Full Judgment
Officers of Central Excise, who visited the appellants' factory on 16-1-98, found that the scrap of steel generated from the process of machining of roughly forged articles at the job workers' premises during the period 1-4-97 to 12-1-98 had not been returned to the appellants' factory nor cleared on payment of duty in terms of Rule 57F(5). The quantity of scrap so generated was worked out at 243.888 MTs valued at Rs. 9,99,940.80 involving duty of Excise of Rs. 1,49,991.12. This amount of duty has already been deposited by the party in two instalments, on 16-1-98 and 19-1-98. The department, however, framed a case for imposing penalty on the party and accordingly issued a show cause notice to them. This was contested by the party. In adjudication of the dispute, the jurisdictional Dy.
Commissioner of Central Excise imposed a penalty of Rs. 3 lakhs on the party under Rules 9(2), 57-1 and 173Q and under Section 11AC of the Central Excise Act. The Commissioner (Appeals) reduced the quantum of penalty to Rs. 1,49,991 /- under Section 11AC. In the present appeal, the party is aggrieved by the penalty imposed on them.
3. Shri R.P. Singh, Id. consultant for the appellants, submits that the appellants had not suppressed any fact whatsoever before the department so as to attract the provisions of Section 11AC None of the ingredients of Section 11AC has been established against them. He further submits that, right from 1991, the appellants have been paying duty on steel scrap generated from the process of machining, whether in their own factory or in the job workers' premises, according to the formula worked out by the department way back in 1991 through Order-in-Original No. 115/91 of the Additional Collector of Central Excise, Delhi. For the material period involved in the present case also, such payment was made by the appellants, albeit after the C.E. officers' visit to their factory. The consultant, therefore, prays for vacating the penalty.
4. Shri H.C. Verma, Id. JDR, opposes the above prayer and reiterates the findings of the adjudicating and first appellate authorities.
5. Examined the submissions. On a perusal of the show cause notice, I find the following allegation for imposing penalty on the appellants :- "........... and that the said scrap valued atRs. 9,99,940.80 and involving Central Excise duty of Rs. 1,49,991.12 has been cleared by them or their job worker without payment of leviable Central Excise duty at the time & place of removal, in the manner prescribed for this purpose, without the cover of valid invoice and without accounting for the same in their statutory record of Central Excise.
Thus, the party has suppressed the facts from the department with intend to evade payment of Central Excise duty".
Obviously, the above allegation has been raised with reference to Sub-rules (4) and (5) of Rule 57F as this Rule stood during the material period. Sub-rule (4) provided that any input, as such or partially processed, could be sent by the manufacturer of final product to any job worker under cover of a challan for the purpose of refining, reconditioning or carrying out any other operation necessary for the manufacture of final product or for the manufacture of intermediate product necessary for the manufacture of final product and further provided that such processed goods should be returned to the factory of the manufacturer of final product within a period of 60 days or such extended period as the Assistant Commissioner may allow in this behalf.
Sub-rule (5) provided that the waste, if any, arising in the course of any process carried out under Sub-rule (4) in the job worker's premises shall be returned to the factory of the manufacturer of final product.
This sub-rule further provided that no such waste was required to be returned if Excise duty payable thereon was paid. In the instant case, admittedly, the waste and scrap of steel was not returned by the job workers to the appellants' factory and the duty payable thereon has been paid by the appellants according to the department's formula in Jan. 1998. This payment, though, was made after the visit by Central Excise officers to the appellants' factory. The department's allegation is that the appellants suppressed facts with intent to evade payment of duty on the scrap generated at the job worker's premises. The allegation, which appears to be far from categorical in terms, is seemingly to the effect that the scrap in question had been cleared by the appellants or by their job worker without payment of duty, at the time and place of removal, and without the cover of valid invoice and without accountal in their statutory record. This allegation is not exclusively directed against the appellants inasmuch as it involves their job workers as well. A perusal of the provisions of Rule 57F(5), whereunder the duty was paid on the scrap by the appellants, does not disclose any scope for penal action against the principal manufacturer.
It is not in dispute, in this case, that the payment of duty on the scrap was being made for the last one decade by the appellants in accordance with the department's own formula. I further observe that, even if it be assumed that there was any suppression of relevant fact from the department, there is no evidence on record to show, on the appellants' part, any intent to evade payment of duty on the scrap. Any finding of intent to evade payment of duty should be supported by positive evidence. Such a finding is not forth coming from the orders of the lower authorities. In other words, mens rea has not been made out against the appellants so as to call for invocation of the provisions of Section 11AC. I, therefore, set aside the penalty imposed on the appellants. The appeal stands allowed.