Central Excise Appeal No.138 of 2008 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. Date of Decision:-25.2.2010 Commissioner of Central Excise Commissionerate, Jalandhar ...Appellant Versus M/s Bhawani Weaving Factory, Inside Gate Hakiman, Amritsar. ...Respondent CORAM: HON'BLE MR.JUSTICE ASHUTOSH MOHUNTA HON'BLE MR.JUSTICE MEHINDER SINGH SULLAR Present:- Mr.Sukhdev Sharma, Central Govt. Counsel for the appellant. Mr.Jagmohan Bansal, Advocate for the respondent. Mehinder Singh Sullar, J. The compendium of the facts, culminating in the commencement of, relevant for disposal of present appeal filed by the revenue and emanating from the record, is that the respondent-assessee-M/s Bhawani Weaving Factory (for brevity “the assessee”) was engaged in the manufacture of doubling of yarn and the same was exempted from duty prior to 1.4.2003. The factory premises of the assessee was inspected and it (assessee) was found manufacturing the goods without obtaining the Central Excise Registration and cleared the same without payment of duty. Therefore, a show cause notice dated 7.5.2004 (Annexure A1) was issued to the assessee, as to why the amount of duty be not recovered alongwith interest and penalty be not imposed for various contravention of the Central Excise Act, 1944 (for short “the Act”) and Central Excise Rules, 2002 (hereinafter to be referred as “the Rules”). 2. In the wake of show cause notice, the assessee filed the reply, explaining that the process of doubling of yarn was exempted from duty prior to 1.4.2003. However, the exemption was withdrawn with effect from 1.4.2003 and being a small unit, the assessee was not aware about the change in law. The goods were stated to have been cleared, under a bonafide belief that no duty was leviable on the same, in view of the exemption before 1.4.2003. The assessee intimated the inspection staff that they had been getting the yarn on Central Excise Appeal No.138 of 2008 2 modvat invoices and the goods were received on payment of duty. The assessee produced all the relevant record in this respect. The assessee has also denied the liability to pay the penalty and interest in this connection. 3. The explanation put forth by the assessee did not find favour and the Adjudicating Authority ordered the confiscation of 250 Kgs. of 100% Viscos Yarn, imposed penalties of Rs.10,000/- under Rule 25 of the Rules and Rs.2,43,841/- under section 11AC alongwith interest under section 11AB and confirmed the demand amounting to Rs.2,43,841/- under section 11A of the Act, vide impugned order dated 12.8.2005 (Annexure A2). 4. Aggrieved by the order (Annexure A2), the assessee filed the appeal and the Commissioner (Appeals) modified the same in the following manner, vide order dated 31.7.2006 (Annexure A3):- “i) confiscation of 250 MT of Viscose Yarn is upheld; ii) Demand of duty of Rs.1,20,735/- (Rs.2,14,637- Rs.93,902/-) is confirmed. However, the admissibility of Cenvat credit of Rs.93,902/- shall subject to the verification by jurisdictional excise authorities as discussed above; iii)The penalty is reduced Rs.25,000/- (Rupees Twenty Five Thousand only) under section 11 AC of the Act; iv)Penalty imposed under Rule 25 of the Rules is set aside; v) Interest shall also be recoverable under section 11AB of the Act as per rates applicable.” 5. Dissatisfied with the order of Commissioner (Appeals) (Annexure A3), the revenue filed the appeal. The Customs, Excise and Service Tax Appellate Tribunal further modified the order (Annexure A3) and enhanced the penalty from Rs.25000/- to 50,000/-, vide impugned order dated 24.3.2008 (Annexure A4). 6. The revenue still did not feel satisfied with the impugned order (Annexure A4) and filed the present appeal in this Court. 7. The appeal was admitted to consider the following substantial questions of law :- i) Whether the Judgment and order passed by the Ld. CESTAT New Delhi is proper and legal? Central Excise Appeal No.138 of 2008 3 ii) Whether the Ld. CESTAT was right in partially allowing the appeal filed by the Appellant? iii)Whether the penalty under section 11AC of the Central Excise Act, 1944 can be imposed lesser than the amount of duty evaded, especially when the respondent had been indulging in clandestine removal of goods without payment of duty and obtaining the registration? iv)Whether Cenvat Credit is admissible to the Respondent on the past clearance of the goods cleared without payment of duty and without following the procedure as laid down under the Cenvat credit Rules 2002?” 8. Impugning the order (Annexure A4), at the very outset, the learned counsel for the revenue has vehemently argued that it stands proved on record that the assessee has wrongly claimed the cenvat credit, cleared the goods without payment of any duty, violated the provisions of the Act and Rules and so much so, it was not registered under the Act. Therefore, the Adjudicating Authority rightly confirmed the demand of duty and imposed the penalties and interest. Hence, he prayed for acceptance of the appeal. 9. Supporting the impugned order, on the other hand, learned counsel for the assessee has urged that since everything was made clear to the authorities and the indicated goods were exempted from duty prior to 1.4.2003, so, the assessee is not liable to pay any penal duty and interest in this regard and rather Tribunal has enhanced the penalty, so no interference is called for in this respect. 10. Having heard the learned counsel for the parties and having gone through the record, we are of the considered view that no ground for interference in the impugned order is made out. 11. It is not a matter of dispute that the assessee was engaged in the manufacture of doubling of yarn and the same was exempted from duty before 1.4.2003, which was withdrawn on 1.4.2003. It (assessee) is a small scale unit and only 250 Kgs. of 100% Viscos Yarn was lying at its factory premises. The Commissioner (Appeals) considered the facts and circumstances of the case and, thereafter allowed the cenvat credit and reduced the penalty. Central Excise Appeal No.138 of 2008 4 12. Again, it is not a matter of dispute that the assessee was issuing a proper documents in regular course of business. During the course of inspection, when the assessee was confronted with the withdrawal of the exemption, it accepted the duty liability, produced all the relevant documents of duty paid in respect of inputs and requested to allow the cenvat credit. Therefore, under these circumstances, it cannot possibly be said that it is a case of clandestine removal of the goods, particularly when the indicated goods were exempted from any duty prior to 1.4.2003. Meaning thereby, the assessee had the plausible explanation to offer. 13. Moreover, the Tribunal having considered all these relevant facts, has held that the confiscation of the goods was justified and since the assessee was not registered with the Central Excise Department, so it is not a case of non- accountal of goods by registered unit and thus enhanced the penalty from Rs.25000/- to Rs.50,000/-, vide impugned order (Annexure A4). No other legal infirmity has been pointed out in the impugned order by the learned counsel for the revenue. 14. In the light of the aforesaid reasons, it is held that in view of exemption of the indicated goods prior to 1.4.2003, the assessee has a reasonable and bonafide explanation to make and it cannot be termed as a case of clandestine removal of the goods without payment of duty and obtaining registration. Therefore, the authorities below have rightly accepted the claim of the assessee, with regard to cenvat credit. Thus, the questions of law are accordingly decided in favour of the assessee. 15. For the reasons recorded above, this appeal is dismissed, with no order as to costs. (Mehinder Singh Sullar) Judge (Ashutosh Mohunta) Judge 25.2.2010 AS Whether to be referred to reporter? Yes/No