duty due to be paid could not have been levied. He therefore, prayed that the Collector should have levied only a nominal amount as penalty. ....
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....-1997 for reporting compliance." 12. The basic fact that is required to be brought out in this matter is to find out as to whether there was inadvertence at the time of clearing the said part numbers by the appellants themselves during the period April, 1993 to Sept., 1993 and whether it was noticed by appellants themselves and whether they paid the amounts on their own initially and took up the job of verifying the details of five years prior to 1993-1994 to find out the details as arisen in this regard and deposited the sums. It is the appellants' case that they on their own wrote a letter on 10-12-1993 to the Superintendent of Central Excise, Sriperumbudur, Tiruvallur District, noticing the lapses on their part in clearing certain part numbers without reversing the Modvat credit and depositing the amounts Rs. 1,43,614/- under T.R.6 challan No. 8/MISC/93-94. The triplicate copy of TR.6 challan and worksheet quantifying the amount were enclosed by them. By the said letter, they informed the Superintendent that their production staff had committed a mistake and such clearances were few and far between and it was not any intention to evade duty and that as a measure of cauti....
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....o send such job worked items to the customers. Normally, such items were cleared on payment of duty. However, due to some clerical error some of the items were cleared without reversing the Modvat payment of duty. On their discovery, they deposited the amount of Rs. 1,43,614/- vide T.R.6 challan No. 8/Misc./93-94. They also brought out to the notice of the AC of their letter to Superintendent on 10-12-1993 and pointed out the amounts that was worked out and deposited in T.R.6 challan. The said letter dated 28-4-1994, furnishing the details is reproduced below : The Asstt. Collector of Central Excise Madras X Division, Nelson Manickam Road, Madras.                           28th April, 1994 Dear Sir, We acknowledge receipt of your letter dated 17-3-1994 and wish to state as under :- (1) In the normal course of our manufacturing activity, we send a few inputs to our job workers under Rule 57F(2) for further processing and return. This is an ongoing activity keeping phase with our production schedule. Sometimes due to urgency of....
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.... (3) As regards trading activity in the Parts Distribution Centre (PDC), we wish to make it clear that the same houses bought out components procured on payment of duty on which Modvat credit has not been availed. Inasmuch as Modvat credit is not availed of on these goods, we feel that there is no need to have any specific permission. If however, you feel we need to have a specific permission in this connection, we are agreeable to seek the same. We hope we have clarified the matters raised by you. 14. It is only after the appellants' discovering the discrepancy and depositing the amounts on their own, the department took up the case for special audit. The facts are very clear that the special audit was conducted only after the appellants had on their own discovered and deposited the amounts and it is not as if the special audit had pointed out about the irregularity and that resulted in uncover of evasion of duty as had been held by the Commissioner in his order and concurred by my learned brother. The first paragraph of the Commissioner order proceeded by relating that 'during the course of special audit conducted at HML during the period 8-12-1993 to 31-3-1994....
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.... not be imposed on such lapse. However, the point is as to the quantum of penalty that is required to be fixed in the present matter. 16. My learned brother has not given any thought to this aspect of the matter while confirming the order and no finding has been recorded. My attempts to bring out this point in the discussion was not appreciated and therefore, I am compelled to bring out the entire facts and law in this regard in the matter. This Bench had an occasion to examine the imposition of penalty in a case where the person held a bona fide belief on payment of duty not being paid, as in the case of R.S. Graphics (supra). The Tribunal examined all the judgments on the point and in the light of Apex Court judgment laid down that there has to be an intention to evade duty and contumacious act on the appellants to defraud the exchequer. Mere errors or due to certain irregularities, if payment of duty has escaped the notice of the appellants and on their own depositing the amounts, their bona fides cannot be challenged and burdened with heavy penalties to the extent of equal amount, when especially Revenue has remained quite and silent for years together. It has also been....
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....icious view in the matter at the time of considering the stay application and it is a considered order which is required to be confirmed and upheld at the final stage also, for the reason to be recorded further in the light of law laid down in the following judgments :- (1) In the case HMT Ltd. Watch Factory &. Others v. CCE, Bangalore - 1987 (32) E.L.T. 417A, the allegation of clandestine removal was upheld. The plea that there was negligible excess of goods for non-confiscation of goods and for penalty was also rejected. However, the Tribunal took into consideration the facts and circumstances of the case and held that much lower personal penalty is called for on the assessee having regard to the nature of the offence. There was allegation in the case of evasion of duty of Rs. 20,22,639.67; Rs. 1,41,766.40; Rs. 48,99,812.05; Rs. 794.55; Rs. 4,08,342.66; Rs. 3,94,261.66. There was various quantum of fines besides penalty of Rs. 10 lakhs under Rule 9(2)/173Q and Rs. 5,000/- each on the job worker. The Tribunal reduced the penalty from Rs. 10 lakhs to Rs. 50,000/- on HMT on whom there was such a huge allegation on evasion of duty and the penalty of Rs. 50,000/- on each of th....
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....on that appellants tried to evade Central Excise duty by misrepresentation about the nature of their sales to various customers. The imposition of penalty was also upheld but it was observed that penalty has to be in proportionate to the seriousness of the offence. In that view of the matter, penalty was reduced from Rs. 8 lakhs to Rs. 3.5 lakhs. Penalty under Rule 210 of C.E. Rules was restricted to Rs. 1,000/- only. (5) Ganga Rubber Industries v. CCE, 1989 (39) E.L.T. 650 (T) the Tribunal upheld the allegation of clandestine removal. However, penalty was reduced from Rs. 5,000 to Rs. 2,000 only, keeping the facts and circumstances into consideration, even while upholding that appellants had committed a serious mens rea in not making entries in RGI registers and other registers. (6) In the case of Bhuvaneswari Chemicals v. CCE, 1989 (44) E.L.T. 569 (SRB), the Tribunal upheld the allegation of evasion of duty to the extent of Rs. 1,51,543.36 on clandestine clearances. However, on the aspect of penalty, the Tribunal, held that penalty was disproportionate to the offence committed. A penalty of Rs. 15,000/- was reduced to Rs. 5,000/- only. (7) In the case of V....
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.... with gross unreasonableness. The discretion committed to the authority under Section 112 of the Act is a judicial or qualified discretion and is amenable to correction in the event, among other things, of the unreasonable or patently unjustiflable exercise of the power.' This law of the Andhra Pradesh High Court rendered in G.Y Yadav v. CCE (supra) clearly brings out that merely because Rule 173Q lays down imposition of penalty, it is not proper on the part of authority to exercise his powers unreasonably and unjustifiably. In the present case, no reasons have been given for imposing equal amount of penalty, even while appellants have themselves discovered the error and paid the duty. The law laid down by both the High Courts clearly applies to the facts of the present case. (11) In the case of Remi Tex v. CCE, 1993 (65) E.L.T. 94 (T), the Tribunal upheld the allegation of clandestine removal of clearance of goods but did not agree with the imposition of high penalty and re­duced the same from Rs. 7,000 to Rs. 3,500/-. (12) In the case of Vapi Paper Mills Ltd. v. CCE, 1993 (67) ELT 109 (T), a Bench of three Members upheld the allegation of clandestine remova....
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....n as a ground, the Tribunal in the cited case comprising of three members have held that assessee's conduct to furnish clearance particulars and paid duty when liability was pointed out by department constituted a reasonable ground to set aside penalty imposed in terms of Rules 9(2) and 173Q of C.E. Rules. However, as I have already taken the view that the stay order has already considered the points in great detail and found the some offence committed by the appellants, I restrict the penalty to the one already fixed in the stay order. (17) In the case of CCE, Chandigarh v. Himachal Concrete Corporation, 1996 (82) E.L.T. 120 (T), the Tribunal held that quantum of penalty has to be commensurate with gravity of offence and any mitigating circumstance should be taken into consideration for its rejection. Penalty of Rs. 10,000/- was reduced to Rs. 1,000/- after taking all the mitigating factors. (18) In the case of Prem Pharmaceuticals v. CCE, Indore, 1996 (88) E.L.T. 278 (T), a similar view was expressed by the Bench that quantum of penalty has to be commensurate with the nature of offence and duty involved. Penalty was reduced from Rs. 1 lakh to Rs. 50,000/- imposed ....
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....udgment also supports the appellants' case for reduction of penalty. (26) In the case of Dynamic Engineers &. Anr. v. CCE, Jaipur reported in 2001 (128) E.L.T. 101 (T) = 2001 (42) RLT 979 (CEGAT), the Tribunal upheld the allegation of invocation of larger period on the ground of suppression of facts. However, when it came to penalty under Rule 173Q, the Tribunal took all the factors into consideration and reduced the penalty to Rs. 25,000/- under Rule 173Q. (27) In the case of Triveni Engg. Works v. CCE, New Delhi, 2001 (129) E.L.T. 70 (T) = 2001 (43) E.L.T. 412 (CEGAT-Del.), again allegation of demands under proviso to Section 11A was upheld for five years but however penalty under Rule 173Q was reduced to Rs. 25,000/- from Rs. 1,25,000/- as against duty of Rs. 5,03,167.32. 19. On a survey of all the judgments, for the last twenty years, of the Tribunal it is very clear that the law on penalty under Rule 173Q is clearly laid down and crystallised, that it has to be proportionate to the offence committed and all extenuating circumstances have to be taken into consideration for imposing penalty. The rule crystallised is that where an assessee on his own disco....
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.... (J) POINTS OF DIFFERENCE 22. In view of difference of opinion between the two Members, the matter is referred to the Third Member to consider- (a) as to whether appeal is required to be rejected by confirming the penalty amount, imposed by the Commissioner as held by the Member (Technical) (OR) (b) as to whether the penalty is required to be reduced in the facts and circumstances of the case to Rs. 10,00,000/- (Rupees ten lakhs only) in terms of stay order passed by the Bench and in the light of findings recorded and judgments referred to by Member (Judicial). Sd./-(Jeet Ram Kait)Member (T) Sd./-(S.L. Peeran)Member (J) 23. [Order per : C.N.B. Nair, Member (T)]. - I have perused the records and have heard both sides. 24. The difference of opinion between the two Members is about the quantum of penalty required to be imposed on the appellant. 25. During the hearing of the case, learned Consultant appearing for the assessee took me through the findings of both the Members and facts disclosed by the records. He pointed out that this was a case of a small portion of the duty remaining unpaid on account of human error in the appell....
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....at it is clear from the records that the appellant had removed the goods on which they had taken Modvat credit without issuing any GP-1s, which were the prescribed document at the relevant time for removal of the goods. She submitted that if the appellant had issued the required documents under the excise law, the error would have become evident and non-payment of duty detected. She also pointed out that short payment had remained for long periods, from 1989-90 which also justified the higher penalty. 27. The difference of opinion in the present case is in a very narrow campus, whether penalty should be equal to the amount of duty not paid or Rs. 10 lakhs which is about one fifth of the duty involved. It is settled law that under Rule 173Q (the Rule invoked in the penalty proceedings) penalty is mandatory. However, the amount of penalty is discretionary. Discretion is to be guided by the facts and circumstances of the case. In the present case, only a small portion of the inputs (less than 1%) is in involved in the dispute. The appellants themselves noted that certain inputs which had come back from job workers had got cleared for sale without payment of duty. Upon detectin....